The failure of the UK Government to adopt zonal pricing plays politics with power

Ed Miliband is reported to have ruled out switching the UK’s energy transmission and distribution network (“the Grid”) to a system of “zonal pricing”, according to the Guardian.

If this is your first time hearing about this, the current grid system is largely based on reliance on coal and gas. It was designed in an era where moving electricity down wires was comparatively expensive but moving coal by train was comparatively cheap and easy. This means that the system was priced so as to incentivise building coal power plants as near as possible to large population centres like London and the South East.

But as we move or an age of renewables, we have a problem whereby the wind to power wind turbines is largely concentrated just about everywhere else - particularly in Scotland. There aren’t enough transmission lines to move the power to where it’s needed and imbalances between supply on windy days and the ability to move the power to where the demand is often means that wind turbine operators have to be paid to shut their turbines down while expensive gas turbines are spun up to fill gaps. It’s a lose-lose situation for everyone and is seriously hampering Scotland’s ability to develop its renewable sector.

The solution - zonal pricing - is to split Great Britain (Both Ireland and Northern Ireland are already on their own shared network) into zones and instead of pricing energy based on supply and demand across the whole island, base it on the supply and demand of the local zones (though even in this system, we see other impacts that cause energy prices in Scotland to be substantially higher than in the South East - negating claims that zonal pricing would create a “postcode lottery”). This means that if Scotland was producing much more energy than it could use, then prices could drop to zero or even negative within that zone to encourage more energy use. Given Scotland’s massive capacity to supply energy, this would be many times more likely than it is under the current system and would eventually lead to the attraction of energy-intensive industries to Scotland where they’d benefit from lower prices. If Scotland publicly owned more of our energy generation, we’d also stand to benefit from exports to high demand zones where the higher local price would still be charged.

The UK Government has ruled out this system because the short term impact would likely be moderate price increases in the South East until the rest of the energy transition kicks in to increase the deployment of solar panels and to reduce demand through housing retrofitting - something that would be incentivised by this pricing to happen faster. This is despite the UK Government admitting that the current system doesn’t work and zonal pricing is the only option on the table that would fix it. There is no other plan - as can be seen by them scrabbling around now to try to cobble one together.

Imagine we already had zonal pricing in the UK and the option was to switch to the current energy distribution system. Doing so would increase energy bills across vast areas of the UK, would cripple the rollout of renewable energy in the places where it’d be most effective, would require massive tracks of pylons everywhere to move the energy to London, and eventually the grid would collapse under the strain...but until then folk in the South East would get a mild energy price discount.

Would the UK Government, looking almost exclusively at their ailing voter intention polls, make that change? We now know that the answer would be “Yes, in the time it’d take to flick a switch.”