Latest news with #zonalpricing
Telegraph
3 hours ago
- Business
- Telegraph
Starmer intervenes on plans for higher energy bills in the South
Sir Keir Starmer has intervened in controversial net zero proposals to make homes and businesses in the South pay more for power than those in the North, amid fears of a voter backlash. In recent days, Downing Street has taken a growing interest in plans for so-called zonal electricity pricing being considered by Ed Miliband, the Energy Secretary. No10 officials have contacted industry chiefs to signal that the Prime Minister is overseeing the potential policy. Downing Street is understood to have requested a further review of the costs and benefits – raising the prospect that the idea could be killed off or kicked into the long grass. Zonal pricing aims to capture efficiencies by lowering the relative cost of electricity close to wind farms and has already sparked a bitter war of words among energy bosses. It would result in Britain being divided into zones, with prices in each based on local supply and demand. There is currently one national price. Supporters claim the switch would lead to savings of £52bn for consumers overall, as well as a £27bn saving on grid upgrades that would no longer be required. Sir Keir 's intervention is the latest sign of tensions within Labour over net zero. Pledges on job creation, investment in carbon capture technology, and heat pump and electric car targets have all sparked fierce policy debates across Whitehall. Mr Miliband's officials are said to be supportive of zonal pricing but the Energy Secretary himself has yet to declare a position. Whitehall sources insisted no final decisions had been made and that a range of views were still being considered. The involvement of Downing Street will be interpreted as a sign of political anxiety about the controversial policy. Nigel Farage's Reform UK has made net zero and the cost of energy a key campaign issue and pledged to fight plans to roll out renewable power projects and pylons across the countryside. Giving a speech in Scotland this week, Mr Farage likened the Government's net zero policies to 'the next Brexit'. In practice, a zonal system would mean higher wholesale power prices for London and the South compared with the North and Scotland, where most wind farms are concentrated. But supporters say it would slash bills for consumers overall, by reducing the need for costly grid upgrades and slashing the amount paid to wind farms to switch off. A report by FTI Consulting this year predicted overall savings under zonal of £52bn for consumers over 20 years. Another report by the same firm, commissioned by Octopus Energy and shared with Mr Miliband's officials, also found that £27bn less would need to be spent on major grid upgrades under the reforms, resulting in nearly 2,000 fewer miles of cables. The claims of savings are disputed by opponents, who say a major market shake-up will deter investment and imperil the Government's plans for a renewable energy construction boom this decade. Ministers have argued that the Government's strategy for a power system running almost entirely on renewables by 2030 will bring down prices and provide Britain with greater energy security. Asked to comment on the involvement of Downing Street, a spokesman for Mr Miliband's department refused to comment on 'speculation'. 'It suggests Starmer does not trust Miliband' But Andrew Bowie, the shadow energy minister, said the Prime Minister's move to scrutinise zonal pricing more closely implied lack of faith in the Energy Secretary. He said: 'It suggests that the PM does not trust Ed Miliband to take a decision of this magnitude.' The Government has previously pledged to make a decision by the middle of this year, ahead of a renewable energy auction in the summer that will hand subsidies to major wind farm projects that are vital to Mr Miliband's clean power goals. That has prompted warnings from wind farm developers that embarking on a major shake-up of the electricity market now will create unnecessary uncertainty, leading to the cancellation of schemes or demands for higher power prices to compensate. Keith Anderson, the chief executive of Scottish Power, last month urged ministers not to 'snatch defeat from the jaws of victory' by pushing ahead with the reforms. At the same time, ministers are under intense pressure to cut energy bills for households and businesses following Mr Miliband's pre-election promise to slash them by £300 a year. Critics say the existing national pricing system also distorts the market – for example, by encouraging batteries to charge at the wrong times and inter-connectors to send power from Britain to Europe even when it is needed in the South. In recent months, the Government has sought to quell wind developer concerns about the policy by suggesting that existing schemes will benefit from 'grandfathering' – meaning they would retain current payment terms. Mr Miliband is also weighing up an alternative proposal that would seek to reform the national electricity pricing system to better reflect 'locational signals', although these have not been fleshed out. A key moment in the debate is likely to come next week, when Mr Miliband is expected to make his recommendation, for or against zonal pricing, to Downing Street. If zonal pricing is implemented it would be the biggest shake-up of the market since privatisation in the 1990s. Richard Tice, Reform UK's energy spokesman, said: 'Zonal pricing is a trick designed to try to cover up the ever-rising energy bills we face because of subsidies to renewable energy. 'Keir Starmer is now panicking over the costs of renewables and the loss of votes to Reform.'
