Jonathan Brearley, CEO of the UK’s energy regulator Ofgem has come out in support of shifting the power system to zonal pricing.
Speaking on a recent episode of a renewable energy podcast, Brearley pushed back against the idea of leaving the energy system as is, while acknowledging that the idea of zonal pricing is not universally popular. He said: “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. It’s not a unanimous view but by and large we think that is the best way to create a system that’s adaptable.”
The UK government and the energy regulator are considering switching to the zonal pricing model, which would split the nation into at least six pricing zones. Areas closer to renewable energy resources, such as wind farms, would pay cheaper rates than areas more heavily reliant on gas and other fossil fuel sources.
One proposed advantage of this is that industrial and high energy use customers, such as data centres, can choose to locate themselves close to areas with large amounts of wind generation, allowing them to pay cheaper prices.
Brearley noted that the idea of zonal pricing remains “a big debate” within Ofgem, adding that the decision is “not finalised, but we think it’s the right thing to do”. He added that he is not afraid to make waves within the industry, noting that the UK’s Contracts for Difference (CfD) scheme faced similar pushback before becoming a significant success.
On this, he noted: “People told me at the time this was too disruptive, and this wasn’t going to be good for investment and it drove a huge increase in investment. All my experience suggests that when you set clear goals, when you work with the industry properly, that you can achieve far more than you imagine you can”.
Zonal pricing remains controversial
The idea of introducing zonal pricing remains controversial within the sector. In October last year, 11 trade groups wrote an open letter to secretary of state for energy security and net zero Ed Miliband and Jonathan Reynolds, secretary of state for business and trade, criticising the proposal, which is proposed as part of the Review of Electricity Market Arrangements (REMA).
The letter cautions that zonal pricing could bring significant harm to the UK’s industrial sector, noting that regional pricing “risks penalising the UK’s energy intensive industries with higher electricity costs in globally competitive sectors”.
In response, Tom Williams, a principal at consultancy AFRY has suggested that broad planning reforms could remove the need for zonal pricing under REMA, in a blog previously published on Current±.
