Electricity zone plan 'may push up bills for Wales'

There is "a significant risk" that energy bills in Wales could rise under proposals to split the UK into different pricing zones for electricity, Plaid Cymru has warned.

In a letter to the energy secretary, the party has raised concerns that parts of Wales could be put into the same zones as major English cities.

The idea is for areas with lots of green energy schemes but less demand for power to pay a lower price for electricity, while regions with high demand and less clean power could pay more.

The UK government said it was yet to make a decision on whether to introduce zonal pricing but was focused "on protecting bill payers and encouraging investment".

Currently there is a single wholesale price for electricity, which applies across the whole of Great Britain.

Supporters have said switching to zonal pricing would help the UK in its move away from fossil fuels, allowing it to make better use of green energy generation.

The thinking is that high energy users - like big data centres - would choose to locate themselves in regions with plenty of renewable power and lower prices.

Meanwhile, green energy schemes might be incentivised to set up in zones currently lacking in cleaner power.

The UK government has been consulting for several years on reforms to the electricity market, including whether it should introduce zonal pricing - with a decision expected in the coming months.

The exact design of any zonal system is unclear and the government is yet to propose a number or location of the zones.

But modelling carried out on its behalf by consultants LCP Delta splits the UK into regions along existing power lines.

The proposals see south Wales in the same zone as London, while much of mid and north Wales would be combined in a zone with cities like Manchester and Leeds.

Plaid Cymru's energy spokesperson Llinos Medi MP said there was "a significant risk that Welsh energy bills under this model will increase".

Writing to energy secretary Ed Miliband she said Wales was "an energy rich nation and an exporter of electricity to other parts of the UK".

"Despite this fact, Wales is also a fuel poor nation, with 45% households having been in fuel poverty," she added, calling for a single Welsh zone to be considered.

The idea of zonal pricing has sparked fierce debate within the energy sector.

RenewableUK Cymru - representing clean energy developers - has warned the government against making the change.

A major shake-up of market arrangements would create investor uncertainty, potentially derailing projects in Wales, while creating "a postcode lottery" for billpayers, the organisation argued.

"We're really concerned that Wales would come out a loser from this," added Abi Beck of RenewableUK Cymru.

"If you look at the steelworks in Port Talbot for example - a high electricity user that's trying to transition from fossil fuels to an electric arc furnace - they can't just up sticks and move to Scotland because the energy prices are lower.

"Everybody wants to lower prices and incentivise renewables - we just don't think this is the way to do it," she said and called on the government to invest in better grid infrastructure to enable more green energy schemes to get off the drawing board.

However the UK's largest energy supplier, Octopus Energy says zonal pricing is "the only thing on the table" that could lead to reductions for bill payers in the coming years.

Rachel Fletcher, the company's director of regulation said it would lead to "a much more efficient system", encouraging energy to be used closer to where it was produced and at times when it was plentiful, rather than being wasted.

The UK had spent a quarter of a billion pounds so far this year on paying large windfarms to stop generating at times of low demand so as not to overwhelm their local grid, she pointed out.

Modelling by think tank FTI Consulting suggested that British customers could save "between £55-74bn on electricity bills by 2050" from a move to zonal pricing, with every region seeing an overall decrease in the price they pay for electricity compared with now, she explained.

"Across the western world we have zonal and locational pricing in many other countries which still continue to be very successful in attracting investment into renewables. We should be leaning into this change," she said.

The scheme's other supporters include the energy market regulator Ofgem, the National Energy System Operator and energy supplier Ovo.

A spokesperson for the Department of Energy Security and Net Zero said: "In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards homegrown power.

"We are considering reforms to Britain's electricity market arrangements, ensuring that these focus on protecting bill payers and encouraging investment. We will provide an update in due course."