New Research Suggests Zonal Pricing Could Save £27 Billion in Grid Upgrade Costs

Image Credit: National Grid

Electricity costs for vehicle manufacturers in the UK could be significantly reduced without increasing the financial burden on households or small businesses. That’s the key finding from a new report by FTI Consulting, commissioned by Octopus Energy.

The study examines the potential impact of introducing zonal pricing, a system that adjusts electricity rates based on local demand and supply. According to the analysis, this approach could reduce industrial electricity costs in the North East of England by nearly £6 million.

This would be a much-needed boost for the UK’s vehicle manufacturing industry, which currently faces some of the highest energy prices in the world. FTI’s findings add weight to ongoing calls for structural reforms in how industrial energy is priced.

The manufacturing group Make UK has recently underscored the pressure that high energy costs are placing on businesses. While the government’s existing energy subsidy has been beneficial to approximately 370 energy-intensive firms, the flip side is that it adds a substantial charge to everyone else’s energy bills. This levy now adds roughly £410 million a year to consumer costs, a figure projected to more than double by the 2030s.

Zonal pricing could change that. By making the electricity system more efficient, the model could save non-subsidised manufacturers an average of £12 to £16 per megawatt-hour by 2030. In some areas, like the North of Scotland, savings could reach as high as £29 per megawatt-hour.

Octopus Energy is now urging the government to rethink how energy is priced, advocating for a model that cuts costs at the root rather than passing them down to consumers.

The momentum behind the idea is growing. The House of Lords Industry and Regulators Committee has joined a growing list of supporters that includes Ofgem, NESO, Citizens Advice, and other leading voices in the energy sector.

Greg Jackson, CEO and Founder of Octopus Energy Group, said: 

Britain’s manufacturers are being crushed by electricity costs, among the highest in the world. 

“We’ve now got clear evidence that zonal pricing will cut these costs at the source without pushing the burden onto households. 

“Instead of robbing Peter to pay Paul, zonal pricing can slash bills for heavy industry and households whilst accelerating our path to clean energy.”

Jason Mann, Senior Managing Director at FTI Consulting, said: 

“Our work for Octopus on zonal pricing (and previously for Ofgem) shows that zonal pricing could materially benefit all British consumers. This is true for households as well as larger industrial consumers. 

“Our most recent study indicates that with minor changes to the special arrangements that currently apply, all of the country’s very largest manufacturing plants could also benefit from lower electricity prices were zonal pricing to be implemented.”

Matthew Evans, Chief Operations Officer, techUK, said: 

“The UK’s digital economy cannot remain globally competitive while data centres – core to AI, cloud computing, and high-performance technologies – face some of the highest industrial energy costs in the world. 

Unlike other energy-intensive sectors, data centres bear 100% of network, policy, and balancing charges despite leading in renewable energy investment. 

“If we want Britain to be a tech maker, not just a tech taker, we need urgent reform in energy pricing structures, including zonal pricing, that recognise the strategic value of digital infrastructure and remove cost-based barriers to growth.”