Plans to reform the electricity market in England, Wales, and Scotland may lead to an additional £3 billion annual increase in household energy bills until the 2040s, as per the government’s top advisor on clean energy.
According to recent studies, the initiative to subdivide the national electricity market into different pricing areas could increase the expenses associated with constructing new wind farms. This is as the government strives for a significant boost in renewable energy production by the end of the decade.
Energy Secretary Ed Miliband has ambitions to double the capacity of onshore wind in Great Britain, triple solar energy production, and quadruple offshore wind farms, aiming to establish a clean energy system by 2030.
However, the uncertainty concerning “postcode electricity pricing” could result in developers of renewable energy seeking higher subsidies to mitigate risks, potentially escalating household energy costs or delaying investments in clean energy.
The UK Energy Research Centre (UKERC) has warned that the upcoming auction for renewable energy subsidy contracts could be £20 per megawatt-hour higher than expected if the zonal market plans proceed.
The center, which is funded by the government, suggests that the increased cost of 15-year contracts, funded through energy bills, could negate any benefits from the scheme.
The report, co-authored by Prof Rob Gross, a UKERC director recently appointed to the government’s clean power 2030 advisory commission, was published quietly before an expected decision on the scheme by the government.
The proposal to introduce a zonal pricing system has been contentious in the industry. It could result in lower market prices in areas with an excess of electricity generation and higher prices in zones with elevated demand and inadequate power supply.
Renewable UK, an organization representing major renewables developers, commissioned an opinion poll that found 58% of the public in England and Wales opposed zonal pricing.
The survey of 3,000 adults revealed that nearly two-thirds viewed the policy as unfair, while only 16% believed it would be fair. Many respondents preferred a government focus on reducing energy costs uniformly across the country.
Proponents of zonal energy markets argue that it could encourage high energy consumers such as data centers and factories to relocate to areas with abundant energy and lower costs, reducing the need for grid infrastructure.
However, clean energy companies investing billions in new wind and solar farms are concerned about the impact a zonal pricing system could have on profitability in remote areas.
Gross emphasized that rather than questioning the benefits of zonal pricing, the real issue is timing. The 2030 clean power target is ambitious and will require synchronized efforts between the government and industry to achieve such high levels of investment in generation and transmission capacity.
Source: https://www.theguardian.com/business/2025/apr/03/zonal-electricity-pricing-plan-could-add-3bn-a-year-to-gb-bills-report-finds
