Vaccine mentality should be applied to zonal pricing

Introducing zonal electricity pricing could be carried out sooner than the five years that the government has said it would take, Octopus Energy’s Rachel Fletcher has told Utility Week.

Fletcher said there is “no reason” why it should take so long and pointed to the accelerated roll out of the Covid-19 vaccines as an example of how much quicker governments can operate if they have to.

The government vowed to further explore zonal pricing in its update on the Review of Electricity Market Arrangements (REMA). However, warned that it “would be complex and take significant time”.

In response, Fletcher said: “There is no reason why it needs to take that long.”

“You can decide where you’re going quite quickly and curtail that time,” she said, adding that the government should swiftly rule out exploring incremental reforms of the existing wholesale market, such as network charging.

She also said that software to run zonal pricing systems exists in other parts of the world, which run such systems.

This software could be bought and trialled on a shadow basis while finalising the zonal system’s policy design in parallel, like happened with many of the processes in the Covid-19 vaccine development.

Fletcher also said that concerns about potential disruption to the market from zonal pricing ignored the logistical challenges involved in delivering the amount of transmission infrastructure required to serve an unreformed national wholesale market.

“Understandably, people raise eyebrows at how long it will take to implement a new wholesale market but not enough attention is being given to the almost physical impossibility of building the transmission network we need if we don’t have the right price signals that help us optimise the assets on the system,” she added.

Pointing to estimates that an eightfold increase in transmission network build out is required to transport the greater volume of electricity that will be required to meet the UK’s grid decarbonisation target, she said: “If you look at what transmission has been built in 2022 and 2023, we’re already way behind in the transmission build that you need to get to 2035.”

However, Ana Musat, executive director for policy and engagement at RenewableUK, said that overseas experience suggested that introducing zonal pricing would take as long as seven years.

She said that seven years is a more realistic timetable for overhauling the market based on experience in places like the US state of Texas, where zonal pricing has been introduced.

Pointing out that it has taken the government nearly two years just to reach the second stage of its REMA consultation, Musat said: “In the meantime, we’ve got a general election coming up and a lot of this stuff will be on hold. Even if a decision is made fairly soon, it’s likely that we’re going to lose a year.”

The government’s REMA announcement also:

• Outlined a prospective five-year timeline for implementing zonal pricing
• Estimated that zonal pricing could push 10GW of offshore wind into Southern England 
• Laid out plans for an optimised Capacity Market and revamped CfDs
• Forecast the link between gas and power prices will rapidly diminish