The Review of Electricity Market Arrangements (REMA) process was launched in July 2022, setting out a series of wide-ranging reforms to enable the delivery of a cleaner and more efficient energy system. One of the key decisions facing the Government as part of this is whether to retain the current national pricing or move to a zonal, locational model. This highly contentious decision has split the energy industry.[1] In recent weeks several noteworthy interventions suggest momentum building toward a zonal model.
“This is not a unanimous issue but we are, broadly, very supportive of moving to a system that has zonal pricing. We think it improves efficiency. There are ways in which you can deal with some of the regional inequalities that might result.”
- Jonathan Brearley, Ofgem CEO, 22 January 2025
In this article, Brevia’s energy team provides an update to its previous article on zonal pricing, assessing implications, key considerations and expected timelines for businesses to consider in navigating this potential transition.
A recap: what does a move to zonal pricing entail?
Under the current national pricing system, all electricity generators and consumers across Great Britain pay the same wholesale price, regardless of their location, regional grid limitations, or the cost implications of their operations. Zonal pricing, on the other hand, would divide the GB electricity network into multiple zones, each with distinct prices set according to local network constraints and supply-demand dynamics. For example if a zonal area was harnessing a lot of wind energy the cost of electricity could fall for local users.
Where are we now?
In December 2024, DESNZ published its REMA Autumn update, alongside the Clean Power 2030 Action Plan, committing to reaching a decision on zonal pricing by mid-2025 and in time for the next CfD allocation round (A R 7).
Whilst Labour has not signaled a definitive stance, recent interventions from senior regulatory and policy stakeholders signal a potential move in favour of zonal pricing. Perhaps most notably, Ofgem’s CEO Jonathan Brearley endorsed the move during his appearance in front of the Energy Security and Net Zero Committee session, arguing it a move to zonal pricing could improve system efficiency, reduce constraint costs, and ultimately lower consumer bills. Brearley also recently appeared on a podcast where he stated that zonal pricing provides ‘the best way forward’.[2]
Chris Stark, now leading DESNZ’s Mission Control for Clean Power, also showed a more open stance, describing himself as ‘zonal curious’ and acknowledging the benefits that could be delivered by a zonal model.
Similarly, NESO’s position is that ‘a locational pricing model likely the best way of mitigating the risks and maximising the opportunities of a decentralised power sector.’[3] This was also echoed by Fintan Slye during his appearance in front of the ESNZ Committee in December 2024.
The other side of the argument
The move to zonal pricing is extremely controversial and has faced strong opposition from the energy industry as a whole. Opponents argue that it introduces greater uncertainty for investors, potentially leading to higher financing costs and increased energy prices for consumers. Last year, a consortium including Make UK, Ceramics UK, RenewableUK, Solar Energy UK, and Scottish Renewables co-authored a letter to the Secretary of State Ed Miliband MP warning that zonal pricing could undermine investment in low-carbon energy and penalize energy-intensive industries.[4]. There are also concerns that locational pricing could disproportionately impact vulnerable customers in high-demand areas, such as London.
More recently, a consortium of organisations opposed to the change launched a new campaign ‘Fairer Energy Future’ calling for an enhanced national pricing regime, which would be more cost effective and minimise uncertainty and risk.[5]
For a more in-depth analysis of the benefits and challenges of both models, see Brevia’s previous article exploring the implications in greater detail.
Looking ahead
While a Labour Government may have reasons to hesitate on locational pricing, the potential impact of zonal pricing is too significant for businesses to ignore. Companies should conduct a thorough assessment of how the shift could affect their operations and develop strategies to adapt.
Should the move to zonal pricing proceed, it will not be implemented overnight. A comprehensive industry engagement and consultation process is anticipated, allowing stakeholders to assess the scale of potential changes and develop strategies to mitigate any negative impacts. This could include advocating for a phased rollout, ensuring investors have time to adjust, and addressing regional demand fluctuations while safeguarding vulnerable consumers.
While Chris Stark has stated that the next allocation round will not be delayed by REMA, uncertainty surrounding zonal pricing could still influence investor decisions, despite Government commitments to grandfather existing projects.
Conclusion
With a decision imminent, businesses cannot afford to wait and see. The move to zonal pricing, if pursued, will reshape the electricity market, and early preparation will be key to mitigating risks and seizing opportunities. Engaging with policymakers, participating in consultations, and assessing business models against different pricing scenarios will be critical steps in navigating this transition.
Brevia Energy is a dedicated division of Brevia Consulting, and has a longstanding reputation for its expertise and experience in the Energy Sector.
Discover how Brevia Energy can help you and your organisation by visiting: www.brevia.co.uk/sectors/energy/. You can also contact the Brevia Energy Team on 020 7091 1650 or email contact@brevia.co.uk.
Notes
[1] The Guardian, ‘I’ve fallen out with people’: the bruising debate over UK zonal energy pricing’, 7 October 2024, Link
[2] Renews.biz, ‘Ofgem Chief backs zonal pricing’, 7 February 2025, Link
[3] NESO, Advice on achieving clean power by 2030, pg 57, 5 November 2024, Link
[4] The Guardian, ‘Charging customers for energy based on location ‘could harm UK industry’, 7 October 2024, Link
[5] ‘Renews.biz, ‘UK public rejects zonal energy pricing’, 26 February 2025, Link
