3 days ago
The net zero fight threatening to blow up Miliband's green dreams
When Ed Miliband took the reins of his old department last summer after 14 years away, the Energy Secretary compared being in government to playing the video game Mario Kart.
'You're driving along, things fly at you and you've got to just keep going,' he joked a few months in.
Some of those flying objects may have been easy to anticipate – not least a rural backlash against his approval of vast solar farms and power lines across swathes of British countryside.
Yet one row Labour's net zero supremo may not have seen coming was a fight over the rather dry-sounding 'review of electricity market arrangements'.
Quietly started in 2023 by Mr Miliband's Conservative predecessors, it includes what has become an incendiary proposal for regional, or 'zonal', electricity pricing.
This proposal would divide Britain's national electricity market into several zones, with power prices set in each area based on local supply and demand dynamics.
In practice, this would mean that people in the heavily populated South East would end up paying more than those in the North, who are closer to Scottish wind farms that generate a lot of power.
It's an idea that has already got energy companies fighting like cats in a sack and is now threatening a political row as well, with Reform, the Liberal Democrats and the Greens all lining up against it.
Now, with a decision expected from Mr Miliband next week, Downing Street has let it be known that Sir Keir Starmer may wade in himself to settle the matter – although sources insist the Prime Minister and his team have no firm views yet.
The 'next Brexit'
For Starmer and Miliband, the stakes could not be higher.
Industry sees the zonal question as one with existential consequences for Labour, arguing it has the potential to make or break Miliband's twin pledges to roll out a clean power system by 2030 and lower household energy bills.
Failure to deliver one or both could fatally undermine public support for net zero at a time when Nigel Farage's Reform Party is describing the issue as the 'next Brexit'.
'Both sides in the zonal debate legitimately believe they are carrying the flame for decarbonisation and doing something righteous on behalf of consumers,' says Adam Bell, a former top Energy Department official who is now a consultant at Stonehaven.
'The problem is, no one can really be certain about who is actually right.'
That has not stopped the various sides from making speeches, publishing studies, filming explainer videos and writing blog posts to plead their case – with the argument pitting some of the biggest names in energy against each other, often in bitter exchanges.
For example, after Scottish Power boss Keith Anderson gave a speech last month warning ministers not to 'tamper with a system that works', Octopus Energy boss Greg Jackson branded his comments 'astonishing'.
'It may work for incumbent energy generators but it doesn't work for households or businesses struggling with Europe's highest energy costs,' Jackson tweeted. The implication was that Scottish Power was defending its profits at the expense of customers.
Zonal supporters such as Octopus and Ovo Energy, regulator Ofgem and the National Energy System Operator (Neso), say that the switch would shave tens of billions of pounds off the cost of the green energy transition by making more efficient use of the electricity grid.
'It's our job to push prices down in the supply chain,' Jackson has said. 'If that means taking the very big producers to task and working hard to squeeze them to be more efficient, so we can pass lower prices to customers, that is our job.'
Eradicating inefficiencies
At the moment, the national pricing system keeps prices in some areas such as London artificially low and prices elsewhere – such as Scotland – artificially high, leading to all kinds of waste and market quirks.
For example, Britain is currently spending more than £1bn a year on switching off wind farms in some locations because the grid is too congested to accept their power at busy times, while firing up gas power plants elsewhere to compensate.
These 'constraint' costs are expected to balloon to more than £3bn a year under the existing system.
Switching to a zonal system would eradicate these kinds of inefficiencies because when there is abundant wind power, prices in places like Scotland would simply plummet, with the inverse true in the South East during peak times.
It would theoretically encourage solar and wind farms to locate much closer to where power is needed, dramatically cutting the amount of money that would need to be spent on grid upgrades. One study shared with the Government, seen by The Telegraph, puts these savings at up to £27bn.
Though wholesale electricity prices would vary between regions, households in almost every area would be better off overall due to the lack of constraint costs and reductions in grid charges, according to a study by FTI Consulting for Octopus.
