Energy prices in the UK could soon vary depending on where you live as the government looks set to introduce 'zonal pricing' to the UK energy market.
The Review of Electricity Market Arrangements (REMA) consultation was launched to tackle record energy price rises in the UK, which forced many homes into fuel poverty.
Now a 'zonal pricing' system could be introduced after a second REMA consultation concluded it was more suited to the UK market potentially saving up to £60 billion for consumers.
We look at what this system involves and how you could be affected.
Claims 'zonal pricing' will save families £25bn-£60bn
The first REMA consultation offered two options for a location-based pricing system: zonal pricing and nodal pricing.
The Department for Energy Security and Net Zero (DESNZ) stated it preferred zonal pricing in the recently published second consultation because it can make the system more efficient, increase flexibility, and lower consumer costs.
Models from the DESNZ have suggested zonal pricing could save between £5 billion and £15 billion in network operating costs and between £25 billion and £60 billion for consumers.
However, the consultation acknowledges challenges in implementing zonal pricing, such as the need for trading reforms and the impact on network access.
It was concluded the final framework could range from "a light touch model which shields participants from certain risks and maintains current decentralised arrangements, to a more transformative model which might prioritise flexibility through sharper price signals and be more centralised in its operation".
What is 'zonal pricing'?
Moving to a zonal pricing system could mean different areas of the UK could be set to pay different energy prices.
The UK currently uses the National Pricing model, which means that there is one area where buyers and sellers can freely make contracts at mutually agreed prices in private.
Zonal pricing differs from this model by dividing the transmission system (where power is moved from one place to another) into zones or regions.
Each zone has its own fixed wholesale electricity price during settlement periods. and across trading periods, these wholesale prices will differ between zones.
Zone boundaries would likely be set at majorly transmission-congested areas, indicating where different wholesale electricity prices should be applied, depending on the demand.
Why is this being introduced?
The DESNZ introduced the Review of Electricity Market Arrangements (REMA) in April 2022 to tackle inefficiencies in the UK energy market.
The consultation was launched following record energy prices for UK households, which forced the government to introduce and expand regulations in the energy market, such as the Energy Price Cap.
Additionally the scheme was aimed at ensuring the electricity market design supported the transition to decarbonisation.
Then Business and Energy Secretary Kwasi Kwarteng said of the consultation: "We’ve just seen the price of offshore UK wind power fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting to the times.
"That includes ensuring the cost benefits of our increasing supply of cheaper energy trickle down to consumers, but also that our system is fit for the future – especially with electricity demand set to double by 2035.
"In what could be the biggest electricity market shake up in decades, I am confident that this review will significantly enhance GB’s energy security and supply for generations to come."
