Government abandons plans for energy ‘zonal pricing’

The government has abandoned their plans for “zonal pricing,” this has been welcomed as it would have meant those in the south-east of England would have paid more than those in Scotland.

The government has now opted for a single national price which will help make the system “fair, affordable, secure and efficient.”

Ed Miliband the Energy Secretary was considering proposals for zonal pricing that would see different parts of the UK paying different prices.

Milibands proposal could encourage people who are high energy users to relocate to other parts of the UK that has access to windfarms.

Miliband said: “Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets and protect families and businesses for good.

“As we embark on this new era of clean electricity, a reformed system of national pricing is the best way to deliver an electricity system that is fairer, more affordable, and more secure, at less risk to vital investment in clean energy than other alternatives.

“Our package of reforms will protect consumers and secure investment as we drive to deliver our clean power mission through our plan for change.”

The decision was welcomed by the energy regulator saying this brings “certainty and confidence for the future of the energy system”.

Ofgem added they will work with the government “to build a decarbonised system which will bring stability and protect consumers from international volatility and the rollercoaster effect that has on bills. We’ll be setting out our thinking on network charging reforms shortly”.

Joshua Sherrard-Bewhay, ESG analyst, Hargreaves Lansdown said, “Over the past few decades, electricity bills in the UK have gone from the 2nd lowest in the EU to 19% above the current EU average.

“But it is the suggestion zonal will cause business uncertainty, at a time when the UK are in a period of deep investment, that seems to have swung it.This has caused a split between legacy energy companies, like Centrica, and technology-driven providers like Octopus Energy.

“Those companies that are more agile and tech-focussed are best placed adapt to these sorts of proposals.”

Ben Martin, Policy Manager at the BCC, said, “We believe the government has made the right decision in ruling out zonal pricing. Its Clean Power Mission has the right ambition; to ensure that the UK’s electricity system can be decarbonised and made secure for the future.

“But businesses had raised significant concerns about unintended consequences if zonal pricing had been introduced. These included the creation of a postcode lottery, uncertainty for businesses, and the impact it would have on investment in the UK.

“The government has set out clear ambitions to reform the national pricing electricity market which can improve efficiency and bring certainty for investors.

“But speed is of the essence and the priority must be to accelerate grid connectivity. Businesses across our Chamber Network have said this is a significant barrier to growth. Many are holding back on expanding their existing operations in the UK because of the long queues to get connected.

“Firms are also facing some of the highest energy bills in Europe. Our research from last Autumn showed that 37% of businesses said they would find it difficult to pay their energy bills.

“We need government reform to relieve this pressure and stand ready to work with them to deliver an electricity system that is fit for the future.”