7 reasons why zonal energy pricing won’t work
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The UK energy market is at a crossroads. With energy prices a major concern for households and businesses alike, policymakers are searching for solutions.
One idea being considered is zonal pricing – a system that would replace Britain’s wholesale national energy pricing with seven regional zones. This idea is complex, risky, deeply flawed and a distraction from the real solution to lowering energy bills.
Here’s why:
1. A postcode lottery for energy bills
Zonal pricing doesn’t reduce overall energy costs, it simply shifts them around. Some areas might see lower prices, but others – especially urban and less affluent communities – would face steep increases.
Research from Fairer Energy Future found that 85% of UK residents believe zonal pricing is unfair. The idea that energy costs should be determined by geography rather than efficiency and fairness is an unacceptable gamble with people’s livelihoods.
2. Businesses can’t just relocate to cheaper zones
One of the main justifications for zonal pricing is the assumption that businesses will move to areas where energy is cheaper. This is unrealistic. Energy-intensive industries such as steel production are not mobile; UK Steel has explicitly stated that their facilities can’t simply move to new locations on a whim.
Instead of boosting industry, zonal pricing would undermine investment and could accelerate[IF1] deindustrialisation, the industry body warns.
3. It’s bad for economic growth and investment
Far from making the UK’s energy market more competitive, zonal pricing would create instability and uncertainty. Major industry players, ranging from British Glass to the Food & Drink Federation (FDF) and RenewableUK, have warned that zonal pricing would discourage investment.
Price volatility would shake investor confidence and make financing the transition to renewables more expensive.
4. It doesn’t address the real problem: the grid
Proponents of zonal pricing argue that it would reduce curtailment costs — the payments made when there’s too much wind in one area of the country. But instead of solving this issue, zonal pricing would simply shift these costs onto local consumers.
The real fix is investing in a smarter, more connected energy grid. Planned upgrades beyond 2030 already address many of the issues zonal pricing claims to fix, making the policy redundant before it even begins.
5. It could reduce competition in the energy market
Zonal pricing would give unfair advantages to companies that dominate certain regions, leading to reduced competition. Large generators in high-demand zones could exploit pricing power, while smaller suppliers and those operating across multiple zones would face new barriers.
This anti-competitive landscape would ultimately be bad for consumers, giving them fewer choices by stifling competition.
6. A complex and costly disruption
The UK’s energy market is already undergoing major reforms. Implementing zonal pricing would be a massive and disruptive change, introducing complexity that could take years – if not decades – to fully implement.
With such an uncertain and lengthy timeline, there’s no guarantee that the supposed benefits of zonal pricing would materialise at all. Meanwhile, the pressing need to transition to affordable green energy would be sidelined.
7. A distraction from the real solution
The biggest issue in the UK’s energy market isn’t pricing zones, it’s the outdated pricing mechanism that ties electricity prices to the cost of gas. This link means that even cheap renewable power is priced at the cost of expensive fossil fuels.
The real way to bring down bills is to break this link and move to a ‘pay-as-bid’ system. By doing this, we can ensure that the whole UK benefits from its abundance of low-cost renewable energy without creating unfair regional disparities.
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