Ed Miliband’s plans to overhaul energy pricing in the UK could create a severe ‘postcode lottery’ that could cost people up to £300 more a year, experts have warned.
The Secretary of State for Energy and Net Zero is understood to be seriously considering the plans as part of the ‘Review of Electricity Market Arrangements’ started by the Tories.
Currently there is some discrepancy between costs based on where you live with North Wales and Merseyside and northern Scotland paying up to £90 more a year.
Energy costs are cheaper in the south where houses tend to be close together and therefore it is more cost effective to supply them with energy. This is despite the fact most of Britain’s energy is generated in the North.
LCP Delta, who carried out modelling of switching from Britain’s current system to a zonal system, reported almost all of the UK would face higher energy bills under the latter.
“The higher price areas account for 97% of demand across the country. This means nearly all consumers will be paying increased wholesale prices for their energy,” said the report.
Their modelling found bills in northern Scotland would fall by £7.5/MWh (up to -£225 per year), but increase everywhere else, most sharply in Southern England.
LCP found the average wholesale price of electricity would increase by a whopping £10/MWh on the south coast, compared to £6/MWh in England and Wales and just £3/MWh in Central Scotland.
This could put electricity bills up £300 per year for homes along England’s south coast, £180 for the rest of England and Wales and £90 in Central Scotland.
Alistair Phillips-Davies, of energy company SSE, which commissioned the report, said Britain was ‘on the cusp of the greatest transformation since the Industrial Revolution’ as it moved towards achieving clean power by 2030.
However, the energy boss warned a shift to zonal pricing would be a ‘political and economic nightmare’ that would jeopardise the net zero transition and ‘create a postcode lottery for billpayers’.
“In countries where zonal pricing exists, some customers find themselves paying £200-£300 more than an equivalent household for energy based solely on where they live,” he said.
However, chief executive of Octopus Energy Greg Jackson defended the approach, arguing households would face rising bills under the current system and pointing out discrepancies already exist.
Jackson argues zonal pricing ‘unlocks massive savings’ by encouraging energy use closer to production sites.
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He added: “Zonal unlocks massive savings by encouraging energy to be used nearer to where it’s produced, and at those times it is plentiful, rather than wasted.
“With the potential to ease any burdens in infrastructure delays, the Government can embrace a modern system that delivers cheaper, fairer energy while also protecting us from shocks further down the line.”
Jonathan Brearley, chief executive of Ofgem, is also supportive of a zonal pricing model. He told Martin Lewis money show: “People in Scotland would get lower bills when the wind is being generated in Scotland.
“We are quite supportive of that change, so all of us want to see a system where we’re no longer paying wind farms to turn off in the same place where energy charges are high.”
A government spokesman said: “In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards home-grown power.
“We are considering reforms to Britain’s electricity market arrangements, ensuring that these focus on protecting billpayers and encouraging investment. We will provide an update in due course.”
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The Secretary of State for Energy and Net Zero is understood to be seriously considering the plans as part of the ‘Review of Electricity Market Arrangements’ started by the Tories.
Currently there is some discrepancy between costs based on where you live with North Wales and Merseyside and northern Scotland paying up to £90 more a year.
Energy costs are cheaper in the south where houses tend to be close together and therefore it is more cost effective to supply them with energy. This is despite the fact most of Britain’s energy is generated in the North.
LCP Delta, who carried out modelling of switching from Britain’s current system to a zonal system, reported almost all of the UK would face higher energy bills under the latter.
“The higher price areas account for 97% of demand across the country. This means nearly all consumers will be paying increased wholesale prices for their energy,” said the report.
Their modelling found bills in northern Scotland would fall by £7.5/MWh (up to -£225 per year), but increase everywhere else, most sharply in Southern England.
LCP found the average wholesale price of electricity would increase by a whopping £10/MWh on the south coast, compared to £6/MWh in England and Wales and just £3/MWh in Central Scotland.
This could put electricity bills up £300 per year for homes along England’s south coast, £180 for the rest of England and Wales and £90 in Central Scotland.
Explore: How much could your bill go up?
Alistair Phillips-Davies, of energy company SSE, which commissioned the report, said Britain was ‘on the cusp of the greatest transformation since the Industrial Revolution’ as it moved towards achieving clean power by 2030.
However, the energy boss warned a shift to zonal pricing would be a ‘political and economic nightmare’ that would jeopardise the net zero transition and ‘create a postcode lottery for billpayers’.
“In countries where zonal pricing exists, some customers find themselves paying £200-£300 more than an equivalent household for energy based solely on where they live,” he said.
However, chief executive of Octopus Energy Greg Jackson defended the approach, arguing households would face rising bills under the current system and pointing out discrepancies already exist.
Jackson argues zonal pricing ‘unlocks massive savings’ by encouraging energy use closer to production sites.
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He added: “Zonal unlocks massive savings by encouraging energy to be used nearer to where it’s produced, and at those times it is plentiful, rather than wasted.
“With the potential to ease any burdens in infrastructure delays, the Government can embrace a modern system that delivers cheaper, fairer energy while also protecting us from shocks further down the line.”
Jonathan Brearley, chief executive of Ofgem, is also supportive of a zonal pricing model. He told Martin Lewis money show: “People in Scotland would get lower bills when the wind is being generated in Scotland.
“We are quite supportive of that change, so all of us want to see a system where we’re no longer paying wind farms to turn off in the same place where energy charges are high.”
A government spokesman said: “In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards home-grown power.
“We are considering reforms to Britain’s electricity market arrangements, ensuring that these focus on protecting billpayers and encouraging investment. We will provide an update in due course.”
Find Out More...