Today, the Government announced its long-awaited decision on electricity market reform, confirming that it will retain the existing wholesale electricity market structure rather than adopting a zonal pricing model. Under a zonal pricing system, the country would be divided into several zones, each with its own wholesale electricity price based on local supply and demand conditions.
Caroline Bragg, CEO of ADE: Demand, said: "The Government needs to get a handle on the cost of living. But, by rejecting zonal reforms that align us with our peers, today’s decision risks higher costs. Piecemeal tweaks won’t deliver the lower bills for all that Ofgem itself says is possible. With grid costs potentially hitting £8bn by 2030, how does the status quo stop consumers footing the bill?
Everyone knows the old system is dead. Government must now prove this won’t become a hollow victory, emboldening net zero opponents with decade-long tinkering and rising costs. Now the decision is made, ADE: Demand is ready to work with the Government on the substantial pricing reforms still needed to ensure net zero actually cuts everyone's bills."
The current wholesale electricity system has faced criticism for creating market inefficiencies, as it often fails to reflect the true cost of delivering electricity to different regions across the country. DESNZ’s own research suggests zonal pricing could save £24 billion in grid upgrade costs and Australia, Sweden, Norway and Denmark are already using the zonal pricing method for their respective electricity markets.
Despite ADE: Demand’s disappointment in today’s decision, ADE: Demand will continue working closely with government and key stakeholders to ensure for a system that delivers for consumers.