A NUMBER of energy firms have signed a joint letter saying planned upgrades to the electricity grid would wipe out the potential benefits of moving to zonal pricing.
We previously told how the chief of Octopus Energy said Scotland would have the “cheapest electricity in Europe” were zonal pricing to be introduced.
The system would see the UK split into seven different geographical zones, with each having a different price based on its level of supply and demand.
However, new analysis from LCP Delta has claimed that, when the latest electricity grid upgrades planned by the National Energy System Operator (NESO) are factored in, the case for introducing zonal pricing reduces drastically.
The analysis further claimed it could in fact end up costing consumers billions of pounds in disruption to investment.
Partner with LCP Delta Chris Matson commented: “Our latest study that increased grid capacity and strategically locating assets reduces the potential benefits of moving to zonal pricing.
“LCP Delta’s previously analysis for the Department for Energy Security and Net Zero (DESNZ) assessed the impacts of zonal pricing under now outdated network plans and had limited consideration of strategic infrastructure planning, such as the location of existing seabed leases.
“With DESNZ commissioning the NESO to provide recommendations on a plan for Clean Power 2030, it is logical that any additional plans to upgrade the network and strategic planning would reduce the potential system benefits further.”
The analysis stated that the latest wave of grid investment in NESO’s Beyond 2030 programme, published earlier this year, would largely wipe out zonal savings attributed to network constraint costs.
It said this is because it would alleviate current constraints on the network by enabling up to 21GW of offshore wind to be unlocked.
A joint letter describing zonal pricing as undermining investment in “low carbon energy” and saying that it “risks penalising the UK’s energy intensive industries with higher electricity costs in globally competitive sectors” was signed by the following companies:
- British Glass
- Ceramics UK
- Community Trade Union
- Global Infrastructure Investor Association
- Independent Renewable Energy Generators Group
- Make UK
- Offshore Energies UK
- Renewable UK
- Scottish Renewables
- Solar Energy UK
- UK Steel
LCP Delta’s report also claimed that zonal pricing is sensitive to investment impacts, with a £11 billion potential benefit being wiped out by just a 0.6 percentage point increase in the cost of capital for low carbon generation.
The report said a single percentage point increase in the cost of capital under Beyond 2030 plans could mean a move to zonal pricing would become a £8-19bn cost to the system between 2030 and 2050.
Chief executive of SSE Alistair Phillips-Davies commented: “The debate over zonal pricing has always been a distraction from what should be the real focus – building the electricity infrastructure we know we need to deliver clean power at pace.
“Ministers have been clear about the need for stability to boost economic growth. Zonal would deliver just the opposite, less certainty and less investment.
“That’s why it is opposed by major investors, renewable developers and manufacturing groups including Make UK and Steel UK.
“It’s time to back the builders not the blockers of an accelerated clean power system.”
