2026-014 Electricity Pricing Reform Assessment

Description

The Cost Allocation and Recovery Review (CARR) is exploring how alternative pricing arrangements could affect consumer outcomes and wider system costs. A key evidence gap is quantifying the relationship between changes in electricity demand (both overall volumes and within-year load shapes) and total system costs across generation and networks. Pricing reform could plausibly shift demand levels through electrification and behavioural response and could also change when electricity is consumed (e.g., peak reduction or load shifting driven by time-varying price signals, including changes associated with electric vehicle (EV) charging and heat pump operation). These changes may have material impacts on investment needs, operational costs and network reinforcement, which are not captured by simple dispatch-only or spreadsheet approaches. Ofgem therefore requires the support of a supplier to provide a system-model which can be used to inform CARR's assessment of these impacts using consistent, internally coherent modelling output. Ofgem will use the support of the supplier and its model to quantify how plausible changes in domestic electricity demand volumes and load shapes, potentially driven by pricing reform, affect total GB electricity system costs across generation and networks. The intention is to capture whole-system impacts (including capacity and network-related effects) beyond short-run dispatch changes alone.