Siri, explain Regional Electricity Pricing to me.
Regional electricity pricing, also known as zonal pricing, tailors electricity costs to reflect the actual supply and demand dynamics in specific areas. This arguably fairer approach contrasts with the current uniform ‘one size fits all’ pricing, aiming to enhance efficiency and potentially reduce energy bills by providing more accurate price signals, reflecting what it costs to produce energy in certain areas of the country.
So just what is Regional Electricity Pricing?
Unbelievably, some areas of the UK currently generate so much excess wind energy, we offset unused quantities to countries such as France, only to buy it back at a higher price from countries such as Norway, as and when we need it. Make it make sense!
In a regional pricing model, electricity prices would vary based on local factors such as production costs, demand levels (anything from charging your phone to powering a football stadium), and the availability of renewable energy sources. Regions abundant in renewable energy, like wind or solar, might benefit from lower prices due to reduced production costs, while areas with higher demand and less local generation could experience comparatively higher prices.
Greg Jackson: Regional Pricing’s Top Fan.
Greg Jackson, CEO of Octopus Energy, is a prominent advocate for implementing regional pricing in the UK. He argues that this system could lead to more efficient energy use and lower costs for consumers, and made headlines just before Christmas when he said that Scotland could have the cheapest energy prices in Europe (!) if the UK made the switch to this zonal model. Rather than sending all that surplus energy to the continent, if Scotland stored and used their surplus power locally, it could be given to consumers at a much lower price, cutting bills for not only their consumers, but for those in other areas of the UK too.
In an interview with BusinessGreen, Jackson emphatically stated, “If we have locational pricing and market reform, the resulting investment signals mean we can be building the grid where we need it most to hit the 2030 target.”
He further elaborated on social media, noting, “Locational pricing will make energy cheaper in every region. In other countries, it attracts investment in energy-intensive industries.” In a prolonged period of low economic growth in the UK, this would be extremely welcome news to boost our struggling economy over the coming years.
What are the benefits of Regional Pricing?
Advocates of this model, like Greg Jackson, believe that regional pricing can:
- Lower Energy Bills: Consumers in regions with abundant renewable energy could see reduced bills, making use of all the green energy that would have otherwise gone to waste – this could amount to up to £900 million saved over the next decade!
- Encourage Investment: Accurate pricing signals would attract investments in renewable energy projects and infrastructure where they are most needed, boosting local and national economies and ensure we don’t slip into a recession.
- Promote Efficiency: Aligning prices with local supply and demand could lead to more efficient energy consumption and generation patterns. In fact, considering just wind power, we could save enough green energy to power almost half a million households each year.
Industry Debate and Concerns
Despite the potential benefits, the proposal for regional pricing has naturally sparked debate within the energy industry. Some industry groups express concerns that such changes could increase costs for heavy industries and deter investment into those regional areas that so desperately need the economic boost. Jackson addresses these concerns by suggesting that there are ways to meet the needs of these industries without imposing additional costs on households and businesses.
To bring or not to bring in regional electric pricing?
That is the million dollar (pound) question. Without a doubt, regional electricity pricing presents a compelling opportunity to enhance efficiency and reduce costs in the UK’s energy market. It would be a landmark moment in the history of electricity, breaking from decades-old practice and bringing the UK energy usage into the 21st century. While the debate continues, leaders like Greg Jackson advocate for reforms that align prices with local realities, potentially benefiting consumers and the renewable energy sector alike.
For a more in-depth understanding and more information, you can watch Greg Jackson discuss the need for regional electricity pricing in the UK (below), or read Octopus Energy’s own take on the subject in their December article.
