Proponents of zonal pricing, including Greg Jackson of Octopus Energy, argue that without it, customer bills could “skyrocket.” They cite the wasteful practice of paying windfarms to shut down when the grid is overwhelmed with excess power. In contrast, the majority of the industry opposes zonal pricing, claiming it will do nothing to reduce bills and could bring about a postcode lottery for consumers.
The National Energy System Operator (Neso) estimates that £1 billion was spent on constraint payments last year, which equated to 2.4% of consumers’ electricity bills. Proponents of zonal pricing claim that it can reduce costs by encouraging the building of generating capacity closer to demand, increasing overall efficiency, and potentially reducing infrastructure needs.
Opponents to zonal pricing argue that windfarms need to be in windy areas, which are not always near population centers. They are concerned about increased financing costs if zonal pricing is considered a riskier investment. Miliband will have to weigh these concerns when making his decision.
The electric regulatory Ofgem has come out in favor of zonal pricing, but there are concerns about the potential increased cost of capital and its impact on the clean energy transition. The UK must decide on the best path forward for its electricity market.
