Businesses write to Ed Miliband and Jonathan Reynolds over concerns about proposed zonal pricing model

7 October 2024

A group of trade associations, businesses, and union from heavy-end electricity users to the renewable energy developers have written to Secretaries of State Ed Miliband and Jonathan Reynolds raising concerns over electricity market reforms, specifically the proposed zonal pricing model. 

Signatories include UK Steel, Make UK, Community Trade Union, British Glass, Ceramics UK, the Global Infrastructure Investor Association, the Independent Renewable Energy Generators Group, Offshore Energies UK, Renewable UK, Scottish Renewables and Solar Energy UK. 

While the Government’s Clean Power Mission is a welcome focus on accelerating clean energy, it is feared that that splitting Great Britain into several regional price zones would undermine investment in low carbon energy and risks penalising the UK’s energy intensive industries with higher electricity costs in globally competitive sectors. 

UK Steel has raised concerns about zonal pricing since March, when the last government’s Review of Electricity Markets Arrangements abandoned green power pools in its favour. Zonal pricing would separate the network into many individual zones, each zone with its own price to encourage new generation near demand and encourage power users to locate near existing generation. Steelmakers cannot relocate to lower-price zones and will likely be hit with higher wholesale prices for many years before new generation is deployed in their locality. 

The policy is an inherited overhang of the past government’s consultation, and the Labour Government now has an opportunity to reject zonal pricing. The signatory group asks Government to commit to a reformed national market programme in the Autumn that will support investment and best deliver secure, competitive, low carbon energy to the UK’s industrial heartlands.

Frank Aaskov, Director of Energy and Climate Change Policy at UK Steel, said today:

“The Labour Government is committed to delivering lower industrial electricity prices in their manifesto, and has clearly shown significant support for steel. But the zonal electricity pricing model risks increasing costs across the country, producing electricity price winners and losers. 

“A miles-wide steel plant simply cannot up and leave to get access to lower power prices elsewhere. This is before we consider the billions invested in operations, let alone the workers who could get left behind. 

"As the steel industry further electrifies, it needs lower power prices, not higher. Electricity prices are critical to the steel industry’s ability to compete, decarbonise, and attract investment. While the Government has inherited the electricity market reforms, it must now reject zonal pricing and provide the steel industry with the certainty it needs."

RenewableUK’s Executive Director of Policy Ana Musat said:

“As the UK is preparing to host the International Investment Summit, the Government has a clear opportunity to catalyse investment in the UK by ruling out zonal pricing.  By the Government’s own calculations, this scheme would deter investors by increasing the cost of capital for vital new infrastructure, which would in turn lead to higher bills for households, businesses and factories.

“We cannot afford to move to zonal pricing as it would endanger the Government’s own mission to deliver clean power by 2030. It would create unacceptable risks for a range of sectors, including manufacturing and steel production,  which are essential for the health of UK’s economy and productivity. We need to mobilise billions of pounds of private investment in new renewable energy projects and grid over the coming decade and beyond if we’re going to build a low-cost clean energy system for billpayers. That’s why we’re urging Ministers not to risk jeopardising vital new investment at the very time when we need it most”. 

Jon Phillips, CEO, Global Infrastructure Investor Association, said:

“The introduction of zonal pricing at this late stage risks undermining the Government’s ambitions to attract more international investment to the UK. Global investors seek long-term, low-risk investments that generate steady returns over time.

“It’s important that energy policy provides the long-term stability that investors seek. Clarity on the future of Britain’s electricity market needs to be a central part of any clean power plan.”