Zonal energy pricing: could a Tory plan bring down the Labour government? – LabourList

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Labour’s Mission 2030 pledges to forge a cheaper and more secure energy system. We are working to go greener, faster — to transform Britain.

But plans for zonal energy pricing put that all at risk.

The implementation of a UK zonal energy pricing system — which would see electricity costs vary by region, reflecting the local costs of generation, supply, and demand within specific geographical areas, or zones — was part of an energy plan dreamt up under the last government. And, though Ed Miliband has reversed the Tory onshore wind ban, this proposed plan for zonal energy pricing could have been lifted straight out of the Tory manifesto.

Despite this, Whitehall appears to be doubling down on zonal energy pricing for electricity, blithely confident in the zonal success stories of Norway and Sweden. But do these examples stand up to scrutiny?

Norway, Sweden and the risks of zonal pricing

Supporters of zonal pricing in the GB market have held Norway and Sweden up as examples of where the system works well.

But both countries have experienced political and consumer turmoil due to the impacts of zonal pricing.

In Norway, customers around Oslo regularly experienced prices ten times higher than those living in northern zones. The situation became so politically contentious that it substantially contributed to the collapse of the coalition government in January 2025. The new government immediately implemented a single national capped energy price as an option for all domestic consumers while they sort out a fairer system.

Meanwhile, in Sweden, price differentials between zones have multiplied fivefold since 2020, leaving customers around Stockholm with volatile high prices. In fact, the zonal premium added 30% to the cost of bills in southern Sweden last year, showing that when a zonal market goes out of balance, it happens fast, creating fluctuating and skyrocketing prices for consumers living in high-demand regions.

As a result of its ailing zonal pricing system, the Swedish Government is now compensating customers in southern high-price zones to the tune of 55 billion Swedish Krona (or £4.5 billion). At the same time, increased use of thermal plants during the crisis has upped carbon emissions, requiring the relaxation of environmental laws.

What would a zonal system mean for the UK?

Neither Norway nor Sweden is the zonal success story its advocates would have us believe. A hyper-complex dynamic pricing system can be a great market-building opportunity, but it doesn’t make building infrastructure cheaper or quicker, nor does it reduce costs for voters.

Ours is an energy market in the middle of structural change and therefore not the place to impose a volatile pricing model. In practice, zonal pricing means that energy prices in high demand areas like London will spike, and residents will feel the pain.

For example, a zonal pricing system would mean a family in Essex or Kent would pay more for electricity than a family in central Glasgow. The zonal system’s dynamic market pricing is determined by supply relative to demand in each zone: Scotland is a net exporter of energy, and supply significantly exceeds demand; whereas, in Essex and Kent, high population and business power needs combined with those of London would see demand outstrip supply, despite the landscape being liberally peppered by energy infrastructure.

Proponents of zonal energy pricing assume that, if residents and businesses want affordable electricity, they will move. But people can’t, and won’t, just up sticks chasing changing electricity prices. In a recent survey carried out by Fairer Energy Future, 70% of UK residents didn’t class energy bills as an important factor to consider when moving — so those already struggling will just struggle even more.

Likewise, and as the steelworkers’ unions and UK Steel pointed out, the idea that businesses like the Port Talbot and Scunthorpe Steelworks — including workers, their families and communities — could be transported to a zone with cheaper electricity, like northern Scotland, shows how divorced from reality advocates for zonal energy pricing are.

A zonal energy market would also mean more pollution – in high demand areas, reliance on carbon-emitting gas generators would go up, increasing carbon emissions significantly (a study by Aurora found that zonal pricing could lead to a 5-10% increase in emissions). This is completely at odds with Labour’s 2030 electricity decarbonisation target.

So, will anybody benefit from zonal pricing? There will be opportunities to profit for enterprising electricity retailers. But probably not consumers. And not most voters.

The opportunity in Scotland

Importantly, a zonal pricing system will also torpedo Labour’s hopes for green jobs in Scotland, where the floating wind sector represents a major growth opportunity. With the Crown Estate granting 30,000MW of licences, of which 20,000MW are already progressing towards consent, the region could see the creation of an estimated 30,000 new jobs. This transition is expected to start delivering results between 2030-35.

But if chosen and there are no delays, the zonal system will likely be introduced 2030-2032 – just when the floating industry is gathering momentum, stopping the floating wind opportunity in Scotland dead in its tracks, leading developers to shelve their projects.

So, what next?

The GMB, alongside Unite, Prospect, and steelworkers’ union, Community, has signed an open letter calling on the government to rip up plans for zonal pricing.

Now, it’s time for ministers to back the Labour Mission by ruling out zonal pricing — a scheme that will undermine the investability of UK PLC and discredit Labour’s green growth missions with voters. Instead, we must focus on grid upgrade projects that will eliminate constraints on the network and reinforce the UK’s energy security, ensuring cheaper electricity in the long-term across the country.

Will ministers back the Labour Mission or the Tory manifesto? Green jobs and green power investment depends on the answer.

This paid editorial was written by Graham Pannell, Head of Grid and Electricity Regulation, BayWa r.e. and Jeremy Sainsbury, Director of GB Policy, Fred. Olsen Renewables, on behalf of Fairer Energy Future, a coalition of organisations who have come together to urge the government to reject zonal pricing.

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