THE boss of a major energy firm has criticised zonal pricing plans in the UK because it would hand places like Scotland cheaper energy than other areas.
Chris O'Shea, the CEO of Centrica, has insisted zonal pricing "risks deep inequalities and higher prices for consumers" in regions with fewer renewables, adding that the idea is "superficially attractive".
It goes against what Octopus Energy has recently stressed to The National, that Scotland could benefit from some of the cheapest energy in Europe if zonal pricing was introduced.
Octopus Energy CEO Greg Jackson detailed last week how the standing charges in Scotland are 50% higher than they are in London as things stand, showing Scots do not benefit from the "enormous" energy resources the country possesses.
He highlighted how 77% of Scottish businesses say high energy costs have forced them to put up prices, with families paying the highest prices in the UK.
At the moment, Britain has one national energy price even though at any point in the day the cost of producing electricity differs radically around the country.
If an offshore wind farm in Scotland produces more electricity than the network can handle it is paid to turn off, or "constrained", and a gas-fired power plant in the south of England is paid to turn on.
The constraint costs – which are collected from consumers – are huge and in 2022/23 they amounted to £1.5 billion and are projected to rise to £3.7bn by 2030, something Octopus considers a “staggering waste of electricity”.
But O'Shea said he did not agree with bringing in zonal pricing because of the way it would create a "postcode lottery".
He wrote in The Times: "The theory behind zonal pricing aims to reflect local supply and demand to boost renewable investment and grid efficiency.
"But in reality, it risks deep inequalities and higher prices for consumers in regions with fewer renewables. Instead of simplifying, it creates a postcode lottery where those in industrial areas pay more than low-demand regions with abundant wind and solar power.
"As well as increasing costs, it is also unclear how this approach would align with the national price cap. Would we need 12 different caps?
"Supporters of zonal pricing argue that it will incentivise consumers to adjust energy use based on local prices. But nearly half of UK households still lack a smart meter and focusing on faster rollout and flexible tariffs would manage demand more effectively. Supporting heat pump adoption is right but we shouldn’t penalise those who can’t move away from their boiler."
He also said the idea businesses will move for cheaper energy is "unrealistic".
"We need a well-informed and transparent debate, grounded in evidence and consumer interest, not an experiment favoured by theorists, but paid for by the masses," he went on.
Rachel Fletcher, director for regulation at Octopus, told The National there is plenty of evidence internationally of zonal pricing markets being extremely successful in attracting renewable investment, so there is no reason to believe that can’t be replicated in the UK.
Countries such as Australia, Norway, Denmark and Sweden have all implemented zonal pricing and Octopus says the single wholesale price setup is slowly becoming the “exception not the rule”.
Octopus research has also shown three of Europe’s biggest wind developers hold 50% of their portfolio in locational energy markets.
Fletcher said last month: “The international evidence does not support the idea that zonal would be a disaster for renewable investment.
"It is untenable to say that zonal is incompatible with investment in renewables.”
The UK Government and Ofgem have also published reports that say there is no evidence locational pricing would disrupt renewable deployment.
The Department for Energy Security and Net Zero has previously said: “There is no evidence to suggest zonal markets harm investment in low-carbon generation compared to a uniform price market. Norway, Sweden, Italy and Denmark, have all had significant growth in renewables.”