Telegraph
2 days ago
- Business
- Telegraph
Miliband urged to save net zero through higher bills in the South
Ed Miliband must ramp up energy bills across London and southern England to hit net zero targets, a parliamentary committee has said. The Energy Secretary is likely to miss his target of making the electricity grid 95pc carbon free by the end of the decade unless he embraces so-called zonal pricing, a new report from the Lords industry committee warned. Such a change would mean splitting Britain's single electricity market into almost a dozen regions, with the price of power determined by supply and demand within each area rather than set nationally. In practice, prices would surge in London, southern England and the Midlands where renewables are in short supply, but plummet in Scotland because of its plentiful wind farms. The change would therefore be hugely controversial. However, it would encourage companies to build renewable power infrastructure nearer to where prices are high, cutting down the amount of new pylons, cables and transformers needed to achieve a decarbonised grid. 'Regional zonal pricing should enable better use of existing grid capacity and lower the cost of electricity, provided that the transition and its risks are managed well,' the report said. Even with such changes, Mr Miliband's clean power by 2030 pledge looks increasingly likely to fail, the Lords warned. Baroness Taylor of Bolton, the committee's chairman, said: 'Given the scale of changes needed to the planning, regulation and delivery of energy infrastructure, and the UK's historic [poor] record of delivering major infrastructure projects, our report questions the feasibility of meeting the clean power target. 'Time is already running out, and there is no room for complacency. The Government and the sector must ramp up their efforts to have a chance of success.' Zonal pricing has been under consideration in the review of electricity market arrangements initiated by the previous government three years ago. An announcement is now imminent. Government officials have advised Mr Miliband to press ahead with the policy, but the Department for Energy Security and Net Zero (Desnz) has refused to say if he favours the idea. Mr Miliband has insisted he will not make any change that leads to higher bills for people. Regardless, the machinery for zonal pricing is already being put in place. Ofgem recently announced plans for 11 'Regional Energy Strategy Boards'. Nine would be in England with one each in Scotland and Wales, all overseen by the National Energy System Operator (Neso). The boards would be similar to the municipal electricity and gas boards that oversaw energy supplies before privatisation, comprising local councillors and energy company representatives. Julian Leslie, Neso's chief engineer and director of strategic energy planning, said the boards would 'ensure that local communities play a central role in planning how they decarbonise and how their contributions support national strategic energy planning'. Sam Richards, of Britain Remade, a pro-growth campaign group, said the UK needed a 'clean energy revolution to lower bills and create high-quality jobs'. He added: 'Moving to zonal pricing is a crucial step in achieving this ... It would help make smarter use of our existing grid, bring down electricity costs and attract the investment needed to build clean energy where it's most abundant.' A Desnz spokesman said: 'We need new infrastructure to protect family and national finances with energy security, through clean home-grown power we control.' The three years of discussions around zonal pricing have generated growing tensions in the UK energy industry. John Pettigrew, the National Grid chief executive, last month spoke out against it, warning the disruption would be a huge distraction. Hitachi, suppliers of half the transformers, inverters and switch gear vital to the UK's 'great grid upgrade', have issued similar warnings. Others are strongly in favour, including Greg Jackson, the Octopus Energy boss.
