This article was edited on 13 March to correct an error. The introduction of zonal pricing in Britain has not been confirmed but has been maintained as an option in the second Review of Electricity Market Arrangements consultation.
Energy secretary Claire Coutinho has announced that a zonal pricing system could be introduced in Britain and confirmed the UK government’s support for new domestic gas power plants.
Today’s announcement (12 March) confirms reports circulating yesterday that the Department for Energy Security and Net Zero (DESNZ) is looking to introduce stronger locational signals in Britain’s wholesale market to incentivise the development of renewable assets around cities so that densely populated areas can access cheaper renewable electricity.
A zonal market splits electricity prices across a few large regions – as illustrated in an example previously produced by management consultancy FTI Consulting and market researcher Energy Systems Catapult – all consumers within a defined zone or region are then charged the same price.
The new scheme would also see electricity generators paid different rates according to the distance between assets and consumers.
According to FTI Consulting and Energy Systems Catapult’s aforementioned report, commissioned by Ofgem, consumer savings could range between £15 billion and £31 billion between 2025 and 2040 if a zonal market mechanism was implemented.
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