The UK government is expected to drop plans to introduce zonal pricing in the electricity market, a move that would maintain the current national pricing system and bring clarity for renewable energy investors, industry sources said.
Energy Secretary Ed Miliband is expected to outline the decision later this week, according to people familiar with the matter. The move would end years of policy uncertainty and is likely to be welcomed by most large-scale renewables developers who had raised concerns over the potential impact of zonal pricing on investment decisions.
The decision is viewed by the sector as essential to ensuring a successful Allocation Round 7 (AR7) of the Contracts for Difference (CfD) auction scheme later this year, which supports new low-carbon electricity generation.
“This will bring an end to years of uncertainty and confirm the country is sticking with the current national approach to energy,” one industry source said.
Zonal pricing, which would have introduced different electricity prices based on regional supply and demand dynamics, was criticised by some developers who warned it could deter investment in new projects due to pricing volatility.
A report published earlier this year by consultancy Afry, and sponsored by RWE, SSE, ScottishPower, and other investors, found that shifting to zonal pricing could add as much as £9.6 billion in costs to consumers if it discouraged investment in new generation. The report also suggested that the benefits of lower energy bills had been overestimated.
On the other side of the debate, companies such as Octopus Energy supported the move, citing research showing “overwhelming support” for zonal pricing among Scottish businesses.
The Department for Energy Security and Net Zero (DESNZ) declined to confirm the reports. “We don’t comment on speculation,” a department spokesperson said.
