SSE boss: Zonal pricing would be a ‘huge mistake’
Introducing a zonal pricing scheme to the UK’s electricity market would be a “huge mistake,” the chief executive of SSE has said.
Writing in City PM, the Scottish energy firm’s outgoing boss Alistair Phillips-Davies argued such a move would create a “postcode lottery” where some households would pay £200 to £300 more “simply because of where they live.”
“It would inject more than five years of uncertainty, raise the risks and costs of investments, and ultimately leave us more exposed to gas prices for longer. Ruling it out would generate an immediate boost to investment,” he said.
Energy secretary Ed Miliband is considering plans to split the UK into 12 areas, with each paying different rates for electricity depending on local supply and demand.
The policy has been championed by Octopus Energy boss Greg Jackson, who believes it would play an essential role in decarbonising the grid by 2030.
But critics warn it will create additional delays and deter prospective investors, given the scale of change required to energy regulation.
SSE, which is one of the UK’s biggest energy companies, said on Wednesday it was unlikely to meet its 2030 net-zero goal as it slashed capital investment by as much as £3bn.
It followed Denmark’s Orsted dramatically ditching plans for a huge wind farm off the Yorkshire coast earlier this month, and fresh job cuts at the North Sea oil and gas producer Harbour Energy.
Phillips-Davies, who will step down from his role in July, called for “calm heads and bold leadership” to get the UK “off the fossil fuel rollercoaster.”
Next wind auction ‘must succeed’
He urged the government not to “let short-term politics override long-term strategy,” and pinned much of the pressure on household bills on wholesale gas prices.
His comments come ahead of a key auction round for offshore wind, which Phillips-Davies said “must succeed” despite the uncertainty surrounding zonal pricing and a cloudy investment outlook.
Energy regulatory Ofgem is also on the verge of a decision on how much network operators like SSE can invest in the UK’s transmission grid.
“That decision will shape the pace and scale of electrification, and signal to investors whether the UK is serious about growth. Investing more in the near term will unlock far bigger savings in the long run – but again requires longer-term vision,” Philips-Davies wrote.
“With a potentially more benign period ahead for wholesale prices, this is the time for calm heads and strong leadership.
“There will be bumps in the road, but if we stay the course the benefits will be felt for decades to come.”
A Department for Energy Security and Net Zero spokesperson said: “We are making the UK a clean energy superpower to get off the rollercoaster of fossil fuel markets controlled by dictators, replacing it with clean homegrown power we control. That is how we can protect family finances and our national finances.
“We are considering reforms to Britain’s electricity market arrangements, ensuring that these focus on protecting billpayers and encouraging investment. We will provide an update in due course.”