Ed Miliband’s plan to make folks within the South pay MORE for electrical energy than Northerners

Green energy bosses are at odds over the future of Britain’s electricity grid as Labour mulls the introduction of zonal pricing.

Under radical reforms being considered by Energy Secretary Ed Miliband, the UK may be split into several different zones with varying electricity prices between them.

This would see the electricity price reflect what it costs to produce and supply energy in each region, rather than what is currently a single countrywide price.

It could mean people who live near wind farms or other clean power projects paying less for electricity than those living in other parts of Britain.

Supporters of a move to zonal pricing, such as Octopus Energy boss Greg Jackson, claim it could save households billions of pounds on their energy bills.

His company recently commissioned research that found Britons could save between £55-74billion by 2050 on electricity bills if the Government adopts zonal pricing.

It is also claimed zonal pricing is a more efficient system and could address regional inequalities in the UK by boosting investment in areas where there is cheaper energy.

Tech giants are putting pressure on ministers to encourage an AI datacentre boom in remote areas of Britian by offering some of the cheapest electricity prices in Europe.

But opponents say zonal pricing would merely create a ‘postcode lottery’ for energy bills, with those in the south facing sharply increased costs.

Dale Vince, the founder of Ecotricity, has warned the ‘complicated’ reforms would be ‘lengthy and difficult to implement’ and create huge uncertainties for investors.

Some of the UK’s largest trade unions and business groups are also urging the Government to rule out a move to zonal pricing.

They argue it would increase costs for heavy industries like carmaking, ceramics and oil refineries.

The possibility of a zonal model is currently being considered as part of the Review of Electrical Market Arrangements, or REMA.

It could see the UK split into between seven and 12 zones and copy a pricing system used in countries such as Italy, Denmark, Norway and Sweden.

Mr Jackson, the chief executive of renewable energy group Octopus Energy, bemoaned the UK’s current ‘crazy’ power system.

He said it had encouraged developers to build huge wind farms in Scotland, despite there not being power cables to transfer the electricity generated to customers. 

He told the Telegraph: ‘If you look at what’s causing our record high energy costs at the moment, we banged a load of renewables on to a system that wasn’t designed for it.

‘As a result, the biggest wind farms in the UK, that should be the most productive, stand idle the vast majority of the time.’

He added: ‘It would be mad to keep building on our current system because you’re building wind farms that are idle more often than they’re productive.

‘The more of them you build, the worse that gets. If you introduce a more sensible market, meaning zonal, then all that infrastructure should be more productive, and costs come down.’

Mr Jackson argued that zonal pricing would encourage developers to build renewable energy infrastructure – such as wind farms and solar farms – closer to where demand is highest.

‘The major benefit of zonal pricing is not that we expect households in different regions to behave differently,’ he continued.

‘It’s things like the interconnectors, the huge grid-scale batteries, the stuff at the backend, it will all behave very differently, saving everyone a fortune.’

Research by FTI Consulting, commissioned by Octopus Energy, found zonal pricing could save consumers an average of £3.7billion a year – equivalent to around £132 per customer.

It is also argued that zonal pricing could mean fewer pylons cluttering up the countryside.

And there could be potential for boosted economic growth in places like Scotland where new energy-intensive industries – such as data centres – could locate and benefit from some of Europe’s cheapest electricity.

The UK’s energy regulator, Ofgem, has also thrown its support behind zonal pricing.

Jonathan Brearley, Ofgem’s chief executive, recently claimed shifting to a zonal model would be better for consumers.

He 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.’

But Mr Vince, who has given more than £5million to Labour and was the party’s biggest corporate donor at the last election, is opposed to such a move.

He questioned why Mr Jackson was ‘evangelical’ about zonal pricing.

‘Part of me thinks that he’s looking for a cause to campaign for and make a name for himself because there are so many better things we can do to bring energy prices down,’ the Ecotricity founder told the newspaper.

He added: ‘Zonal pricing would be one of the most complicated reforms that we could make to our energy system.

‘It would be lengthy and difficult to implement, with it being unlikely that it would be finished before 2030, more likely much later, which would create a huge deal of uncertainty for investors and market participants.’

RenewableUK, the trade associationfor the UK’s renewable energy sector, has also warned against the introduction of zonal pricing.

They claim it would jeopardise investment in clean energy and push electricity prices up in parts of England and Wales – with analysts suggesting the highest increases would be in the south of England.

Jane Cooper, Deputy CEO of RenewableUK, said: ‘It would create on a postcode lottery on bills, which understandably worries communities and businesses which might see higher charges.

‘It’s hard to see how the Government could succeed in delivering clean power by 2030 whilst also introducing this complex and controversial scheme.

‘If ministers choose to move to zonal pricing, they would essentially be asking companies to build wind and solar farms with no idea of what their future market might look like.’

RenewableUK pointed to research by LCP Delta, commissioned by energy firm SSE, that found households and businesses in England and Wales would be hit the hardest under the proposals – especially those on the south coast, where wholesale prices would be highest.

The trade association was among a number of bodies to write to Mr Miliband and Business Secretary Jonathan Reynolds last month to outline their concerns about zonal pricing.

The signatories to the letter also included British Glass, Ceramics UK, the Food & Drink Federation, and UK Steel.

‘The uncertainty caused by the continued deliberation of zonal pricing is undermining both the competitiveness of the UK’s industrial base and the investment required to deliver the Government’s desired growth across all parts of the country,’ the letter stated.

‘We remain of the view that incremental reforms under a Reformed National Market programme, including reforms to transmission network charges and system balancing alongside strategic delivery of energy networks, will deliver clean, secure, and competitive energy for the UK.

‘This approach 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.

‘Therefore, we repeat our call on the Government to rule out zonal pricing and commit to a Reformed National Market programme to support investment and best deliver secure, competitive, low carbon energy to the UK’s industrial heartlands.’

The letter was also backed by the GMB, Unison, Unite and Prospect trade unions.