Fresh analysis on the Great Britain electricity market suggests that planned upgrades to the electricity grid significantly undermine the potential advantages of introducing zonal pricing.
According to a report by LCP Delta, commissioned by the Department for Energy Security and Net Zero (DESNZ), previous estimates of savings from zonal pricing are now outdated due to new grid plans released by the National Energy System Operator (NESO).
The initial analysis, based on grid plans from 2022, predicted substantial savings from zonal pricing.
However, the latest upgrades included in NESO’s “Beyond 2030” programme are set to ease existing network constraints, enabling up to 21GW of offshore wind generation and potentially creating around 20,000 jobs.
As a result, the economic case for zonal pricing has weakened considerably, with the report now estimating potential savings of only £0 to £11 billion over the period from 2030 to 2050, compared to earlier projections of £5 to £15 billion.
When factoring in the recent grid upgrades, the modelled benefits of switching to zonal pricing drop dramatically.
Furthermore, in scenarios where interconnectors can adjust their flows without changing national pricing, the benefits of zonal pricing could be eliminated entirely.
The analysis also highlights that the potential benefits of zonal pricing are sensitive to changes in investment costs, with even minor increases in the cost of capital for low carbon projects negating anticipated savings.
