A new report released today by the University of Aberdeen strongly advises against adopting zonal pricing in the UK electricity market, urging policymakers instead to focus on national market reform and investment in grid infrastructure.
The study, entitled 'Should Zonal Pricing be introduced in the UK?' is co-authored by Professor John Underhill, the University’s Interdisciplinary Director for Energy Transition, and independent energy analyst Matthew Porter, and evaluates whether zonal pricing aligns with the UK Government’s energy and Net Zero objectives.
Zonal energy pricing sees the cost of electricity determined by regional supply and demand, meaning energy prices would vary depending on where the energy is generated and where it is consumed rather than being dictated by the current energy price cap.
Advocates claim that Zonal Pricing has the potential to reduce costs for regions with abundant green energy sources, such as Scotland, however the report concludes that introducing zonal pricing would create investment uncertainty and risk deterring vital private sector capital, which is essential to meeting Net Zero targets.
Unpredictable revenues and costs would make raising both debt and equity capital more difficult and expensive — costs that would ultimately be passed on to consumers.
“In the UK our electricity grid has an evolutionary history, from local to national and from coal to gas,” said Professor Underhill. “The UK now has a challenging objective: to rewire the country and deliver an expanded electricity grid fit for a renewable future.”
The study cautions that now is not the time to disrupt grid architecture, market structure and introduce uncertainty, given the scale of investment needed in generation and grid infrastructure. Such changes, the report argues, could delay progress and undermine the policy direction.
Instead, the University recommends that the Review of Electricity Market Arrangements (REMA) discount zonal pricing as a viable solution, prioritise reforming the national market system to support the energy transition, and investment in the grid.
“A changing mix of generation types will inevitably require fresh investment in infrastructure,” added Mr Porter. “Ensuring an investment landscape attractive to this new capital will require stable and predictable forecasts of revenues and costs.”
The report reinforces the importance of policy stability and clarity in achieving the UK’s long-term ambition to become a Clean Energy Super Power and meet its net zero emissions objectives.