RenewableUK 'disappointed' with British government over zonal pricing plan

In a sign of the deepening row over a proposed switch to zonal power pricing in Britain, RenewableUK has launched a rare criticism of the Labour government for continuing to consider the plan, which it said could wreck the country’s clean power ambitions.

RenewableUK signed an open letter to the government with 15 other trade associations and unions, stating that while they are “keen supporters” of the Labour government’s clean power mission they are “disappointed” it is yet to rule out a switch to zonal pricing.

Zonal pricing is a proposal the UK government is considering to split the power market in Britain into different geographical zones, with each having different electricity prices based on their respective levels of supply, demand and available grid.

Areas that have high green power supply and low demand, like Scotland, would see generally lower prices, while areas such as the southeast of England would see their prices rise.

The idea is that this would incentivise developers to build green capacity where it is most needed to capitalise on those higher prices.

However, in their open letter, RenewableUK – joined by Scottish Renewables and Solar Energy UK from the green power sector – said that “despite almost three years of consideration, we still lack clarity on how a zonal market would be implemented and what this will mean for our operations and prospective investment plans.”

Other signatories to the letter include UK Steel, Ceramics UK and British Glass, reflecting concern about what the reforms could mean for the price that energy-intensive companies would have to pay for power in a zonal system.

The signatories said that while they are aware that some protections for energy-intensive industries and for existing investors in low-carbon energy are under consideration, they remain in the dark as to “how or to what extent this will be done.”

“Crucially, the government has yet to provide a comprehensive impact assessment that demonstrates energy-intensive industries will benefit from zonal pricing – or at least avoid adverse effects on industrial electricity prices – thereby undermining the evidence base for its policy decision.”

The industry bodies said they are “concerned that legitimate issues” raised are “not receiving the attention they deserve.” The uncertainty caused by the continued deliberation over zonal pricing is meanwhile “undermining both the competitiveness” of the UK’s industrial base, they said, calling for the government to “rule out zonal pricing”.

In a separate statement today, RenewableUK deputy CEO Jane Cooper said: "The reality is that introducing regional or zonal electricity pricing is likely to lead to higher bills for households and businesses in parts of England and Wales, as well as disrupting new investment in clean energy.”

Cooper said it is “hard to see” how the Labour government could succeed in delivering on its mission to run an almost entirely clean power grid by 2030 – a plan requiring a massive ramping up of wind and solar in the coming years – “whilst also introducing this complex and controversial scheme.”

“The uncertainty and risks created by zonal pricing would be priced in by developers bidding into clean energy auctions and would drive up the cost of building vital new projects, potentially stalling development.”

Developers may as well use 'random number generator' for models

The increasingly fractious debate over zonal pricing could become the first major row between the renewables sector and UK energy minister Ed Miliband, which have otherwise appeared in lockstep over the government’s ambitious clean power agenda.

Alistair McGirr, head of policy and advocacy at SSE, wrote on LinkedIn recently that it is “really worrying there's not more clarity on what it means for demand with potentially significant implications for energy intensive industries.”

“What zone will they be in? When will the zones be defined? What protections are going to be in place?” he asked, after attending a government webinar. “No wonder they turned the chat off.”

Tom Glover, UK country chair for RWE, responded that following the webinar he was “trying to work out what to tell my teams to put into our models – perhaps just a random number generator?”

One high-profile backer of a switch to zonal pricing is British developer Octopus Energy, whose founder Greg Jackson has said that without such a switch power costs in the UK – some of the highest in Europe – will “continue to spiral, guaranteeing industrial decline.”

“We are considering reforms to Britain’s electricity market arrangements, ensuring that these focus on protecting billpayers and encouraging investment.”