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The government’s proposal to divide the UK electricity market into zones. Homes and businesses pay different fees depending on how close they are to wind farms and solar farms, which is supported by an influential group of fellow peers.
Baronness Did Harding, who led the UK’s government testing and trace schemes during the Covid pandemic, and former Downing Street Chief Lord Udney Lister, are among the groups that have come out in favor of what is called “zone pricing.”
The Senate Industry and Regulatory Authorities Committee said the proposal should help reduce electricity costs, but warned that reforms need to be managed carefully as it could affect some generators and heavy industries.
“Zone pricing and reformed transmission network fees should be able to better use existing grid capacity and reduce power costs if the transition and its risks are managed well,” the committee said in a report released Wednesday.
Their intervention marks the latest developments in a long-term debate on zone pricing that has split the energy industry.
Advocates argue that it is necessary to create a more efficient market that takes into account the vast numbers of wind turbines being built around the country as part of a plan to reduce emissions.
There is not enough capacity to constantly move electricity to wherever you need it, especially from wind farms in remote areas in Scotland. However, these constraints are not recognized by the UK’s single national wholesale price. This means that wind farms are paid off frequently now.
Supporters say zone pricing will help address this, and by distributing the market across different regions, prices will be resolved according to local supply and demand.
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That means very low electricity prices during windy times in northern Scotland, encouraging people to charge their cars in their homes rather than having to turn off wind farms, for example.
But large energy developers have warned that there is less certainty about electricity prices, as governments are trying to acquire the vast amount of new offshore winds built to achieve clean electricity targets.
Some critics are also concerned about the risk of household “Zip Code Lottery” depending on the extent to which strip-shaped pricing is supplied to retail electricity rates.
The Senate committee also warns that governments are risking they are missing out on targets to decarbonise their electricity systems by 2030 given the pace and size of the new infrastructure they need to build.
A spokesman for the government’s energy security and net zero division said:
“We’re already overhauling our energy systems, building the necessary grids and connecting new power projects to reach our 2030 goals.” This is expected to determine zone pricing in mid-2025.
