Zonal Pricing Could Slash Industrial Energy Bills, Report Finds

A new report by FTI Consulting for Octopus Energy advocates for zonal pricing in the UK electricity market, which would charge businesses based on local supply and demand to reduce industrial energy bills without shifting costs to households. This reform could deliver billions in savings for manufacturers and data centres, address high energy prices that hinder investment, and gain backing from policymakers and industry leaders for its economic and environmental benefits.

A new report has revealed an opportunity for Britain's struggling industrial sector to dramatically cut electricity costs, without shifting the burden onto households or small businesses.

The analysis, commissioned by Octopus Energy and conducted by FTI Consulting, champions a move to zonal pricing, a smarter system where electricity is charged based on regional demand and supply. The impact could be transformative, by making the energy market more efficient, zonal pricing could save manufacturers and data centres billions of pounds.

At present, UK industrial energy costs are among the highest in the world, putting pressure on jobs and discouraging investment. 

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.”

A Broken System

The government’s current approach offers targeted relief to around 370 energy-intensive firms. But that support is funded by an extra £410 million on everyone else’s energy bills, a figure projected to soar by 2030. It’s undoubtedly a short-term solution.

Zonal pricing, by contrast, would reduce costs across the board by overhauling how prices are set. For firms currently outside the Supercharger scheme, the savings could be significant: £12–£16 per megawatt-hour by 2030, with some businesses in northern Scotland potentially saving up to £29 per megawatt-hour.

The Industrial Impact

These figures translate into real-world relief. For example, a chemical plant in Hull could cut £4 million from its annual energy bill. A Scottish glassworks might save £19 million. A paper mill in North Wales could gain over £14.5 million a year.

Even mid-sized companies stand to benefit. A ceramics facility in Stoke could save £630,000 annually, while a car manufacturer in the North East might see £5–£6 million in yearly savings. Perhaps most strikingly, a steel plant in Scunthorpe switching to electric arc furnaces could reduce its electricity bill by a fifth, saving up to £15 million.

The Case for Change Is Growing

Octopus Energy is urging policymakers to back zonal pricing as a path to cleaner, more efficient energy that doesn’t pit industrial relief against household hardship. The idea is gaining traction, with support from the House of Lords Industry and Regulators Committee, Ofgem, NESO, Citizens Advice, and others.

Jason Mann of FTI Consulting agreed, “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.”

The tech sector, too, is feeling the pinch. As Matthew Evans of techUK pointed out, data centres, which underpin AI, cloud computing, and the wider digital economy, are paying disproportionately high energy costs despite their heavy investment in renewables.

He argued that, “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.”  

An Energy System That Works for Everyone

Zonal pricing isn’t just about helping a big industry. It’s about creating a fairer, smarter energy system that supports economic growth while accelerating the transition to clean power. By aligning prices more closely with local supply and demand, British companies can cut their energy costs without asking households to foot the bill.