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Ministers are poised to drop a controversial plan to split Britain’s wholesale electricity market into different geographical zones in a move that could lead to the south of England paying more for power than Scotland, following several months of intense debate.
Energy secretary Ed Miliband has recommended to ministers that the government should not adopt the so-called zonal pricing scheme, officials said. His recommendation has been circulated to senior colleagues under a Whitehall consultation process called a “write-round”.
The decision follows warnings from the industry that zonal pricing could deter investment in new wind farms, just as the government is trying to decarbonise its electricity system.
However, officials cautioned there were “complexities” in the upcoming decision. The government will instead consider some less radical reforms to the market, they added.
The energy department said: “We do not comment on speculation”. Miliband’s recommendation to ditch the plans was earlier reported by the Guardian.
Proposals for zonal pricing have been under consideration for several years due to concerns that the wholesale electricity market needs to catch up with the huge changes in Britain’s electricity mix over the past few years.
The current system of one national wholesale price was designed for an era in which most of Britain’s electricity came from large, centrally located fossil fuel plants.
A growing share of electricity now comes from wind and solar farms dotted around the country, but the single national price does not reflect the difficulties in many areas of moving that electricity to where it is needed.
Under the current system, wind farms predominantly in the north are frequently paid to switch off because there is not enough capacity on cables to carry their electricity to areas of demand further south.
Supporters argue a zonal market could help fix that problem by creating prices that reflect local supply and demand, encouraging consumers to use output from wind farms locally.
The government’s National Energy System Operator (Neso) has supported the proposed move, arguing it could help cut its bill for making sure supply and demand are always balanced by paying generators to increase or decrease output.
However, critics have warned that the prospect of lower and uncertain power prices in Scotland would put at risk the investment needed to hit the government’s election manifesto commitment of largely decarbonising the electricity system by 2030.
For that to happen, the government wants the UK to almost double its onshore wind capacity and almost triple its offshore wind capacity — requiring private investors to invest billions of pounds.
A zonal market would also be politically contentious, given the prospect that it could create a “postcode lottery” for electricity prices depending on the extent to which wholesale costs are passed on to consumers.
For example, households in Scotland could end up paying much less to charge their electric cars than homes in London.
A decision is likely to be confirmed in the coming weeks ahead of the opening of an auction for renewable energy subsidy contracts, which the government wants to be the biggest yet.
