Energy price cap update on zonal energy regional pricing

While this isn’t new – the Energy Price Cap already has regional pricing for certain areas – Google searches for ‘zonal energy pricing’ have skyrocketed.

Here’s all you need to know about what a zonal energy pricing system could look like and how it could be implemented.

So, what is zonal energy pricing, and who would be its winners and losers?

Les Roberts, energy expert from Bionic, explains: “Regional energy pricing, or zonal energy pricing, is set to be one of the biggest changes to the UK electricity market in over 35 years. 

“The system, if approved by the government, is set to transform the UK’s energy market, aiming to make the system more efficient by creating regional energy markets.”

What are regional energy markets?

Regional energy markets are based on the cost of generating and transmitting electricity in each zone, rather than a blanket cost for the whole nation.

“In areas where renewable energy sources are in abundance already, such as Scotland, prices are set to fall by up to 8% in the proposed scheme,” says Les. 

“However, in areas such as London and the South, where demand for electricity and energy is high and electricity often needs to be transmitted over long distances, prices are predicted to rise by 2.4% under regional energy pricing.”

(Image: Bionic)

Analysing the proposed zonal energy scheme, based on monthly utility bills for UK cities (electricity, heating, cooling, water, garbage) for 85m2 Apartment with percentages and proposed regional zones based on research provided by LPC Delta, Bionic has predicted which UK cities will benefit the most and the least from the regional energy pricing scheme.

Birmingham would benefit most from the regional price increase, despite the new scheme proposing a predicted 2.4% increase in energy costs. 

London is set to rank 5th under the regional pricing scheme, with bills predicted to increase by 2.4%, taking the average monthly bill cost to £238.77. 

Surprisingly, Aberdeen is still set to have some of the highest utility bills in the UK, despite the proposed zonal energy scheme set to reduce costs by 8%.

Les says: “If implemented, regional energy markets are set to transform the UK’s energy market, changing not just how much people pay, but also how and where new energy infrastructure is developed. The scheme is set to incentivise regional investment in clean energy projects and has the potential to accelerate the UK towards its 2050 net-zero target.”

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What is the energy price cap and when does it change?

The term is quite confusing, and it’s important to note it’s not the maximum price you will pay – it’s an average. If you use more, you will pay more.

The cap was introduced on 1 January 2019 by regulator Ofgem, with the aim of preventing the millions of households on expensive variable tariffs from being ripped off.

The next change is due to be announced later this month and come into force on July 1.

But it only limits what you pay for each unit of gas and electricity that you use.

It’s based roughly on wholesale energy prices (those that firms pay) and applies only to providers’ standard and default tariffs, which the vast majority of households are now on.

The energy price cap is the maximum amount energy suppliers can charge you for each unit of energy and standing charge if you’re on a standard variable tariff.

The energy price cap also sets a maximum daily standing charge.