How zonal energy pricing could leave swathes of UK paying more – mapped ...Middle East

Plans to impose new zonal energy pricing in Britain could lead to those living in England paying more than those in Scotland, analysis has suggested.

An energy pricing review that is said to be being considered by Labour could see the UK sub-divided for the purposes of power costs, with some areas in Scotland expected to pay the least.

Under zonal pricing, households and businesses would pay energy bills based on local production and supply costs.

There is already some regional variation in energy pricing – with households in south-west England paying more than those in the East Midlands, for example.

People pay varying amounts because in some parts of the country, the distance between homes is greater. As a result, a larger energy network is required, which raises the costs of delivering power to them.

But new plans being considered could see those in regions that generate more power enjoy lower prices instead.

A model by consultancy firm LCP found that in 10 years’ time, parts of Scotland could enjoy lower wholesale prices as demand is low and there is more infrastructure.

But much of the rest of Britain would see their average wholesale price higher than the national price, which may lead to higher bills for consumers.

The higher-price areas account for 97 per cent of the demand across the country, which means that “nearly all consumers will be paying increased wholesale prices for their energy”, the report found.

There are three main areas expected to see higher prices.

This includes central Scotland where prices are on average £3 per megawatt hour (MWh) higher, England and Wales where prices are £6 per MWh higher and the south coast where prices are £10 per MWh higher when compared to national pricing.

Tony Jordan, of energy consultancy Auxilione, said that the driving force behind the plans was to try to incentivise energy generation.

“The idea is that creating ‘zones’ will help those with generation in their back garden to enjoy lower prices – forcing more regional supply and demand across the nation.

“Currently we have generation in strategic areas and then consumption all over the place – putting a strain on the network.”

He said there were multiple options on the table, but that each would come with costs.

“We either increase capacity to move power across the network in a better way, or put generation in places where it doesn’t currently fully meet demand,” he said.

Scott Byram, of The Energy Shop, said there were questions for policymakers over how the plans might work in practice.

He said: “Renewables are inconsistent, and so when generation drops off – if the wind doesn’t blow, and the sun doesn’t shine – and regions need to import from the broader grid, will they be charged more?

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“If so, what impact will that have on their overall bills? As we can’t predict renewable generation, could this risk those regions paying much more than they currently do?”

Others in the sector have been supportive of the mooted changes.

Octopus Energy said in a policy paper that zonal pricing was needed for “an efficient and reliable net zero power system”.

“Zonal pricing will reflect losses and network congestion in wholesale prices, giving a price which more accurately reflects the cost of using electricity in a particular location,” it said.

And a report by FTI Consulting, on behalf of Octopus Energy, said it estimated that zonal pricing delivered £54.9bn in consumer benefits.

Ofgem is also supportive of the changes.

Speaking on the Martin Lewis Money Show last month, Jonathan Brearley, the chief executive of the energy regulator, said: “The Government are looking at changing the market so people in Scotland would get lower bills when the wind is being generated in Scotland.

“We are quite supportive of that change. So all of us want to see a system where we’re no longer paying wind farms to turn off in the same place where energy charges are high. So we back that.”

It comes as millions of Britons are set to face higher energy prices later this year.

Energy bills will rise by an average of £111 per household a year from April, after the regulator announced its quarterly price cap would rise by 6.4 per cent across England, Wales and Scotland.

Ofgem’s new price cap will see energy bills rise from £1,738 to £1,849 from 1 April for a typical dual fuel household.

A Government spokesperson said: “In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards homegrown power.

“We are considering reforms to Britain’s electricity market arrangements, ensuring that these focus on protecting billpayers and encouraging investment. We will provide an update in due course.”

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