The UK government has officially dropped controversial plans to introduce “zonal pricing” for electricity, following two years of consultation and intense debate across the energy sector.
The proposed system, which would have charged households and businesses different electricity rates depending on where they lived, has been abandoned in favour of maintaining a single national pricing model. The decision, confirmed by the Department for Energy Security and Net Zero on Thursday, aims to keep the energy system “fair, affordable, secure and efficient”.
The now-scrapped zonal pricing proposal would have resulted in cheaper electricity for consumers in areas with surplus generation, such as Scotland, where wind farms are frequently curtailed due to low local demand. In contrast, users in London and the south-east, where electricity demand outstrips local supply, risked significantly higher bills.
Energy secretary Ed Miliband said the move to retain national pricing was part of the government’s wider clean energy ambitions.
“Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets,” he said.
“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.”
The debate over zonal pricing had divided the energy industry. Supporters — including Octopus Energy boss Greg Jackson — argued it would incentivise industrial users to move closer to renewable generation hubs, increasing system efficiency and reducing costly curtailments.
However, major energy players including SSE, Scottish Power and RWE lobbied hard against the idea, citing the risk of investor uncertainty and potential disruption to infrastructure planning.
Following Thursday’s decision, SSE welcomed the “much-needed policy clarity”, while Centrica CEO Chris O’Shea said the government had made a “commonsense decision”:
“The theoretical benefits never stacked up against the real-world risks,” O’Shea added.
Rather than using pricing to shape energy usage patterns, the government will now focus on centralised planning of the grid to determine where clean energy infrastructure should be built. This forms part of the wider Plan for Change, aimed at delivering a carbon-free power system by 2030.
The decision effectively ends a long-running and highly technical feud within the sector, in which both sides deployed consultant-led modelling and policy lobbying to support their case.
Read more:
UK government scraps ‘zonal pricing’ for energy in favour of single national rate