Jonathan Brearley, chief executive of Ofgem, has endorsed the idea of shifting to a zonal power pricing model in the UK, citing potential growth in AI-driven data centres as one of the main factors driving this change.
Speaking on Montel’s Plugged In podcast, Brearley argued that the existing electricity market structure, which does not reflect regional price differences, is no longer suitable given the ongoing changes in the energy sector. “With the amount of change that’s in this sector, the idea we leave this market as it is, I don’t think is credible,” Brearley said. “We’ve had a robust debate within Ofgem [and] we have come to the view that zonal pricing is the best way forward.”
The UK government is currently reviewing the national wholesale market price model, considering a shift to a system that would divide the country into multiple pricing zones. Proponents argue that this change would allow for more localized pricing based on factors like available renewable energy generation, making it possible for energy-intensive industries, including data centres, to access cheaper electricity by locating near areas with abundant green energy sources.
However, the proposal has faced opposition from industry groups. In an open letter published last year, several organizations, including RenewableUK and Offshore Energies UK, warned that implementing zonal pricing could harm investment in low-carbon energy and increase electricity costs for energy-intensive industries. The letter expressed concerns that the new structure would create risks for clean energy developers and lead to higher capital costs, especially when factoring in the new grid upgrades required.
Despite the pushback, Brearley remained steadfast in his support for the model, emphasizing its potential benefits. “Zonal pricing would allow industrial consumers, including data centres, to locate close to areas with plenty of wind generation, for example, allowing them to access cheaper electricity,” he added.
