The UK government is set to drop plans to introduce zonal pricing in the country’s wholesale electricity market, following a backlash from industry saying that splitting the market into geographical areas would damage investments in renewable energy projects, the Guardian reports, citing sources.
In one of the most controversial power market reforms considered in the country, the UK government has been considering the so-called zonal pricing for electricity prices in Britain to replace a nationwide pricing system.
Under the proposed reform, zonal pricing would essentially split the electricity market into several geographical zones. Each of these zones would have different power prices, based on their supply, demand, and grid availability and access. This means that areas where electricity supply is higher, including high supply from renewables, and demand is low, would have lower prices. Such a place is most of Scotland.
However, areas in southeast England, which have high power demand but lower supply, would see higher electricity prices.
The UK’s energy secretary Ed Miliband ditched plans of zonal pricing, and the government has decided not to proceed with this idea, according to the Guardian’s sources.
Zonal pricing is one of the ideas the government is considering as part of wholesale market reforms under the Review of Electricity Market Arrangements (REMA).
As early as in February this year, a coalition of UK trade associations of energy-intensive industries and renewable industry associations, including Scottish Renewables, urged the government “to immediately rule out zonal pricing and adopt a reformed national market to protect energy bills and encourage investment in the UK’s pipeline of renewable energy projects.”
Zonal pricing would increase the cost of investing in renewable energy projects and have a negative long-term impact on energy bills, the groups said.
“Zonal pricing is a dangerous proposal to radically rip up the way the UK electricity market operates which would derail the strong progress Scotland has made towards our clean power ambitions,” said Claire Mack, Chief Executive of Scottish Renewables.
By Charles Kennedy for Oilprice.com
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