The Government’s plans to introduce zonal pricing in the electricity market could have serious financial consequences, increasing costs for consumers by £3bn and deterring crucial renewable investment.
The warning comes from the independent UKERC (UK Energy Research Centre) which says implementing zonal pricing before addressing uncertainties around transmission capacity could drive up electricity prices and stall progress towards the Clean Power 2030 targets.
Zonal pricing, which would set different electricity prices across regions based on local supply and demand, has been touted as a way to improve market efficiency. Especially by Octopus Energy CEO Greg Jackson who has been actively campaigning for it
However, UKERC’s findings suggest that the risks far outweigh the benefits—at least in the short term.
Their analysis shows that if zonal pricing is introduced too soon, it could significantly increase the cost of renewable energy projects by exposing investors to additional financial risks.
Strike price hike
With transmission upgrades still uncertain, developers may hesitate to bid in upcoming Contract for Difference (CfD) auctions, or demand higher strike prices to compensate for potential revenue losses.
This could result in strike prices rising by as much as £20/MWh, adding up to £3 billion per year in extra costs for consumers—dwarfing any potential benefits of the new pricing model.
UKERC suggests that a better approach would be to delay zonal pricing until the country’s transmission infrastructure is better developed, reducing uncertainty and ensuring a smoother transition.
A key concern is how zonal pricing could disrupt renewable investment in Scotland and northern England, where most of the country’s new wind power is planned.
With transmission constraints already limiting capacity in these regions, the introduction of zonal pricing could force investors to shift focus further south, leading to a costly and inefficient workaround.
UKERC’s modelling explored alternative scenarios where renewable energy investment is diverted to the south but the results were far from promising.
Staggering build costs
Replacing 15-20 GW of planned wind capacity in northern Britain would require an additional 17-33 GW of onshore wind and 5-25 GW of solar in England and Wales—the equivalent of 400-800 new wind farms and 100-500 solar farms.
Not only would this be a logistical nightmare, but it would also push up costs, increase energy curtailment, and fail to meet carbon reduction targets as effectively as planned northern projects.
With the Government set to make a final decision on zonal pricing before the next CfD auction in July 2025, UKERC’s warning is clear: rushing into zonal pricing could be a costly mistake.
Instead, a phased approach that prioritises transmission upgrades first would prevent billions in unnecessary costs while keeping the UK on track for its clean energy goals
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