New modelling from LCP Delta highlights that the costs of managing electricity network bottlenecks can be reduced under the government’s upcoming Reformed National Pricing Delivery Plan by up to 60% without a significant upheaval to the electricity system.
A new report by LCP Delta has highlighted that the implementation of four modelled measures under the upcoming Reformed National Pricing Delivery Plan could reduce 2030 constraint costs by up to £3.8bn. Implementing these measures would make the government’s Clean Power 2030 target more achievable and reduce unabated gas generation in the GB power sector by up to 33%.
Constraint costs reflect the cost of managing bottlenecks on the electricity network when generation and demand can’t be matched locally and a redispatch of generation needs to be undertaken by NESO (the government owned system operator that’s responsible for balancing electricity supply and demand). Typically, this has been an issue where renewable assets are ‘turned down’ because that power can’t be transported to where it is needed and other assets, often unabated gas, are ‘turned up’ to meet demand in a given area.
This report provides a detailed picture of how constraint costs and their drivers are likely to evolve over the next 10 years with increased renewable build out and greater electrification. The Government is due to shortly publish a Reformed National Pricing (RNP) Delivery Plan that will detail how it proposes to innovate in the power market to lower constraint payments and lower bills for consumers.
NESO have projected constraint costs could reach £7.4bn by 2030, rising from £1.8bn in 2025. LCP Delta modelling of constraint costs under the same scenario, but updated to align with latest NESO assumptions, projects the 2030 constraint cost at a lower level at £6.1bn.
The report highlights that a combination of four key measures implemented under RNP could reduce the 2030 constraint cost by up to £3.8bn, a decrease of 60%. The modelled RNP measures would bring 2030 constraint costs down to £2.3bn and mean the costs into the early 2030s would stay at a similar level to today, despite huge build outs of large-scale renewables planned over the next 5 years. It would also reduce unabated gas generation in the GB power sector by up to 33% (13TWh) and reduce power sector emissions by up to 29% (4MTCO2). Other measures in the RNP Delivery Plan could extend these savings further.
The measures looked at in the report are:
1. Accelerated network upgrades in East Anglia – Bringing forward key East Anglia network upgrades from 2031 to 2030 leads to the highest single-year reduction. LCP Delta analysis suggests this would save £2.8bn in 2030 from lower constraints. This highlights the importance of building the network on time and in line with regional renewable capacity increases
2. Improvements to existing network carrying capacity – Increased network availability through improved management of network outages and other measures leads to consistently high savings to 2035 with a £1.1bn reduction in 2030 constraint costs. This shows that how the current network capacity is utilised will be vital in managing constraints
3. Increased participation of smaller assets in the Balancing Market (BM) – Regulation and policy to incentivise participation of smaller embedded assets in the BM, such as small scale renewables and demand side assets, can reduce constraint costs by up to £0.5bn.
4. Forward contracting of flexible capacity outside the BM – Forward contracting of capacity to deal with the constraints through a constraints management market outside the BM could be an option to reduce the price of ‘turn-up’ actions in the BM and save up to £0.4bn in constraint costs.
5. Improved interconnector redispatch – The way in which interconnector flows are currently traded leads to inefficiencies in interconnector flows which can exacerbate system constraints. While complex to implement, improving the redispatch of interconnector flows can reduce 2030 costs by up to £0.9bn. Due to the difficulties in implementation, this reform is not included in the combined impact but, alongside other measures, has the potential to reduce constraint costs even further.
Chris Matson, Partner at LCP Delta, commented: “Renewables will form the backbone of a clean energy system in Great Britain, but achieving this requires a much stronger focus on network infrastructure. Maximising the potential of our natural resources means siting renewable projects in locations that do not always align with centres of demand. As a result, we must build a grid that can adapt to this changing landscape, supported by the right incentives for network investment and clear locational signals.
This analysis underscores both the scale of network constraints and the need for more effective engagement on how they are managed. While there has been significant political and industry focus on large-scale market reforms, including proposals such as locational pricing, our findings suggest that substantial reductions in constraint costs can be achieved through targeted, shorter-term operational reforms, rather than through a major overhaul of electricity market policy.
Cathrin Stadler, Director – Head of Energy Trading Regulation at Centrica, added, “In a debate too often clouded by complexity, this study shows that high constraint costs aren’t a technical inevitability but a challenge we can fix – and with the right reforms, we can unlock a cleaner, cheaper and more resilient energy system for consumers.”
Josh Buckland, Director of Strategy and Policy for EDF, commented, “Constraints are an important topic, where action is needed quickly to improve transparency and reduce costs for consumers. The study makes a positive contribution to better informing debate on this issue, as DESNZ, NESO and Ofgem take forward their work in this area as part of the Reformed National Pricing programme.”
The report has been supported by 11 other industry organisations: BayWa r.e. UK, Centrica, CWP Energy, eDF, Fred. Olsen Renewables, OnPath, res, RWE, Schroders Greencoat, ScottishPower Renewables, SSE.
