Plans to overhaul England, Wales and Scotland’s electricity market risk piling an extra £3bn on to household energy bills every year until the 2040s, according to the government’s own clean power adviser.
New research has found that moving ahead with a plan to divide the national electricity market into different pricing zones could drive up the cost of building new windfarms as the government aims for a renewable energy boom before the end of the decade.
Ed Miliband, the energy secretary, hopes to double Great Britain’s onshore wind capacity, triple solar and quadruple offshore wind farms to help create a clean power system by 2030.
But uncertainty over the plans for “postcode electricity pricing” could mean that developers of renewable energy demand higher subsidies to offset the risk, according to the research, which could raise household energy bills or even delay clean energy investments.
The report by the UK Energy Research Centre (UKERC) warned that an upcoming auction for renewable energy subsidy contracts could clear at £20 per megawatt-hour higher than expected if the zonal market plans were adopted.
The independent centre, which is backed by government funding, said that the higher cost of the 15-year contracts, which are paid for through energy bills, could wipe out any benefits of the scheme.
The report was co-authored by Prof Rob Gross, a UKERC director who was recently appointed to the government’s clean power 2030 advisory commission. It was quietly published weeks before the government is expected to make a decision on the scheme.
The proposal has proved divisive in the industry because it would mean zones with an abundance of electricity generation relative to local demand would have lower market prices, while areas with higher demand and scant power supplies would face higher prices.
An opinion poll commission by Renewable UK, which represents major renewables developers, found that 58% of people in England and Wales opposed zonal pricing, while only 14% were supportive of it.
The survey of 3,000 adults found almost two-thirds of the public saw the policy as unfair, whereas only 16% thought it would be a fair system. Almost three-quarters said the government should instead prioritise reducing energy costs for all parts of the country at a flat rate.
Those in favour of zonal energy markets argue that the different pricing signals would encourage high energy users – such as datacentres and factories – into areas of the country with plentiful energy supplies and lower costs such as the North of England and Scotland.
This would cut the amount of grid infrastructure needed to carry power to the south of the country, and prevent windfarms from being paid to turn off when renewable energy threatens to overwhelm the grid.
However, clean energy companies preparing to spend billions on building new wind and solar farms are concerned that the changes could make projects planned for remote areas of the country less profitable and put investments in clean energy at risk.
“The key question is not whether zonal pricing has benefits, but whether the time to introduce it is now,” said Gross.
“The 2030 clean power mission is an exceptionally bold endeavour that requires coordinated action across government and industry to mobilise an unprecedented pace of investment in generation assets and transmission capacity. Our analysis focuses on the risks for market participants if government tries to bring in zonal pricing at the same time. These are substantial and there is no straightforward plan B,” he said.
