Snapshot: United Kingdom

Local flexibility Market to tackle grid bottlenecks

Constraints refer to limitations in the transmission network that lead the system operator to force electricity producers to reduce their output in instances where generation is higher than the network's capacity. In recent years, grid constraints have been notable in the UK, especially between Scotland and England. The costs of these constraints – paid by the National Energy System Operator (NESO) – totalled an estimated USD 1.4 billion (GBP 1.1 billion) during the period January to September 2024 ⁱ .

As part of the strategy to address these rising costs over the short term, NESO has set up the Local Constraint Market (LCM), wherein electricity users and producers in specific areas propose bids to increase or decrease their electricity use or generation at certain times. The market was designed to be open to a wider range of participants than the traditional Balancing Mechanism (BM), NESO's main tool to maintain real-time balance between electricity supply and demand. The BM works on an “intraday” basis by asking generators or consumers to adjust their output every half hour. Only participants formally registered in the BM can take part.

Consumers and producers propose bids to increase or decrease their electricity use and generation to adapt to grid limitations.

In contrast to the Balancing Mechanism, the Local Constraint Market allows participation from flexibility providers that may not be part of the Balancing Mechanism. These include energy suppliers, aggregators and other companies capable of adjusting their electricity use or generation locally. Many of these are also participants in the Capacity Market, which ensures that enough capacity is available at peak times. The LCM is a day-ahead market, and as such it offers the potential to reduce the volume and cost of actions required in the BM the following day.

In 2024, NESO ran a pilot initiative where households in Scotland adjusted the timing of their electricity use to absorb excess wind power generation. Over a 10-day period, 3 megawatts of demand response was contracted. In 2025, NESO continued its work to expand and improve the LCM.

i The largest proportion of constraint costs are payments to fossil gas generators, typically to increase output to meet demand and to replace constrained generation elsewhere. According to some estimations, payments to fossil gas generators accounted for 76% of constraint costs during the period January to September 2024.

Source: See endnote 14 for this section.