The EIUG emphasises the need for reform of electricity market arrangements to address increasing constraint and network costs, as a result of moving towards a more renewables-based system. However, whether introducing zonal pricing or a reformed national market is the best option is not clear. Government has not published the analysis showing how they might impact investments and the economy to make an informed decision. Without such analysis, including the likely impact on energy intensive industries, it would be irresponsible to make a decision on the future electricity market structure.
The UK Energy Research Centre (UKERC) published a report Locational Signals in a Reformed National Market: A review of options earlier this year. The academics are concerned that Government has taken too narrow a view on what could be implemented and present a wide range of options that it could incorporate into a reformed national market to ensure that the best possible model is considered.
Such a reformed national market is an alternative to zonal pricing. Some analyses show that zonal pricing might increase electricity prices for energy intensive industries instead of reducing them, depending on the zones and assumptions about cost of capita. Furthermore, how it might impact different sectors, existing manufacturing assets and the network charges compensation scheme is still unclear.
Without a proper assessment of how both of them might the economy, and in particular impact energy intensive industries, the lack of clarity is increasing investor uncertainty at a time when these industries are under increasing competitive pressure, mainly due to higher UK energy prices.
Arjan Geveke, Director of the EIUG, stated: “The EIUG urges DESNZ not to make a decision on zonal pricing or package of market reforms without a proper evidence base and impact assessment to justify it”.