Britain’s energy market is undergoing a seismic shift. With renewable sources now supplying around 40% of the country’s electricity – up from just 5% fifteen years ago – the structure of electricity pricing has come under intense scrutiny. A growing chorus of experts, companies and policymakers is calling for a move away from a uniform national price towards a more flexible, regional system. Yet while proponents promise reduced bills and increased efficiency, critics warn of unintended consequences, especially for vulnerable households.
Renewables are variable, gas isn’t
A key driver behind this shift is the increasing variability of electricity supply. As fossil fuels are phased out in favour of renewables like wind and solar, which are inherently intermittent, the grid must adapt to greater fluctuations in supply and demand.
Currently, the system sets a single electricity price for the entire country based on the most expensive half-hourly unit – often from gas-fired stations. This method is not only inefficient, but also costly. According to Octopus Energy, this outdated approach has already added over £1 billion to energy bills in 2024 alone, with much of the clean power in places like Scotland going to waste due to transmission bottlenecks.
Is zonal pricing the answer?
To address these inefficiencies, energy market reform is on the table. At the centre of the debate is the proposal to adopt zonal pricing – where different regions pay different prices based on local generation and demand. This would, in theory, allow areas rich in renewable energy to benefit from cheaper electricity, while encouraging investment in local infrastructure to reduce national transmission costs. As Zachary Leather of the Resolution Foundation notes, “Switching to flexible pricing for consumers could address these risks and reduce bills for everyone in the process.”
Flexible incentives
The Resolution Foundation’s recent report, Flex Appeal, funded by the European Climate Foundation, estimates that flexible tariffs, combined with zonal pricing, could save households an average of £200 annually by 2040. These savings would come from shifting electricity use to off-peak times and taking advantage of cheaper regional rates. For instance, electric vehicle (EV) owners could save around £120 a year by charging overnight on flexible tariffs, assuming the right incentives are in place.
Some households can’t flex
Yet there are significant risks associated with this transition. Low-income households with high energy needs may be disproportionately affected if reforms are poorly designed. Around 590,000 such families rely heavily on heating and appliances, making it difficult to shift usage to off-peak hours. The Resolution Foundation urges the introduction of a regulated “time-of-use” tariff with different price caps for peak and off-peak periods, ensuring that vulnerable consumers are not further impoverished.
Reforming pricing could save billions
Opinions on how to implement reform vary sharply. Greg Jackson, CEO of Octopus Energy, highlights the absurdity of curtailment, in which power generation is shut down because the system can’t transmit the energy to where it’s needed: “Nobody can say it’s acceptable our biggest offshore wind farm is paid to power down 71% of the time it could be operating.” He is a vocal supporter of zonal pricing, arguing it will bring efficiency, reduce curtailment and lower system-wide costs. He points to research suggesting the reforms could reduce bills by £55 billion over time and criticises those opposing change as “bleating incumbents” seeking to protect profits.
Transmission
On the other hand, energy expert Johnny Gowdy of the non-profit Regen warns that zonal pricing is not the panacea it appears. “Zonal pricing is not so much a postcode lottery but more a network constraint lottery,” he argues, noting that regional price variations are driven more by transmission issues than local renewable supply. Gowdy advocates for a more cautious approach, favouring gradual reform of the national model and investments in smarter dispatch systems and infrastructure upgrades.
A long road, but change is inevitable
The controversy has been playing out in the ongoing government-led Review of Electricity Market Arrangements (REMA). Once a wide-ranging examination of potential reforms, REMA is now focused on two main options: reformed national pricing or zonal pricing. While the energy secretary has expressed openness to either approach, the decision is expected imminently.
Even if the government does opt for zonal pricing, implementation would be a long-term project. Energy consultancy Cornwall Insight projects that the reforms would take five to ten years to roll out, requiring consultations, legislation and transition plans. As principal consultant Kate Mulvany puts it, “This is the start of a long road, not the finish line.” Even with a decision very soon, change is unlikely to be felt in our bills before the next decade.
The stakes are high. On one side, zonal pricing promises to reduce curtailment costs, encourage renewable investment and make energy bills more responsive to local supply. On the other, it risks deepening regional inequalities and creating political backlash if perceived as unfair or overly complex.
What seems clear is that change is coming. Whether through zonal pricing or a reformed national system, the electricity market must evolve to reflect the realities of a cleaner, smarter grid. But as the debate intensifies, the ultimate test will be whether reforms can deliver lower bills and a fairer system for all consumers – not just those with the flexibility to benefit.
What about East Anglia?
We are surrounded by renewables generation: offshore turbines, increasing numbers of onshore turbines, fields full of solar panels and headlines full of solar farm applications and the opposition they are generating. East Anglia Bylines has featured articles about local resistance to pylons and others analysing the benefits of solar farms to birds and pointing out that climate change might in fact mean that agrivoltaics is a canny choice.
We shall be keeping a close eye and reporting on developments.
This article is based on a press release from the Resolution Foundation, which was rewritten/compiled by Chat-GPT and edited by East Anglia Bylines.
