Kate Mulvany, Principal Consultant at Cornwall Insight:
“The government’s decision to rule out zonal pricing brings a long-awaited moment of clarity after years of policy uncertainty. But clarity is not the same as resolution. This announcement does not solve the deep-rooted issues undermining the future of Great Britain’s electricity market, and it should not be used as a reason to delay reform any further.
“We cannot afford another three years of policy drift while simultaneously trying to lower bills and attract record levels of investment. Our modelling of the effects of rising constraint costs, grid bottlenecks, and a volatile global energy environment shows that, whether it’s zonal or national pricing, the reality remains the same, the electricity system is creaking under the pressure.
“Zonal pricing research raised valid concerns about the current system. Cornwall Insight and others consistently highlighted issues around consumer charges, investor confidence, cost of capital, and risks to net zero projects. But stepping back from zonal pricing does not in itself constitute a strategy. It leaves the sector facing the same challenges, only with less time and even greater urgency.
“To alleviate the concerns outlined around increasing constraints and the cost to consumers the government has proposed a reformed national pricing package. This package looks to drive the efficient siting of new assets through a combination of strategic system planning and reforming network charges. It is also looking to drive greater operational efficiency through improvements to balancing and constraint management measures.
“This is a positive start but if the government is serious about a reformed national pricing model, it must go far beyond superficial change. The current system remains tied to volatile gas prices, while the rising stack of policy costs underpinning the transition to net zero is adding to public unease about affordability and pace. Delivering reform will be essential to overcoming our current system issues. However, given that reformed national pricing has faced nowhere near the level of discussion or modelling applied to zonal pricing, it will be far zonal from easy.
“There are major questions that are still unresolved, from how policy costs will be restructured, to the future shape of the Contracts for Difference (CfD) scheme and Capacity Market. These are not minor details. They are central to investor confidence, project viability, and system resilience, and they must not be sidelined in the relief of avoiding a politically difficult decision.
“The upcoming CfD auction may well be seen as a vote of confidence in the government’s energy policy. It has become very clear, through our work supporting auction participants with research and modelling, that the unresolved questions on future market design are impacting their strategies.
“Ultimately, it is the consumer that must be kept at the heart of any reforms. Presently, consumers face the worst of both worlds: paying wholesale prices that are still driven by volatile gas markets, and premium costs to replace gas in the power system with renewables. We cannot assume they will be willing to pay like this forever. Households, and businesses care about affordable, reliable energy above all else. If reform fails to deliver that, the legitimacy of the entire system will be called into question.
“The government has made its choice on zonal pricing. Now it must lead with purpose and pursue comprehensive reform with the urgency and seriousness this critical moment demands.”
