A shift to zonal power pricing is the best option for Britain partly because of the anticipated boom in AI-driven data centre demand, according to Ofgem chief executive Jonathan Brearley (pictured).
Brearley told Montel’s Plugged In podcast: “With the amount of change that’s in this sector, the idea we leave this market as it is, I don’t think is credible.
“We’ve had a robust debate within Ofgem [and] we have come to the view that zonal pricing is the best way forward.”
The UK government is mulling changes to the national wholesale market price model to one that would split the country into several pricing zones as part of its review of electricity market arrangements.
The concept of zonal pricing has attracted detractors.
In an open letter (published last year) 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.
In the podcast, Brearley explained that adopting zonal pricing would allow industrial consumers, including data centres, to locate close to areas with plenty of wind generation, for example, allowing them to access cheaper electricity.