The UK government is exploring options for a major reform of the electricity market, with zonal pricing emerging as a potential model. Australia, Italy and Sweden have already implemented this as a permanent fixture. Due to the high levels of renewable market generation in Scotland, it has the potential to significantly cut consumer electricity bills. Yet, even as this proposal has raised a lot of exciting debate, some industry leaders justifiably raised alarms about the potential downside.
Zonal pricing would mean charging more or less for electricity depending on the region, reflecting how much it costs to generate power in that area. In Scotland, where the production of renewable energy is strong, this would result in a significant reduction of electricity costs. Greg Jackson, CEO of Octopus Energy, supports this reform, arguing that basing prices on local generation would keep costs low in areas like Scotland.
“What we’re saying is, let’s build it, let’s get all the economic growth for the UK, let’s get gas away from the electricity system, let’s bring down people’s bills and then look at whether we need a zonal pricing system,” – Greg Jackson
As it currently stands, the UK’s wholesale electricity price is uniform across the whole country. It is determined by the marginal cost of the most costly unit produced at any given time. Critics of the current system — Mr. Jackson among them — call it cumbersome and unwieldy and push for a plan that brings decision making closer to the ground.
Opposition to zonal pricing isn’t limited to riders on the subway. SSE claims that it would be the basis for a “postcode lottery,” risking higher energy bills for consumers in some areas compared to others. They maintain that the proposal’s logic doesn’t hold water. They say that the multi-billion pound infrastructure projects promised for Scotland could be moved elsewhere in the UK if they are forced to implement zonal pricing.
Scottish Power has taken on the idea of zonal pricing. They emphasize the importance of building data centers close to large population centers to ensure optimal connectivity and response times. This belief further underscores the difficulty of melding the regional “price to paradise” mentality with the reality of national infrastructure needs.
Proponents such as Mr. Jackson are true believers in the power that reforming the market will have. They say it will increase distribution energy efficiency, and thus save all ratepayers money. The UK government is expected to publish its review of electricity market arrangements over the summer, which may include considerations for zonal pricing.
The debate underscores a broader challenge: how to balance regional advantages in renewable energy production with equitable pricing across the UK. Mr. Anderson stresses that the ultimate goal should be to reduce electricity bills nationwide, rather than focusing solely on areas rich in renewables.