It estimates that zonal would leave consumers £52bn better off overall over a 20-year period. This equates to something like £50 to £100 off their annual bills, says Jason Mann, an electricity markets expert and the study's author.
The South East would emerge as the only regional loser, to the tune of £3.6bn or about £150m per year. Mann argues this could be remedied with some system tweaks, ensuring no households lose out.
Another potential upside of cheaper electricity in Scotland and the North could be the potential to attract investment in power-hungry data centres and industrial facilities such as hydrogen electrolysers, supporters say.
Zonal issues
Yet any suggestion of overt regional differences may prove politically toxic. Mr Miliband warned in April he would 'not introduce a postcode lottery'.
'Whatever route we go down, my bottom line is bills have got to fall, and they should fall throughout the country,' he told the BBC.
On the other side of the debate, a formidable list of major players are lining up to warn Mr Miliband off the proposals.
They include nearly every major wind farm developer, British Gas owner Centrica, trade bodies MakeUK, SolarUK and Offshore Energies UK, as well as Labour-supporting unions Unite and the GMB.
At the crux of their arguments are two key contentions.
First, that the problems with the current national pricing system can be solved by grid upgrades and lower-key market reforms; and second, that the poor timing of the zonal proposals means they now risk doing more harm than good, by creating so much uncertainty that they derail Mr Miliband's hopes for a green energy construction boom.
Studies produced for wind farm owner SSE by Aquaicity Ltd and LCP paint a starkly different picture to the FTI research, arguing that the consumer savings may be nearly eradicated by price increases.
This would be because wind farm developers, less certain of their future earnings under a reformed system, would demand higher prices in the Government's contracts for difference (CfD) auctions, which feed through directly into the bills paid by households and businesses.
According to LCP, a move to zonal pricing would only save £5bn to 15bn over a 20-year period.
Mr Miliband's clean power action plan – through which he aims to make the grid 95pc powered by renewables in 2030 – rests upon the assumption that the Government will procure unprecedented amounts of new wind farm projects in CfD auctions this summer and next.
Any suggestion that zonal is on the way risks chilling investment, developers have suggested.
Other critics have rubbished claims that cheaper prices in some regions will really cause businesses to relocate.
'I love Scotland, but who's going to start a big factory there?', says Dale Vince, the multimillionaire Labour donor and Ecotricity tycoon.
'I mean, how do you get your workforce there? There's so many practical problems with zonal. I don't understand why it's still being talked about.'
The question of zonal has suddenly taken on more urgency as lobbying ramps up in anticipation of a promised decision this month.
Advocates say that without action now the problems under the current system will only grow more unsustainable.
The amount of money being wasted on a daily basis by wind farms is now being tracked by a website, Wasted Wind. On Thursday it said more than £4.5m had been spent on switching off turbines and finding replacement power.
'The amount you have to pay windfarms to get constrained off – the amount that we end up with a system that is inefficient – if we do absolutely nothing, I think means it is not economically credible for British consumers to leave it as it is,' warned Jonathan Brearley, chief executive of Ofgem, earlier this year.
Although Mr Miliband's officials have backed zonal pricing, the rest of Whitehall is said to be split on the idea and there is growing nervousness in Downing Street about the political consequences if things go wrong.
A spokesman for the Department of Energy Security and Net Zero insists that the focus will be on 'protecting bill-payers and encouraging investment'.
Whatever Mr Miliband decides to do, people on both sides of the argument agree on one thing: he should get on with it urgently to put an end to any doubts.
Bell, at Stonehaven, believes the hour is so late now that the Government is most likely to kick the can down the road.
Starmer's intervention appears to make that more likely. Downing Street is understood to have requested a further review of the costs and benefits of the policy – raising the prospect that the idea could be killed off or kicked into the long grass.
'If you really just don't want to do this now, you could just say let's put it to one side now and look again in the 2040s,' he says.
Ducking the question may ultimately satisfy no one. But at least Mr Miliband will be able to keep careening forward, Mario Kart-style. Until, at least, the next flying obstacle approaches.
