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Government proposals to split Britain’s power market into zones, under which households and businesses would pay different rates depending on how close they are to wind and solar farms, have been backed by an influential group of peers.
Baroness Dido Harding, who led the government’s test and trace scheme in England during the Covid pandemic, and Lord Udny-Lister, a former Downing Street chief of staff, are among the group that has come out in support of so-called “zonal pricing”.
The House of Lords Industry and Regulators Committee says the proposals should help cut the costs of electricity, but warned any reforms would need to be carefully managed given the probable impact on some generators and heavy industry.
“Zonal pricing and reformed transmission network charges should enable better use of existing grid capacity and lower the cost of electricity, provided that the transition and its risks are managed well,” the committee said in a report published on Wednesday.
Their intervention marks the latest development in a long-running debate over zonal pricing, which has split the energy industry.
Supporters argue it is needed in order to create a more efficient market that takes into account the vast numbers of wind turbines being built across the country as part of the country’s plans to cut emissions.
There is not enough capacity on Britain’s electricity grid to always move electricity to where it is needed, particularly from wind farms in remote parts of Scotland. But these constraints are not recognised by Britain’s single national wholesale price, which currently means wind farms are frequently paid to switch off.
Zonal pricing would help tackle this, supporters say, by splitting the market into different regions broadly reflecting the distribution network, with the price settled according to local supply and demand.
That could mean very cheap wholesale prices for electricity during windy periods in northern Scotland, encouraging households to charge their cars, for example, rather than having to turn the wind farms off.
But big energy developers warn less certainty over power prices would put them off investing, just as the government is trying to get vast amounts of new offshore wind built to meet its clean power targets.
Some critics are also concerned about the risks of a “postcode lottery” for households, depending on the extent to which zonal pricing feeds through into retail electricity bills.
In its report, the Lords committee also warns that the government risks missing its target to decarbonise the power system by 2030, given the pace and scale of new infrastructure that needs to be built.
A spokesman for the government’s Department for Energy Security and Net Zero said: “We need new infrastructure to protect family and national finances with energy security, through clean homegrown power we control.
“We are already overhauling the energy system, building the grid we need and connecting new power projects to reach our 2030 target.” It is due to make a decision on zonal pricing in mid-2025.
