A new analysis suggests the claimed benefits of zonal energy pricing, a potential reform to the UK’s electricity market, may have been overstated and could result in significantly higher costs for consumers.
The research, conducted by energy consultancy Afry and sponsored by energy developers including RWE, SSE, and ScottishPower, casts doubt on the government’s potential move toward zonal pricing, which would set different prices for electricity in various regions. According to the analysis, the touted savings for energy bills may be unrealistic and, in fact, could add up to £9.6 billion to consumers’ costs.
RWE’s UK Country Chair, Tom Glover, emphasized the report’s findings, stating: “This new analysis shows that the claimed energy bill savings from zonal pricing are very uncertain and could have been overstated. There is a potential risk that the change could increase costs of the energy system – this analysis suggests a potential cost of £9.6 billion.”
Glover added, “We have long advocated for stronger locational signals, but zonal pricing is the wrong approach, risking a higher cost energy system, uncertainty for investors, and making it harder to achieve the government’s Clean Power and Growth Missions. We’d urge the Government to rule it out as soon as possible.”
The study critiques a previous analysis conducted by FTI for Octopus Energy, which had modeled energy bill savings under the assumption of sustained high network constraints, without considering ongoing efforts to address these issues. The Afry report asserts that this assumption resulted in inflated benefits from zonal pricing.
Afry’s research found that when using more realistic, up-to-date projections, the benefits from a zonal energy market were significantly reduced, from £25 billion over the period 2030-2050 to £8.9 billion. The report further warned that if the uncertainty generated by the introduction of zonal pricing negatively affects investment by even a single percentage point, it could reverse the projected savings, turning it into a £9.6 billion cost.
The findings add further complexity to the ongoing debate as the UK Government considers the future of energy pricing and its potential impact on consumers and the transition to renewable energy sources.
