How zonal pricing helps energy-intensive businesses

How much could large businesses save on energy bills?

Zonal pricing: the background

Britain has some of the world’s highest industrial electricity prices. Our factories and data centres have 50% higher prices than French and German factories, and 3-4x higher than Norway and Sweden.

Expensive electricity means it’s harder to run an energy intensive business in the UK. Recently we’ve seen entire operations shut down, leading to job loss, hurting local economies and communities.

Part of the reason these bills are so high is that our energy system is so wasteful and inefficient.

Our pricing system is no longer fit for purpose. We set a single national price for power, whether it’s come from a wind turbine in Aberdeen or a gas-power station in Nottingham – preventing the savings of cheap renewables from materialising on customers’ bills. So far in 2025, we've wasted £500 million simultaneously paying to turn off wind turbines in one part of the country, and overpaying gas generators in another.

Both can be fixed by moving away from national pricing, a market design that is simply incompatible with modern, smarter electricity grids – and implementing zonal pricing instead.

Britain should join the majority of OECD countries in using zonal electricity pricing to help prevent further deindustrialisation in the UK.

Would big businesses save on energy bills under zonal pricing?

Moving to a zonal pricing system would mean big savings on electricity bills for hard pressed industries:

• A car plant in the North East would save £4,800,000 to £5,980,000 per year.
• A medium-sized ceramics business in Stoke-On-Trent would save £510,000 to £630,000 per year.
• A data centre in Hertfordshire would save £1,550,000 to £2,520,000 per year.
• Scunthorpe steel works would save up to £14,130,000 to £15,000,000 per year if it switches to an electric arc furnace.
• A large chemicals plant in Hull would save £3,660,000 to £3,890,000 per year.
• A large glassworks in Scotland would save £13,600,000 to £19,000,000 per year.
• A large papermill in northern Wales would save £13,700,000 to £14,500,000 per year.

Cost cuts for different businesses (Transmission delay scenario)

Commercial data is very hard to come by because it’s so sensitive, so we put FTI’s savings into conservative, researched, evidenced estimations of production and electricity consumption using materials from trade associations, government reports, and news reports.

The grid transmission delay scenario refers to critical grid projects being delayed, which would increase network costs as wind farms are constrained more often. This is becoming the more likely scenario, making moving to zonal pricing even more critical.

More bang for fewer bucks

These savings are conservative estimates. FTI Consulting assumed that existing rules for current power plants would stay the same, used current – but likely too costly – plans for upgrading the grid, and did not consider any changes like power plants, wind farms, or factories relocating in response to the new zonal electricity prices.

But while zonal pricing is just one necessary policy for cutting bills, some businesses will still need support after it’s implemented. The good news is that zonal pricing delivers lower electricity costs and a more efficient system means the government can support them better with less money.

Saving money on the British Industry Supercharger

Zonal pricing would reduce the cost of the Supercharger (paid for by everyone’s bills) by £900 million.

The government has an electricity price support mechanism (a ‘British Industry Supercharger’) for 370 large industrial businesses in certain sectors, including steel, glass, chemicals, hydrogen, and paper. The support is paid for with a levy on all other energy users’ electricity bills - from households to other manufacturers and data centres.

The Supercharger does three things for these 370 businesses:

1. It removes all policy levies, saving them £5-7 per megawatt hour.
2. It removes capacity market payments, saving another £5 per megawatt hour.
3. It pays for 60% of their electricity network costs, saving £14-19 per megawatt hour.

The government said the Supercharger scheme would cost up to £410 million per year across all electricity bills. FTI Consulting estimates that it will rise by two and a half times to £1.12 billion per year in 2030 as policy levies on bills rise over the next few years to get to reach the government’s Clean Power 2030 mission.

Over the following decade (2030 - 2040), the Supercharger will cost £10.7 billion altogether.

Organisations representing those 370 businesses have asked for the Supercharger to become a “Super-Duper-Charger”, boosting the 60% network costs compensation to 90% to help cover rising network system costs. If this changed, the cost of the Supercharger would rise to £12.3 billion.

If we move to zonal pricing, the cost of the Supercharger comes down by £900 million over ten years, meaning industry is supported at a lower cost to other bill payers.

The savings can then be put to work to help companies that still need support. Some Supercharger businesses might see an overall increase in their electricity bill if zonal pricing is introduced due to the way the Supercharger works.

Crucially though, zonal pricing would unlock enough savings overall that there will be enough savings overall to support them.

Why would some bills go up?

Zonal pricing means network costs are much lower across the system. That saving ironically means large businesses get less of a discount through the Supercharger than before, because the 60% compensation on electricity network costs goes down overall.

In many areas, the cheaper wholesale electricity prices brought by zonal pricing would outweigh the Supercharger changes, but in a few areas, they might end up paying more.

Here are two examples of how this plays out in different areas:

1. Scunthorpe steel works would gain up to £15,000,000 per year in savings on its electricity bill in a zonal market, if it were turned into an electric arc furnace as planned. While it receives less Supercharger compensation, it also gets much lower wholesale electricity prices costs because there is enough cheap generation nearby driving the local price down.
2. Port Talbot steel works in South Wales would also get an £7,900,000 saving on electricity costs, but because it loses some of the Supercharger compensation as network costs go down, it would end up being worse off overall. It wouldn’t save enough in the market to offset the Supercharger reduction.

But, zonal pricing both uncovers areas that really need more renewables AND incentivises developers to build projects there – which would lead to lower bills in the longer term.

Does that mean we shouldn't do it?

No - the answer to this problem isn’t to not bother with zonal pricing.

It’s to implement zonal pricing to cut costs across the system, and develop a better mechanism for supporting our critical industries so nobody loses out at a lower cost overall. This is completely possible and would mean everyone can win.

Best of all, zonal pricing will deliver big savings for all other consumers - who all pay for the Supercharger but get no support in return.