Zonal energy pricing explained

Why does Britain's energy pricing system need reform?

TL;DR: our energy sources have changed dramatically in the last 15 years: from 40% coal to switching off coal for good, and from 5% renewables to 40%. This is incredible, but there's one problem. Our energy system hasn't been reconfigured to suit the clean energy sources and complex, smart energy users of our world today.

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.

Not sure how locational pricing works?

We explain it here as the price of fish

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. In the current system, the solution is to simply switch the turbines off. This wastes vast amounts of clean power and still costs you money, as we have to pay the producers to shut down.

At the same time, electricity costs shoot up as consumers all over the country pay to burn gas to fill gaps.

Combined these added over a billion to British energy bills in 2024, and the costs are growing. So far, it's already cost you over £300 million in 2025. That's £180,000 wasted every hour.

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 - if we continue to use this outdated system.

In our broken system, Scotland generates a huge portion of the nation's renewable energy but pays some of the highest energy bills in the world.

We went to Dundee, Scotland to ask Scots how they felt about that.

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 all other areas of Great Britain would get cheaper bills too.

Read the leading independent analysis on zonal pricing below.

The FTI found that zonal pricing would...

• Save customers at least £55bn by 2050 (£3.7bn per year!)
• Lead to market reform and protect customers from the costs involved in infrastructure delays and other network costs, bringing savings up to £74bn.
• Make bills cheaper (or no worse off) in every area of the country
• Give areas with plenty of renewable generation, like Scotland, some of the cheapest electricity in Europe

Lets bring in zonal 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, zonal pricing must come next.