Regional energy pricing isn't completely extinct: Might regional energy costs still be implemented?
In a significant move for the energy sector, the UK government has decided to pause plans for zonal electricity pricing, opting instead for a national pricing approach to deliver a fair, affordable, and secure energy system. This decision was confirmed in July 2025 via the Review of Electricity Market Arrangements (REMA).
The government's preference for a national pricing system is supported by an "ambitious package of reform to improve the efficiency of our future power system," as stated by Energy Secretary Ed Miliband. Ofgem, the UK energy regulator, has welcomed this decision and expressed ongoing interest in exploring network charging reforms, which could potentially incorporate elements of location-based pricing in the future.
While some industry figures, including Ofgem’s CEO Jonathan Brearley and Octopus Energy's CEO, had supported zonal or locational pricing for its potential to better reflect local supply-demand dynamics and encourage renewable energy investment, a recent industry review by AFRY concluded that moving to locational pricing in the UK electricity market would be “high risk for little reward” due to the administrative complexity and uncertain benefits. Criticism from trade bodies, such as RenewableUK and Solar Energy UK, also warned that zonal pricing might introduce uncertainty and deter investment.
Despite shelving the zonal pricing proposal, the forthcoming Strategic Spatial Energy Plan, due in 2026, is expected to outline how energy projects will be distributed and could reopen the dialogue on location-based pricing. Ofgem has stated it will release new thinking on network charging reform, which may revisit locational elements in the grid charging model to improve system efficiency.
If locational pricing were introduced, households in regions with abundant local renewable generation could benefit from lower electricity bills by paying prices more reflective of local supply and demand. Locational pricing could also provide more accurate price signals to encourage generation and consumption behaviours that alleviate congestion and reduce grid strain, potentially enhancing overall grid efficiency and lowering system operating costs. However, the complexity and potential investment uncertainty could outweigh benefits if not managed carefully.
The government's current preference for national pricing with targeted reforms aims to balance price stability for consumers with incentives for investments in clean energy and grid flexibility without the risks posed by zonal pricing uncertainty. The bigger question for households may be whether any future reform, zonal or otherwise, addresses the underlying drivers of high costs, such as constraint payments, inefficient grid design, and volatile fossil fuel prices.
In summary, the UK has paused plans for zonal electricity pricing but continues to explore reforms that could incorporate location-based elements in the future. Such reforms hold promise to improve grid efficiency and potentially reduce bills for some households by aligning prices with local conditions, but the government currently favours a national pricing approach for clarity, affordability, and investment confidence.
- The government's decision to implement a national pricing approach for energy could potentially guide the design of future home projects, as they aim to make energy costs more affordable and secure.
- The solar energy industry, which has been pushing for renewable energy investment, may find the government's preference for a national pricing system favorable, considering the uncertainty that locational pricing might introduce.
- Finance institutions, which are crucial for energy projects, might find the national pricing system more appealing due to the potential for price stability and investment confidence.
- While the forthcoming Strategic Spatial Energy Plan might not reopen the dialogue on zonal pricing immediately, it could offer insights on how energy projects will be distributed, potentially influencing the industry's future direction.
- If implemented correctly, locational pricing could costs decrease for households in regions with abundant local renewable generation, leading to bills that better reflect local supply and demand.
- The government's focus on national pricing and targeted reforms for clean energy investments aims to address the underlying drivers of high costs, such as constraint payments, inefficient grid design, and volatile fossil fuel prices.
