Abolition of GB electricity zonal Pricing – Welcome certainty for developers and investors

Zonal pricing is a market mechanism in which electricity prices vary depending on geographic location.

Prices reflect the local cost of delivering electricity, accounting for factors such as transmission congestion and distance from demand centres.

This contrasts with the current system in Great Britain, which applies a single national wholesale price for electricity.

Whilst the recent UK Government decision to abandon zonal pricing has sparked intense debate among stakeholders about the relative merits of each system, in our view it supports investor certainty at a critical time for the UK’s energy transition.

The case for zonal pricing

Supporters of zonal pricing argue that the current uniform pricing model distorts investment signals.

Under a single price, generation projects receive the same market value regardless of their location. This has contributed to the overdevelopment of projects in areas with limited grid capacity and underinvestment in zones closer to major demand centres.

The result is higher balancing costs and greater reliance on curtailment.

By aligning prices with local system conditions, zonal pricing can incentivise investment in locations where power can be delivered more efficiently.

Proponents argue it would support more efficient use of the transmission network, reduce constraint costs, and increase transparency for market participants.

Examples from the United States and parts of Europe show that locational pricing can help optimise grid development and drive down long-term system costs. These jurisdictions have demonstrated how granular price signals can enhance investment efficiency.

The case against zonal pricing

Conversely, critics point to a range of challenges with implementing zonal pricing.

Chief among them is the potential impact on investor confidence. The UK’s single pricing model provides a stable, predictable revenue environment for developers.

Introducing zonal variation could add volatility and complicate project finance models, particularly for renewable projects with high capital costs and long development timelines.

Regional inequality is another concern. Zonal pricing would likely result in consumers in some areas paying more for electricity than others. This could politically unpopular, particularly in regions already facing economic disadvantage.

There are also operational hurdles. A move to zonal pricing would require changes to settlement systems, contract structures, and regulatory frameworks. It also complicates support schemes such as Contracts for Difference, and the Capacity Market.

The Government’s position

On 10 July 2025, following extensive consultation and market analysis, the Government confirmed that it would not proceed with zonal pricing. Instead, it opted to retain the single national price model for electricity in Great Britain.

It acknowledged the theoretical efficiencies of zonal pricing but concluded that the accompanying disruption would outweigh the near-term benefits.

The decision was framed around the need for market stability to support investment in new infrastructure and delivery of net zero commitments.

Implications for market participants

For developers and investors, the Government’s position offers a degree of regulatory certainty.

Many had expressed concern that a move to zonal pricing could complicate financial modelling and disrupt projects already in development.

The continued use of a national pricing model enables developers to proceed with confidence, using established assumptions and pricing structures.

This is particularly important against the background of the wider ongoing grid reform.

While the single pricing model does not fully address locational inefficiencies, its simplicity and predictability remain valuable in a complex and capital-intensive market.

Concluding thoughts

The debate over zonal pricing in the UK highlights a broader trade-off between market efficiency and investment certainty.

While there are strong arguments for introducing locational signals to encourage optimal infrastructure buildout, the practical and political challenges remain significant.

The Government’s decision to maintain a single price reflects a cautious, stability-first approach.

In doing so, it prioritises continuity for investors and the timely delivery of new generation capacity.

The conversation is unlikely to end here. As grid pressures intensify and the energy system evolves, the case for reform will grow stronger.

For now, however, the decision provides much-needed clarity to developers, suppliers, and regulators.