The Energy Postcode Lottery? We already have one
Gordon Morgan from the Common Weal Energy Working Group discusses the recent decision by the UK Government to reject “zonal pricing” in light of a recent consultation into reform of the way that consumers are billed for electricity.
Image Source: Fré Sonneveld - Unsplash
Common Weal supports the Governments goal to decarbonise electricity by 2030, however, we disagree with how this is paid for and how much customers are charged as well as the lack of transparency over how those charges are calculated.
Scottish households pay amongst the highest charges for electricity in the world! Yet Scotland has for several years produced more carbon free electricity than it uses.
The proposal to set prices zonally which could have lowered charges in Scotland and incentivised more efficient energy use, was blocked by the Government and in particular Ed Milliband who claimed it would introduce a “postcode lottery” for prices.
But prices vary by postcode at present! An average electricity user in the North of Scotland pays £54 a year more than one in London for the same amount of electricity used and one in North Wales pays over £92 more than one in Southern England.
The differences in charges are down to a separation of the cost of upgrading the core “Grid” network, which is charged equally across GB, from the cost of connecting local users to that network. Only the core “Grid” network has an averaged cost, so called “distributed” network costs are charged in each locality (Specifically - Wider transmission costs are regulated under the TNUoS protocol of charging and local distribution costs are regulated under DUoS. Different companies own them. Both sets are regulated by OFGEM and ultimately the UK Government.)
Thus London, which produces very little non fossil electricity but has a fairly dense population and hence small cost of adding or maintaining an individual household, charges much less than the Scottish Highlands, which produces far more fossil free electricity than it needs for its own use, but has a sparse population so requires significant cost to add or maintain a household on the grid.
Meanwhile large pylons cross the highlands carrying this electricity South next to smaller wires powering the houses. Only one power cable is charged nationally.
The Government already recognises the “anomaly” and uses a formula AAHEDC to somewhat compensate rural regions. To charge all consumers across GB the same would mean equalising the fixed charge at £196 annually (53.68/day). This would lower the annual charge in the Scottish Highlands by £26 and in North Wales by £59. It would increase the charge in London by £28 and in Southern England by £34. Zonal Pricing would not have introduced a “postcode lottery” but would help correct the one that already exists. If the Government wants to end the “postcode lottery” altogether the systems are in place to do it! Indeed as it would not affect CfD contracts or prices it could be introduced now.
Policy Costs
What is charged to households for electricity across GB, includes more than the cost of paying for the power used and the cost of getting it there. While some of these are the “green levies” that often appear in the headlines as a result of lobbying from fossil fuel companies, they also include deliberate policy decisions on the part of the UK Government some of which are:
the cost of subsidising electricity prices for around 400 large businesses to bring them more into line with European nations so they don’t relocate out of the UK. The discount rate has just been increased from 60% to 90% and the cost to other consumers up to £420M a year or £8 per household.
the cost of building Sizewell C nuclear plant in South England which will be paid by households for at least 10 years before electricity is produced. The cost in 2026-2027 is projected to be £1,036mn but set to rise in future years. The cost per British household will be approximately between £10 and £20 a year.
The Warm Homes Discount which provides eligible low income and pensioner families with up to £300 off their electricity bill. In winter 2025 this will be eligible to up to 10 million people at an anticipated cost by Ofgem of £1,000mn. This is paid by all households costing around £19.51 in 2025/6.
Many of these additional policy costs have been levied in effect through the back door without public debate. For example Great British Energy which was launched as if it were new money being invested in public power has seen much of its “investment” go to Sizewell C, which it turns out is being largely paid for up front through customers electricity bills. GB Energy has only now been asked to to try and make sure its investments cover their costs by 2030.
The policy costs above are the same for each household across Great Britain. Collectively they add costs to bills which keep them higher than otherwise. By adding them to bills the Government doesn’t have to fund them from more direct taxes or borrowing.
We anticipate announcements that new data centres will be built as a matter of urgency and the claim may be that these must be supplied with cheap power and plentiful water. The Government may want to add them to the list of Energy Intensive Sites and hence perhaps at add at least £10 to the charge for every household.
These “stealth” taxes may be deemed essential, however, it is important people know about them. They should be detailed on bills.