Zonal electricity pricing has been a hot topic in energy policy circles—touted as a way to make regional energy costs fairer by aligning them with local supply and demand.
For businesses across the UK, especially those that rely heavily on electricity, any potential reform that promises lower costs is worth watching closely. That’s why many were paying attention to the idea of zonal pricing—a system where electricity prices would vary by region based on supply and demand.
Scotland, with its vast renewable resources, could have seen significantly lower costs under such a system. But in a recent announcement, the UK government confirmed that zonal pricing will not be introduced—closing the door on what some saw as a game-changing opportunity.
So what’s replacing it? And more importantly: what does it mean for your business?
Zonal Pricing: A Missed Opportunity or a Necessary Retreat?
In our earlier blog, Is Zonal Pricing the Future of UK Energy – Or Just Another Gamble?, we broke down what zonal pricing could have meant. It was designed to make electricity prices more reflective of local conditions—lower where generation is high (like in Scotland), and higher where demand outstrips supply (like in London or the South East).
The idea was to encourage energy-efficient investment, reduce costly grid inefficiencies, and attract clean industry to areas rich in renewables. But it also brought serious concerns: complexity, uncertainty for investors, and the potential to drive up prices for much of England.
Why the Government Backed Away
Energy Secretary Ed Miliband confirmed in July that the government is abandoning the zonal model. His reasoning? The risks outweighed the benefits:
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Higher Bills in the South: Areas with high demand and little local generation could see prices rise—an unpopular move for voters and businesses alike.
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Long Implementation Timeline: Zonal pricing might not have delivered tangible benefits for a decade.
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Investment Uncertainty: Power companies warned that shifting to zonal pricing would undermine current contracts and complicate future planning.
Instead, the government is shifting focus to other reforms that aim to speed up the transition to net zero without disrupting the market.
What We’ll Get Instead: Grid Reform and the Strategic Spatial Energy Plan
Rather than changing the pricing model, the government is committing to grid reform and the development of a Strategic Spatial Energy Plan (SSEP).
The aim is to tackle one of the biggest issues facing the UK energy system: getting power from where it’s generated to where it’s needed. Right now, wind farms in Scotland are often paid to shut down during high generation periods because the grid can’t handle the load. Meanwhile, fossil fuel plants in the South are paid to fire up.
The SSEP, due in 2026, will map out where new energy generation, storage, and demand centres should be located—helping investors and planners make more informed, coordinated decisions. It’s expected to streamline grid planning, reduce constraint payments, and support long-term decarbonisation.
Business Impact: Stability for Now, but Fewer Localised Savings
For UK businesses—especially energy-intensive sectors like manufacturing, data centres, and heavy industry—the decision delivers mixed results.
On the one hand, the clarity helps with strategic planning and investment. Companies can build long-term energy strategies around a consistent national pricing model.
On the other hand, regions like Scotland lose a potential competitive edge. Cheaper electricity under zonal pricing might have drawn new clean industries north or encouraged co-location near wind farms and hydrogen hubs.
Now, those opportunities will be shaped by infrastructure rollout and strategic planning, rather than market signals.
What You Should Do Next
While zonal pricing may be off the table, reform is still underway—and it will affect how and where energy is generated, priced, and delivered.
At Black Sheep Utilities, we help businesses like yours:
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Stay informed on market and policy changes—so you’re never caught off guard
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Procure smarter, with flexible contracts that respond to regulatory shifts
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Optimise usage by analysing your energy data and preparing for future reforms, like Market-wide Half-Hourly Settlement (MHHS)
Get in touch with Black Sheep Utilities today and speak to one of our energy experts. We’ll help you turn complexity into clarity—and ensure you’re prepared for what comes next in the UK energy market.
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What is zonal electricity pricing and why was it proposed in the UK?
Zonal electricity pricing is a model where electricity costs vary by region, based on local supply and demand. It was proposed in the UK to improve efficiency, reduce waste in the grid, and encourage investment in areas rich in renewable energy, like Scotland. The idea was to reflect the true cost of generating and transmitting power across different parts of the country.
Why did the UK government decide not to introduce zonal pricing?
The government concluded that the risks of zonal pricing outweighed the benefits. Concerns included the potential for higher bills in southern England, uncertainty for energy investors, and a long timeline for implementation. Instead, the focus has shifted to grid upgrades and a new Strategic Spatial Energy Plan (SSEP).
How does scrapping zonal pricing affect UK businesses?
Businesses now benefit from a clearer, more stable national pricing model, which helps with long-term planning and procurement. However, the potential for lower electricity costs in renewable-rich regions like Scotland has been lost—removing a possible competitive advantage for some industries.
What is the Strategic Spatial Energy Plan (SSEP) and how will it work?
The SSEP, expected in 2026, will outline where new power generation, storage, and demand centres should be built. The goal is to reduce bottlenecks in the grid, cut costly constraint payments, and improve long-term planning across the UK energy system. It’s a key part of the UK’s net-zero strategy.
What should businesses do now that zonal pricing is off the table?
Businesses should focus on optimising their energy procurement strategies under the existing national pricing system. This includes staying informed on market reforms, exploring flexible contracts, and preparing for upcoming changes like Market-wide Half-Hourly Settlement (MHHS). Black Sheep Utilities can help you navigate these changes with expert, tailored advice.
