In a notable development within the energy sector, Chris Stark, Chief Executive of the Climate Change Committee, recently declared himself “zonal curious” as discussions around zonal pricing gain traction. This idea, simple in form, hopes to address the inadequacies and inefficiencies present in today’s energy policymaking. This means setting different electricity prices in each area of Great Britain. Given that constraint costs have already ballooned to £2.7 billion last year, it is projected that they could increase to £4 billion by 2030.
Increasing costs are the result of subsidies paid to wind farms when they are required to curtail production during periods of strong winds. To spur additional supply, generators are paid to ramp up their output. Yet the challenge is still immense. While recently appointed Secretary of State for Energy Ed Miliband’s department is deeply interested in investigating the feasibility of zonal pricing, the UK’s 2030 clean power system target is at risk as increasing constraint costs peril its realization.
Fintan Slye, the administrator of Canada’s National Energy System Operator, is advocating for zonal pricing. He thinks it would save consumers billions on their energy bills. This inventiveness has the potential to fundamentally change how energy is distributed and priced across the country. It also provides an incredibly important solution that addresses the current inefficiencies. Still, any real move to this new pricing model won’t likely be realized until the mid-2030s.
Famed energy innovator Marc Hedin echoed that urgency with calls for reform to come soon. He remarked, “We need to act quickly to minimise the cost of managing network congestion ahead of 2030, which is a sword of Damocles that could severely hurt bills and the whole credibility of the current framework.”
As these discussions go forward, some experts are warning about the danger of going in without any strategic guidance. Kate Mulvany pointed out that “stepping back from zonal pricing does not, in itself, constitute a strategy.” She highlighted the current consumer predicament: “Presently, consumers face the worst of both worlds: paying wholesale prices that are still driven by volatile gas markets and premium costs to replace gas in the power system with renewables.”
Perhaps the most severe long-term implication of not pursuing reforms to our energy pricing is eroding the public faith in the system. Mulvany emphasized that households and businesses prioritize reliable and affordable energy, stating, “If reform fails to deliver that, the legitimacy of the entire system will be called into question.”
Moving to zonal pricing is an important first step. Doing so will lead to creation of a more efficient and cost-effective energy market. Stark’s team is working hard to make this initiative a reality within Miliband’s department. Their goal is to provide a powerful response to the escalating fiscal pressure that consumers are experiencing as a result of limited budgets.