Ofgem supports zonal pricing for the UK: market not credible as is.
A shift to zonal power pricing is the best option for Britain, not least because of the anticipated boom in AI-driven data centre demand, Jonathan Brearley, CEO of regulator Ofgem told Montel’s Plugged In podcast.
“With the amount of change that’s in this sector, the idea we leave this market as it is, I don’t think is credible. We’ve had a robust debate within Ofgem [and] we have come to the view that zonal pricing is the best way forward. It’s not a unanimous view but by and large we think that is the best way to create a system that’s adaptable,” he said.
The UK government is considering a shift from a national wholesale market price to splitting the country into at least six pricing zones as part of its current review of electricity market arrangements. The idea is coming under increasing scrutiny, with different market players, including Octopus Energy and SSE, taking opposing views in recent days.
Adopting zonal pricing would allow industrial consumers, including data centres, to locate close to areas with plenty of wind generation, for example, allowing them to access cheaper electricity, Brearley said. The Ofgem CEO was speaking on Plugged In: the energy news podcast which launched today and is available for free.
“Big debate”
“[It’s a] big debate within Ofgem. Not finalised but we think it’s the right thing to do,” he told Richard Sverrisson, the host of Plugged In. Brearley likened the contentious discussion around zonal pricing to the government’s Contracts for Difference subsidy scheme, which had faced similar resistance within industry initially, before going on to score significant success, namely the drastic reduction in prices for offshore wind.
“People told me at the time this was too disruptive, and this wasn’t going to be good for investment and it drove a huge increase in investment. All my experience suggests that when you set clear goals, when you work with the industry properly, that you can achieve far more than you imagine you can,” he said.
The Nordic region, for example, has such a mechanism, which observers say can more efficiently match local supply and demand, leading to more competitive power prices. The UK government is widely expected to take a decision on whether to move to zonal pricing by June.
