Plans to split UK market into energy pricing zones dropped

The Government will not split the UK into different energy pricing zones but instead reform the existing national pricing system.

The Energy Secretary had been considering proposals for zonal pricing that would see different areas of the country pay different rates for their electricity, based on local supply and demand.

But the Government has now decided to retain a single national wholesale price.

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.”

Zonal pricing

Zonal pricing would have seen prices based on how much electricity is available, meaning areas like Wales and Scotland, which generate large amounts of power, would have lower market prices.

But it also means market prices in other parts of the country, such as the South East, would have been higher.

Proponents of the scheme said it would save billions of pounds each year by making the electricity grid more efficient – but critics said it would create a postcode lottery where people face an unfair disparity in bills.

Energy groups welcomed the Government’s decision on Thursday to retain and reform the current system.

British Gas owner Centrica’s chief executive Chris O’Shea said it was a “common sense decision” and that the “theoretical benefits never stacked up against the real-world risks” in potential zonal pricing.

Energy firm SSE said the move provided “much-needed policy clarity” for investors and consumers.

Its chief executive designate Martin Pibworth said: “Zonal pricing would have added risk at a time when the UK needed to accelerate its clean power transition, making energy bills more expensive.”

A spokesperson for energy regulator Ofgem said it welcomes the decision which “brings certainty and confidence for the future of the energy system”.

“We look forward to working with Government, Neso, the industry and consumer groups, to build a decarbonised system which will bring stability and protect consumers from international volatility and the rollercoaster effect that has on bills,” the watchdog said.

“Postcode lottery”

Gareth Stace, director-general at UK Steel, said the industry group had previously warned over zonal pricing creating a “postcode lottery for industrial power prices” which could have penalised existing steel-making sites.

He welcomed the decision but stressed that Government must ensure reformed national pricing “supports rather than hinders” the UK’s industrial competitiveness.

The Government said on Thursday that its package of reforms means it will be taking more control over planning the energy system and deciding where clean energy infrastructure is located.

It said this will help bring down bills by making the system more efficient and reducing the cost of running the electricity network.

The reforms also include plans to map out new energy projects across Britain’s land and sea up to 2050, as well as reviewing the charges that energy generators pay to access the transmission network.

Claire Coutinho, shadow secretary of state for energy security and net zero, criticised the plans which she said will see the UK “lose businesses to more polluting countries with cheaper energy”.

“Ed Miliband promised to cut energy bills by £300, but instead as I warned, bills are going up and it’s increasingly obvious that this promise was a fantasy,” she said.

“Even Downing Street are waking up to the fact that Ed’s net zero zeal is going to impose huge costs on bills and jobs as we lose businesses to more polluting countries with cheaper energy. That’s bad for households, our economy and emissions.”