Zonal Pricing proposal set to be shelved by ministers – What does this mean for companies?
Joshua Sherrard-Bewhay, ESG analyst, Hargreaves Lansdown: “Proposals for the UK to adopt a zonal pricing system seem set to be rejected by ministers after Ed Miliband reportedly recommends against it.
Zonal pricing splits the UK into different pricing zones that reflect local supply and demand dynamics.
In theory, this should mean more generation is built in areas with high prices and less is built in congested regions that already produce too much power – something that’s creating billions of waste.
Over the past few decades, electricity bills in the UK have gone from the 2nd lowest in the EU to 19% above the current EU average.
Affordability has been at the heart of this debate, but it is the suggestion zonal will cause business uncertainty, at a time when the UK are in a period of deep investment, that seems to have swung it.
What does this mean for energy companies?
There were fears that such a big change may cause industry uncertainty, raise the cost of capital, and offset the savings zonal pricing could offer.
British utilities and transmission networks are investing huge sums of capital for the UK to achieve its target of 100% clean electricity by 2030.
This has caused a split between legacy energy companies, like Centrica, and technology-driven providers like Octopus Energy.
Those companies that are more agile and tech-focussed are best placed adapt to these sorts of proposals.”