A COALITION of offshore wind developers in Scotland has urged the UK Government to rule out introducing zonal pricing.
In a letter to Prime Minister Keir Starmer and First Minister John Swinney, 17 offshore wind developers have warned investment could be halted and projects left unviable by the “unmanageable risk” of zonal pricing proposals.
The UK Government is currently considering a plan to divide the UK into different pricing zones, which would see consumers face varying electricity costs.
Bosses at Octopus Energy have previously argued Scotland would have the "cheapest electricity in Europe" if zonal pricing was introduced, adding that Scots were getting the “raw end of the deal” in the UK’s outdated energy market.
But the coalition – which has been backed by industry trade body Scottish Renewables – has warned this could actually lead to higher energy bills for both households and businesses.
Scottish Renewables says analysis has found that even a modest increase in the costs of building renewable projects would negate any potential savings from zonal pricing.
Claire Mack (below), chief executive of Scottish Renewables, said: “As we ramp up the delivery of clean power projects across Scotland, zonal pricing has become a dangerous distraction which risks derailing these vital new developments for energy security.
"Any theoretical benefits of zonal pricing have not been convincingly demonstrated and would take at least seven years to deliver.
"Scotland has become a key hub for investment in clean energy infrastructure, driving the move towards a sustainable and future-proof electricity system. However, to maintain and accelerate this momentum, it is imperative that these critical projects are safeguarded against the increasingly complex challenges we face in the current economic landscape.
"The renewable energy industry stands ready to support positive reforms which will offer a double win for consumers and industry, such as modernising unfair transmission charges. These are reforms which require considerable focus from government to deliver but will improve rather than impair industry.
"We urge the UK Government to rule out zonal pricing and commit to workable reforms which ensure industry can deliver the high-value jobs, new supply chains and affordable energy which are crucial for the future prosperity of our country.”
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.
It costs money to move electricity from where it is produced to where it is needed. Under the current market, 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 Energy considers a “staggering waste of electricity”.
Zonal pricing would split the UK up into several different geographical zones with each having a different price based on its level of supply and demand. Energy consumers would pay less for electricity if they are based close to electricity projects but more if they are based further away, meaning Scotland – with its abundance of renewables – could benefit enormously, according to Octopus.
The letter from the coalition said: "Proposals to introduce zonal pricing would send a contradicting signal to strategic energy planning already underway.
"This would hinder, or even potentially halt, investment by further compounding the barriers projects continue to face, particularly in Scotland. Making these projects unviable would not only leave billpayers more exposed to higher costs but undermine valuable jobs and skills we must retain for the future.
"We believe there are better and more workable reforms which build upon the current market framework to provide benefits to consumers without adding unmanageable risk to Scotland’s renewable energy industry.
"A Reformed National Market, alongside the strategic planning of energy infrastructure, including vital new electricity networks, represents the best and only programme of market reform capable of delivering for consumers well ahead of 2030 and beyond.
"A Reformed National Market could also deliver better incentives for industrial investment in Scotland in the coming years, given zonal wouldn’t be introduced until 2032 at the earliest – with large energy users facing the same uncertainty over future electricity prices."