Times
27-05-2025
- Business
- Times
Two big UK battery storage developers favour zonal pricing
Two of Britain's biggest battery storage developers have come out in favour of regional electricity pricing, despite opposition from their peers who argue that the radical shake-up will deter investment. Gresham House and Statera both told The Times that zonal pricing would cut the costs of operating Britain's energy system, ensuring that batteries were built in the right locations to help deal with surplus wind power. Ben Guest, head of energy transition at Gresham House, operator of the UK's largest battery storage fleet, said it believed zonal pricing was 'an essential step for the UK's electricity system' to help 'motivate investment where it is most needed'. The government is expected to decide imminently whether to ditch Britain's national wholesale electricity price and introduce a system with about seven to twelve regional zones. Prices in each zone would vary depending on the supply and demand balance in the area, ensuring that wind farms in remote locations could not sell their electricity to consumers at the other end of the country if there were not sufficient cables to physically deliver the power. At present the National Electricity System Operator spends hundreds of millions of pounds every year dealing with such cabling constraints by paying wind farms to switch off and gas plants nearer demand to fire up and replace them. Batteries installed near wind farms could address the problem by storing surplus power when it is windy and discharging it in calm weather, smoothing out supplies. However the national market does not always provide the correct price signals: batteries in Scotland might discharge because the national price is high, even if their area is already swamped with power. In a zonal system, the excess power would depress the regional price, encouraging the battery to charge up. Zonal pricing is highly divisive in the energy industry, with wind farm developers and other generators generally opposed and some household suppliers and consumer groups in favour. Guest said Gresham's analysis showed that 'a well-designed zonal pricing system can reduce wholesale energy costs and reduce the need for a lot of the planned electricity network upgrades and associated pylons'. Zonal pricing would 'incentivise energy storage, the cost of which has been falling sharply, to store renewable energy when generation exceeds demand and then deliver it across zonal boundaries when renewable generation is low and constraint limits are not reached', he said. Tom Vernon, chief executive of Statera Energy, which is building Britain's largest battery storage site at Trafford Park in Greater Manchester, said: 'Developing and dispatching batteries in the right locations is critical for cost-effectively balancing the grid. At Statera, we support zonal pricing because it will make the power system more transparent, and provide a clear price signal for the efficient operation and location of demand and generation.' He said he was 'confident that zonal pricing will lower costs in the long run'. However, other leading battery storage developers said they opposed the change. Harmony Energy said it feared that 'the uncertainty created by such a fundamental shift in market design creates an unnecessary risk in relation to investor confidence at a time when the country needs to get on building out critical infrastructure'. And Amit Gudka, chief executive of Field, said zonal pricing would 'slow down investment' and building out the network should be the priority instead of 'tinkering with the market'. Zenobe, another battery storage company, has claimed that even the prospect of zonal pricing has already 'slashed investor confidence and is inhibiting battery build-out', as the complexity and uncertainty of zonal pricing makes it harder to secure agreements to sell power. A spokesman for the Department for Energy Security and Net Zero said: 'We are considering reforms to Britain's electricity market arrangements, ensuring that these focus on protecting bill-payers and encouraging investment. We will provide an update in due course.'
