How locational pricing could make bills cheaper

We asked Scots how they'd feel about regional pricing

Not sure how locational pricing works?

We explain it here as the price of fish

Why does Great Britain's energy pricing system need reform?

Right now, the energy industry sets a single price for electricity across the country, and it is far too high.

The root of the problem: setting one price for the whole country means we lose flexibility and compromise on efficiency when we need it. The energy system is a constant balancing act: matching supply (all sources of power from wind turbines to plants burning costly imported fossil fuels) with demand (all our energy needs from factories to phone charging).

To work properly, the grid must stay balanced. Historically, our grid operator has done that by switching on more gas-powered stations when we need more energy, and turning them off when we need less. Read more in our intro to energy flexibility.

But pricing at the national level is leading to consumers across the country paying much more for their energy than they need to.

Take grid constraints for example: often, we are generating so much wind in places like Scotland that our cables can’t transport it to the south where it needs to go.

Electricity costs shoot up as consumers all over the country pay to burn gas to fill the gap whilst ALSO paying wind farms to stop spinning.

At the same time, we often send our power overseas from the south (where we need it most), whilst buying in power from overseas in the north (where we need it least), making the problem even worse.

These so-called ‘constraint costs’ are skyrocketing, and could more than double from today's levels - up to £3.6 billion per year in a best case scenario by 2030! - if we continue to use this outdated system.

Using or storing that surplus power locally would be far better (and cheaper). We could encourage people to do that by giving it to them at a much lower price, but only if the price could reflect the regional market instead of the national one.

Enter zonal pricing.

Rather than a single country-wide price, we think electricity prices should vary by area, to reflect what it costs to produce and supply the energy in that area.

So, if you live in an area where lots of wind or solar power is generated, your bills will be extra cheap. In fact, research done by Ofgem, the energy regulator, shows these customers would benefit from some of the lowest electricity prices in Europe, and most if not all other areas of Great Britain would get cheaper bills too.

According to our own research, here's how Great Britain would benefit from regional pricing:

1. It'd cut bills for all British consumers by making the most of green energy that would've gone to waste
2. Households would have saved up to £2.4 billion in 2024 if we'd had zonal pricing
3. Businesses operating in parts of Scotland and able to use energy flexibly could make an unbelievable 99% bill reduction under zonal pricing if they shifted their energy use to the cheapest, greenest times across the day
4. Lastly, we'd make much better use of our local renewables. Switching it off when too many green electrons are being generated is costing us millions each year. At the moment we're wasting enough wind to power 460,000 households a year.

Lets bring in regional pricing now.

As our technology and energy sources get more and more complex, one-size-fits all pricing simply doesn’t cut it.

We must work together with government and industry leaders to create this new forward-thinking system. We’ve already seen exciting and decisive action from the new government to almost entirely remove fossil fuels from British electricity production by 2030.

To make the most of this green power, boost the economy and give people cheaper bills, regional pricing must come next.