UK trade associations representing renewables and manufacturing sectors have criticised zonal pricing being examined under the Review of Electricity Market Arrangements (REMA).
The REMA is considering the future of the electricity market in Great Britain.
In an open letter to Ed Miliband, Secretary of State for Energy Security and Net Zero and Jonathan Reynolds, Secretary of State for Business and Trade, groups including RenewableUK, Offshore Energies UK, Scottish Renewables, Solar Energy UK and UK Steel stated that splitting GB into several regional price zones would “undermine investment in low carbon energy and risks penalising the UK’s energy intensive industries with higher electricity costs in global sectors.
Zonal pricing would “create new risks for clean energy developers, which would lead to increases in the cost of capital”, stated the open letter particularly when factoring in the new grid upgrades that are being planned.
For industrial demand users, like the steel, glass, and ceramics industries, zonal pricing risks increasing electricity prices in the zones they operate in and undercutting the recent policies to bring industrial electricity prices closer to those in Europe, the letter said.
“As parts of industry are decarbonising by electrifying, zonal pricing risks undermining these efforts and could increase the risk of deindustrialisation”.
The Association for Decentralised Energy (ADE) has, meanwhile, voiced strong support for the introduction of zonal pricing in the UK energy market, which it states is “essential for driving down consumer bills, accelerating decarbonisation, and ensuring a secure, flexible energy system for the future”.
Caroline Bragg, CEO of the ADE, said: “As we decarbonise, this is the practical, forward-thinking reform that will benefit both consumers and the UK’s industrial strategy.”
“Studies show that zonal pricing could deliver up to £59bn in consumer savings by 2050.
“After years of debate, no credible alternative has emerged.”
The trade association stated that without “bold reforms” like zonal pricing, the UK risks undermining its clean energy targets and forcing consumers to shoulder higher costs from inefficient system management.
It stated: “The current system of building renewable generation and then paying it to switch off has seen costs spiral over the last few years, costs that are continuing to increase … zonal pricing will encourage investment in renewable energy where it’s needed most, driving the creation of clean energy infrastructure and reducing the need for costly grid upgrades.
The ADE has called on the government to make the decision to implement zonal pricing to “secure the UK’s clean energy future, protect consumers from rising bills, and support investment in decarbonisation”.
The bodies said the Government should “rule out” zonal pricing and “commit to a Reformed National Market (RNM) programme” in the Autumn that will support investment and “best deliver secure, competitive, low carbon energy” to the UK’s industrial energy users.
Incremental reforms under an RNM programme, including reforms to transmission network charges and system balancing alongside strategic buildout of energy networks, will “best support” clean growth opportunities for the UK’s existing, and future, energy intensive industries whose locations are determined by a range of factors delivered by existing locations, most notably its workforce, stated the open letter.
Bragg said: “Incremental reforms, such as network charging changes, fall short of addressing the UK’s urgent need for a cheaper, more efficient system that supports renewables and delivers energy security.”