- In 2021 Great Britain paid roughly £800 million to switch wind farms off and gas plants on — not because the wind wasn’t blowing, but because the wires couldn’t move the power. Congestion cost has run from £170m in 2010 to ~£1.4bn in 2022–23, heading for £3bn by decade’s end.
- Locational pricing, whether zonal or nodal, makes geography visible in the price: where the grid is constrained, power is worth less to inject and costs more to consume.
- Australia is not debating full LMP, but it already prices location — through Marginal Loss Factors, REZ congestion and curtailment — and every reform proposal points to more locational exposure.
- For a site at the end of a long feeder, delivered cost = wholesale + losses + network charges (TUoS/DUoS) + socialised congestion. Every component is rising, and every one is higher the further you sit from the grid’s strong core.
- Onsite solar and storage can reduce exposure to network losses, congestion and some network charges, depending on the connection and tariff. Onsite supply therefore reduces a remote site’s exposure to location-based network costs.
A flat grid-price assumption is increasingly wrong
One assumption does more damage in early-stage remote-energy models than any other: that the delivered cost of grid power stays roughly flat. It is rarely challenged and increasingly wrong. For the mines, remote communities and weak-grid industrial sites Heliovulcan screens, the trajectory of delivered energy cost is often more decisive than the headline wholesale price everyone quotes.
Electricity market reform is moving towards network prices that reflect more of the cost of serving each location. A remote site is on the expensive side of that change.
The price difference that changes the project case
Britain spent about £800 million in 2021 paying wind farms to switch off and gas plants to switch on in their place. Total congestion cost there has risen roughly twenty-fold in twenty years, paid by consumers. Markets with substantial renewable generation and limited transmission face the same pressure, including Australia.
What locational pricing is
Most markets were designed around a handful of big, dispatchable stations turned up and down to follow demand. A single national price, or in the NEM a single regional price, quotes one wholesale number as if power could move from a remote wind farm to a distant factory at no cost. The cost of moving it, and of not being able to move it, is shared across every consumer’s bill instead of being charged where it arises.
Locational pricing makes that geography visible, in two strengths:
- Zonal pricing splits a country into a handful of price zones (Norway, Sweden, Italy). This is what Britain is debating.
- Nodal pricing / LMP prices electricity at every node — hundreds or thousands of prices (ERCOT and most US markets). The price at each point reflects exactly what it costs to deliver one more unit of power there, including losses and congestion.
The principle is identical at both strengths: where the grid is constrained, power is worth less to inject and costs more to consume.
Two signals, and which one reaches a developer
The debate involves two signals. The operational signal tells assets when to run. The investment signal tells investors where to build a data centre, electrolyser, factory or battery. In a locational market the investment signal is a visible price that a project can hedge, as investors do in ERCOT, Norway and Sweden. In a national or regional market the signal arrives through network charges instead, which are harder to predict and cannot be hedged.
Australia already prices location, short of full nodal pricing
| British concept | Closest Australian mechanism | Transfers directly? |
|---|---|---|
| Zonal pricing proposal | No equivalent; the NEM uses one price per region | No. The proposal is not before Australian market bodies. |
| Constraint payments to switch generation off | Curtailment and negative prices in export-constrained regions | Partly. The mechanism differs, and the British cost figures do not apply here. |
| Locational value of losses | Marginal loss factors | Yes in principle. Australia already discounts output for losses to the regional reference node. |
| Network charges that vary by location | Transmission and distribution use-of-system charges, and transmission-access reform proposals | Partly. The direction is similar; the design is not settled. |
British figures quoted in this article describe the British market. They are not Australian benchmarks.
Australia has partial locational cost signals already, and they fall hardest on remote sites:
- Marginal Loss Factors already penalise remote generation. The NEM discounts a generator’s output for the losses in shipping it to the regional reference node. Remote solar and wind have repeatedly seen MLFs cut effective revenue after financial close — a locational price signal in all but name, landing hardest at the grid edge.
- Congestion is the NEM’s version of the same problem. Renewable Energy Zones are being built faster than the transmission to evacuate them; curtailment and negative prices are rising in export-constrained regions.
- The reform direction is more locational exposure, not less — through transmission-access reform, congestion-management proposals and REZ-specific arrangements. Whichever mechanism wins, it prices geography more sharply than today’s single regional price.
For a consumer at the end of a long feeder — a mine, a remote community, a weak-network industrial site — delivered cost is wholesale plus losses plus network charges plus the socialised cost of all that congestion. Every component is rising, and every one is higher the further you are from the grid’s strong core.
The conclusion for remote and industrial users
Australia already charges for location through loss factors, network charges and constraint costs, and current reform proposals would strengthen that. For an owner or developer at the edge of the network, three points follow:
- Do not assume a flat, cheap delivered cost of grid power. Model a range for the real cost of imported energy, including higher network and congestion charges.
- Behind-the-meter generation and storage rise in value with every step toward locational pricing. Solar and storage generated and consumed on site can reduce exposure to network losses, congestion and some network charges, depending on the connection and tariff. Those are the components locational reform is designed to make more visible.
- Onsite supply is a way to reduce exposure to location-dependent network costs. If network prices reflect more of the cost of serving a remote site, a largely self-supplied hybrid system becomes the lower-risk position. The question moves from whether a grid connection is available to how much of the load should be supplied on site.
Add location exposure before comparing supply options
Drawn from Sarah Honan (Head of Policy, Association for Decentralised Energy) in conversation with Modo Energy’s “The Transmission” (Sept 2024). The congestion-cost, £800m constraint, £24bn benefits-case and flexibility figures are from that GB-focused discussion. The Australian application (MLFs, REZ congestion, delivered-cost stack) and the remote self-sufficiency conclusion are independent analysis, not statements from the guest. Analysis and commentary for discussion — not investment, engineering or regulatory advice.