The government has decided against moving to ‘zonal pricing’ which would have set electricity prices depending on a consumer’s geographic area. It was hoped that the plans would encourage heavy electricity users to relocate to areas that have greater generation, such as Scotland. Doing so was said to help windfarms off the Scottish coast which often must switch off and be paid compensation due to a lack of demand.
‘Zonal Pricing’ had been supported by energy companies such as Octopus Energy as it was argued that the move could save £52bn for consumers over 20 years and save £27bn on grid upgrades in the future. However, opposition from companies such as SSE, Scottish Power and RWE has been building, with arguments centring on that the scheme would create a ‘postcode lottery’ where some areas could pay as much as £300 more in electricity costs.
It seems that the government has now sided with the opposition against the proposals and will instead look for alternative models that will utilise areas with most access to electricity. The alternative plans set to be announced include:
- Strategy Spatial Energy Plan- Set to be published by NESO next year following consultation and will be at the heart of reforms to improve the efficiency of the electricity system under a national pricing model. The plan hopes to speed up development, cut grid connection waiting times and help to reduce costs.
- Transmission Charges- Working with Ofgem the government is to review Transmission Network Use of System Charges (TNUoS) to help provide cheaper incentives for investors to build generation where it is needed. Making charges more predictable for investors is hoped to drive up investment as the current system means that TNUoS varies year by year, causing uncertainty and driving up prices of long-term projects.
- Improving the Efficiency of the Power System- Plans to improve system efficiency hope to save £4bn in constraint payments, caused by historic failure to grid infrastructure, by 2030. The plan also aims to reduce constrain payments through measures such as providing better access to battery storage sites that will help generate flexibility when balancing the grid.