Energy consultancy Cornwall Insight has cautioned that any move to introduce zonal electricity pricing across the UK is unlikely to be achievable before the end of the decade, even under the most ambitious timelines, and it could well be the mid-2030s before it is fully implemented.
With the Government expected to make a major decision on wholesale electricity market reform in the coming weeks, the analysis report ‘Revolution Takes Time: Implementing Zonal Power Pricing in GB’ states that, should zonal pricing be chosen, the scale of the changes required means implementation will take a minimum of five to six years from the decision point. The report, informed by the group’s long-term zonal power price forecasting, seemingly outlines all the necessary steps needed to deliver a zonal pricing market including design, consultation, legislative and regulatory reform, and market readiness.
The report provides a direct contrast to claims, such as those made by UK renewable energy group Octopus, that zonal pricing could be introduced within two years.
Under a zonal pricing market, the country would be split into several zones, all with their own wholesale electricity prices, with the central premise being that the cost of moving power across the system should be accurately reflected in the wholesale price. These additional cost-reflective locational signals should, in theory, influence investment decisions and encourage a more efficient dispatch of power. However, several factors mean if it is chosen it will take many years to implement.
The complexity of the reform is driven by several factors:
• A lengthy consultation process on the market’s design will be required to ensure that all impacted parties have sufficient opportunity to put their view forward and ensure a smooth transition to the new arrangements.
• Wide-ranging opinions from market players as this has been a hugely divisive topic with many different parties coming out in support of and in protest of a potential zonal market. Striking the balance between consumer protection and an investment landscape that supports decarbonisation at scale will take time.
• New legislation required to enable the changes will face parliamentary scrutiny and may not happen before the next general election.
• Significant Code Reform will be needed to update industry frameworks and licence conditions.
• Transitional arrangements to avoid disruption for existing assets and market participants.
The timescales also consider the pace of previous industry code and licence condition changes. For instance, the transition from the New Electricity Trading Arrangements (NETA) to the British Electricity Trading and Transmission Arrangements (BETTA) took three years, despite simpler conditions and broader consensus. Today’s market is larger, more complex, and more politically sensitive, particularly given regional concerns around pricing differentials and investor impact.
Cornwall Insight’s report additionally notes that without further clarity on key schemes such as the Contracts for Difference (CfD), there is a risk that investor uncertainty could stall progress on renewables deployment, potentially threatening the Government’s 2030 clean power goals. With a longer timeline, and clarity on what comes next, the industry will have a better understanding of the market they are investing in and how that market could function in the future.
Responding to the report, a spokeperson for the campaign against zonal pricing, Fairer Energy Future, commented:
“This latest report is further evidence that claims which suggest zonal pricing could be implemented quickly are fanciful. On the contrary, the policy would be disruptive, putting billions of pounds worth of renewable investment and thousands of jobs at risk if these proposals are greenlit by the government. What’s worse, it fails to offer households any short-term energy bill relief and risks pushing costs up before the policy is in place due to increased capital costs and knock-on effects on CFD prices.
“Our ‘Enhanced National Pricing’ proposal is a fairer, cheaper, greener, and more practical approach to support economic growth, jobs, and productivity. At a time when the country is seeking to boost economic growth, jobs, and productivity, we strongly believe Enhanced National Pricing is the right way forward.”
