Government Scraps Zonal Pricing Plans, Shifts Focus to Overhaul Wholesale Market

The UK Government has officially scrapped its plans to roll out zonal electricity pricing, opting instead to maintain a single national wholesale price. The move, confirmed today (10 July), comes after three years of consultation and debate. Rather than splitting the country into regions with varying electricity costs based on their proximity to generation sites, the Government will now push ahead with reforms designed to make the market more efficient and affordable for everyone.

Energy Secretary Ed Miliband said: “Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets and protect families and businesses for good.

“As we embark on this new era of clean electricity, a reformed system of national pricing is the best way to deliver an electricity system that is fairer, more affordable, and more secure, at less risk to vital investment in clean energy than other alternatives.”

According to the Department for Energy Security and Net Zero, the national pricing model will facilitate the planning of new generation projects while helping to reduce household bills. At the same time, the Government has pledged to take a more active role in planning and approving clean energy infrastructure. The idea is to ensure projects are built in the right locations and that the grid becomes more streamlined and future-proof.

A new Strategic Spatial Energy Plan is in development and is expected to be published by the National Energy System Operator (NESO) next year. The plan will look ahead to 2050 and outline how clean energy projects will be distributed across the country and its surrounding coastal areas. It will also take a hard look at the current system of Transmission Network Use of System charges. These charges, which are based on how much a generator relies on the grid to move electricity around the country, are being reviewed to encourage smarter investment in renewables.

NESO’s research suggests that if grid upgrades are implemented on time, the UK could avoid as much as £ 4 billion in constraint payments by 2030. That’s money currently paid to energy companies when the grid can’t handle the electricity they produce. With that in mind, NESO plans to launch a consultation later this year to identify ways to reduce these costs and will continue working with the industry to explore new solutions.

Not everyone is thrilled with the decision to abandon zonal pricing. Supporters, such as Octopus Energy, argue that a regional pricing system could help reduce wind curtailment and improve overall system efficiency. They also believe it could limit the need for building more expensive grid infrastructure.

Still, implementing zonal pricing before 2030 was always going to be a stretch. Analysts at Cornwall Insight noted in May that the necessary legislative and regulatory changes would take years to implement. Consultancy firm Stonehaven echoed those concerns, telling Utility Week that the delay in making a decision has pushed the window of opportunity too far.

Meanwhile, renewable energy developers have been calling for clarity, particularly with the next round of the Contracts for Difference scheme set to open for bids in August. For now, the Government has made its choice, and the industry will have to adjust accordingly.