The potential introduction of zonal – or locational – pricing for electricity zonal electricity pricing is one of several potential developments presenting both opportunities and challenges for Scotland's renewable energy sector.
The pricing mechanism would see electricity costs vary by region, reflecting factors such as generation availability and network constraints. This type of electricity market is used in countries including the US, Denmark and Australia.
For Scotland, with its plentiful supply of renewable energy often situated in less densely populated areas, the change could lead to lower electricity prices during periods of high wind or solar generation. This would likely offer a competitive advantage to local consumers and industries, particularly those with very large power requirements, such as data centres.
This could in turn encourage industries and business to relocate to areas where electricity prices are lower, which could boost the local economies of smaller cities and rural areas located near renewable generation assets.
However, concerns have been raised over the complexities of such a system and its possible disadvantages for projects in areas facing grid limitations. Industry commentators have raised concerns over the potential for zonal pricing to deter investment in renewables, owing to reduced confidence in financial modelling while a new system of pricing is designed and implemented.
Further, owing to the disparity between the locations where generation and consumption are greatest, critics argue it would be unfair for those in central and southern England to pay substantially higher electricity prices than those in northern Scotland.
Given the importance of the renewable energy sector to the UK’s economy and Net Zero commitments, further proposals and amendments in policy should be expected. Appraising the potential challenges and opportunities will be important many involved in the energy supply chain.
