With zonal pricing, we are all arguing over the scraps from the table

The National

28-07-2025

AN institutional understanding of the business enterprise suggests that zonal pricing would not have a significant impact on Scotland's economy. With zonal pricing, we are all arguing over the scraps from the table.
Searching on The National site for articles on zonal pricing in July reveals it has been a "hot topic" for commentators.
Kenny MacAskill, Pat Kane, Ross Greer, Wee Ginger Dug and Lesley Riddoch have all expressed their thoughts on the Labour Government's decision to abandon the review on zonal pricing (where prices are set for different geographic zones, reflecting the average cost of supplying electricity within each zone). The Scottish Government has not escaped the criticism, despite energy being a reserved matter. It is also clearly a topic that has resonated with the public.
An excellent letter to The National also appears in the search.
Ian's letter includes this paragraph, 'The SNP leadership appear to be ignorant of the benefits that zonal pricing would bring, not just to domestic users, but in helping Scotland rebuild an industrial capability. This, with zonal pricing, could be implemented now under devolution.'
However, the SNP leadership are very well briefed on the impact of zonal pricing. The problem is with who is doing the briefing.
READ MORE: 'Not good enough': Octopus Energy boss slams UK zonal pricing snub
In March, acting Cabinet Secretary for Net Zero and Energy, Gillian Martin, was questioned in the Scottish Parliament about the impact of zonal pricing. Her response captured a (perceived) dilemma: 'Modelling indicates that Scotland's consumers could potentially benefit from lower wholesale electricity prices. However, we are also aware of modelling which suggests potentially negative impacts for Scotland's renewables industry.'
Let's be clear: by negative impacts, Martin means lower profits for renewable generators in Scotland, and profits for the industry, of course, are linked to higher prices paid by consumers.
Later that month, I interviewed Professor Brett Christophers, a leading authority on solar and wind renewables. The interview was wide-ranging, and we covered zonal pricing, 'Government is perennially caught between a rock and a hard place. It wants electricity prices to be relatively low to keep household prices down, but it also wants them to be high enough to encourage investment from developers."
This was some realpolitik from Professor Christophers, which in part explains why John Swinney and his administration have, as Lesley says, 'sat on the fence'.
The 'negative impacts for Scotland's renewables industry'
The modelling on the 'negative impacts for Scotland's renewables industry', one must assume, came from the renewables industry. Again, without taking too much of a leap, the modelling would have been based on a neoclassical framework that 'proved' that when the price of electricity they receive falls (owing to zonal pricing), renewable suppliers will move somewhere else where they are paid more. This is the danger of accepting neoclassical modelling as gospel — it reduces complex investment decisions to a single variable: price.
That private renewable companies could up sticks and head south is at the heart of the concerns for the Scottish government, but there is a very interesting side-bar to this too. As many of the owners of renewable energy companies are foreign, this will also result in less foreign direct investment (FDI). If a trade body or representatives of any industry want to freak out the SNP administration, all they need to do is hint that FDI (the cherry on top of the SNP's economic success for Scotland) is in doubt. Add to that the fact that there will be fewer jobs in a sector that the Scottish Government wants to drive our economy now, and into independence, and you have an argument that is likely to resonate with the SNP.
The result? A pliant, malleable government. Too scared to scare the horses. This is clearly what has happened behind the scenes. The public might protest, but private capital shouts louder. Episodes like this continue to show that a neoliberal economic framework underpins this administration and that every month it causes more damage.
An alternative economic view
This sorry story hints at who has the ear of this administration. However, it also highlights how "conventional economic wisdom" is used to further the interests of capital.
Many people say they want an administration that listens to and takes advice from economists, all of whom follow the same economic logic. However, what we really need is an administration that listens to alternative economic views and will call a private company or sector's bluff. I agree with all of the contributions. This would have been an ideal time for the administration to take this step and to, well, step up for Scottish consumers. Here is the argument that supports this claim.
According to mainstream economics, price is the deciding factor in every decision made by an economic actor (consumer or supplier). These generalisations are helpful only in theory. However, when you make all your decisions based on this understanding, you overlook the impact of all the other factors that influence supply and demand.
READ MORE: How pension savings could be an indy Scotland's 'wealth fund'
Price is often the wrong metric to focus on when trying to understand the decisions that renewable electricity businesses make. As Professor Christophers highlights in his brilliant book (recommended for every single commentator who wants to write about renewables in Scotland - The Price is Wrong), it is not the price of a kWh from renewables that matters, but how reliable the profit generated from renewables is.
Profit is affected by other factors. As many renewables are financed through borrowing, the interest rate plays a significant role (and is not affected by the location of your windmill in the UK). The duration and frequency at which you are able to generate are also very important factors. What wages you pay and all of your other costs are, of course, important too.
In summary, a renewable company may earn slightly more by relocating to the South, but it will likely have little impact on profitability if it pays its staff more, faces the same interest repayments on its borrowing, and generates less electricity from a low-lying English moor than from the top of a Scottish hill. So it is time to call the industry's bluff and come out strongly in favour of zonal pricing.
Zonal pricing is however, small beer
This more profound understanding of the business enterprise also undermines those who suggest that zonal pricing would make a significant difference to Scotland's economy.
Paul Kavanagh, following the conventional wisdom, overstated the impact of lower electricity prices when he wrote, 'The plan would not just benefit Scottish domestic energy consumers, it would also create a boost to the Scottish economy by incentivising industries which are heavy users of electricity to relocate to Scotland, creating jobs and opportunities in Scotland.'
It really wouldn't, unless we had more skilled workers on hand, more schools, better roads, and closer supply chains, and were able to move 100,000 people closer to those heavy users of electricity. Businesses won't move to Scotland because electricity is cheaper. Industrial regeneration is far more challenging than that.
We can all draw lessons from an example like this. I see nothing more than the general tendencies of the SNP leadership to accept the power of markets. And that is deeply worrying.