Telegraph
15-05-2025
- Business
- Telegraph
National Grid boss urges Miliband to reject regional energy shake-up
The boss of National Grid has urged Ed Miliband to reject proposals to charge regions different prices for electricity. John Pettigrew says so-called zonal pricing, which could soon be rolled out by the Energy Secretary as part of his net zero overhaul, would cause huge disruption across Britain. While some argue it would make the grid more efficient, Mr Pettigrew has claimed it would pile pressure on a power system already under strain. In particular, he said it would serve as an unnecessary distraction as policymakers seek to stave off the threat of blackouts while trying to decarbonise the grid by 2030. He said: 'You have to look at zonal pricing in the context of everything else that's going on with retail reform, connections reform, the massive increase in infrastructure investments, the rollout of smart meters. 'And I think to add anything else to all that change, there needs to be a high bar. So there may well be a time when zonal pricing is right for the UK, but I don't think it's now.' Mr Pettigrew gives the example of surging demand from data centres, which he predicts will consume nearly a third of the UK's generating capacity within a decade. He said: 'The electricity network in the 2030s will look very different to what it is today. And I think we should only look at zonal pricing once we got through all this significant network change and market reform.' Mr Pettigrew also warned that the huge investments needed to help the grid hit net zero would inevitably mean bills rise over the next decade, with cash set to be used to help the grid connect with offshore and Scottish wind farms. However, this will also generate savings in the long run, he said, as it will prevent the UK from having to pay wind farms to switch off by increasing capacity. Mr Pettigrew was speaking as the National Grid published its full-year results, which revealed that its pre-tax profits rose by 20pc to hit £3.7bn in 2024-25. His intervention on zonal pricing comes at a crucial time. The Energy Secretary is leading a long-term review of the UK's electricity markets, which he hopes will reduce the country's dependence on gas and boost energy security. Zonal pricing is a key proposal within the review, which is set to be concluded next month. If approved, Britain's current single national power market would be abolished, and the country would instead be split into a dozen or so regions. Each would have different charges based on supply and demand. Meanwhile, the National Grid chief's comments come as he continues to battle the fallout from Heathrow's power outage in March, which was caused by a fire at a nearby substation. Mr Pettigrew admitted that more must be done to boost resilience to ensure a similar shutdown doesn't happen again. A full report into the incident is set to be published in July, which is expected to highlight the Grid's failings. Mr Pettigrew said: 'I do think it's an important question that when the investigation is done, we stand back and look at resilience, because with electricity being more important to society, it's really important.' However, he highlighted how the Grid is already planning to invest £60bn over the next five years, which will be paid partly through levies on consumer bills. He said: 'When I look at the overall asset health of our network in the UK, then we have committed to invest £60bn over the next five years,' he said. 'It's a huge amount of investment going into the networks.' Mr Pettigrew also confirmed that he will step down later this year to be replaced by Zoë Yujnovich, a former director at Shell.
The Independent
12-05-2025
- Business
- The Independent
Zonal electricity pricing may not be possible until mid-2030s, says research
Zonal electricity pricing would be unlikely to happen until after 2030, according to research, even if the Government decided to adopt the policy in the coming weeks. Energy consultancy Cornwall Insight said the measure, which would divide Great Britain into different energy price zones, could even take until the mid-2030s to be implemented. Ministers are expected to make a decision on zonal pricing this summer after lobbying efforts for and against it have ramped up since Labour entered Government. The new research said zonal pricing would take at least five or six years to bring into effect. That includes the time it would take for consultations, legislating the policy in Parliament and transitional arrangements to avoid disruption for existing energy producers. Legislating the policy into law may not even happen before the next general election, the report said. Kate Mulvany, principal consultant at Cornwall Insight, said: 'Zonal pricing would represent the most fundamental redesign of the GB electricity market in decades. 'It is an incredibly divisive topic in the industry, and regardless of the purported benefits, its implementation is going to take significant time and resource. 'Political backing and industry support may help, but a go-live before 2030 remains incredibly unlikely. 'The Government's commitment to a decision by mid-2025 is welcome. But we must be realistic: this is the start of a long road, not the finish line. 'Zonal pricing may still form part of the long-term vision for electricity market reform. But for now, its delivery sits firmly in the next decade.' Zonal pricing would replace the current single price for electricity with different prices for each region, excluding Northern Ireland. The prices would be based on how much electricity is available, meaning areas like Scotland, which generate large amounts of power, would have lower market prices. But it also means market prices in other parts of the country, such as the South East, would be higher. Proponents of zonal pricing say it would save billions of pounds each year by making the electricity grid more efficient. Critics say it would create a postcode lottery where people would face an unfair disparity in bills. It comes at a time when the Labour Government is pushing to decarbonise the grid by 2030, in a policy which will require tens of billions of pounds of private sector investment. Cornwall Insight's report also said the policy could create uncertainty for companies looking to invest in the UK power sector, potentially threatening the 2030 clean power target.
