How Ed Miliband’s net zero plans could push up Home Counties bills

Let’s take a look at a picture produced by FTI that projects what might happen on a typical morning in March 2030.

At 8am, demand for electricity spikes as millions of people put the kettle on and get ready to go to work. There’s plenty of wind power in Scotland to meet that demand, but not all of it can travel south, where demand is greatest, because of bottlenecks in the grid, requiring ESO to source its power from other sources – potentially gas-fired power stations.

In this scenario, the national pricing system exacerbates the problem by sending the wholesale cost of electricity to £13.90 per megawatt-hour across the country. This leads to market oddities such as Scotland importing electricity via a planned interconnector from Norway – where power is theoretically cheaper – despite having abundant wind power of its own.

Meanwhile, in the South East, the price of electricity is artificially low. This makes it cheaper than in France, resulting in power being scheduled to be sent across the Channel via the interconnector, even though it is technically needed at home. To reverse this and keep the lights on, ESO has to step in and pay even higher rates.

In a location-based pricing system, the results are very different. The price of electricity in wind-rich Scotland drops to zero, which forces electricity to be exported to more expensive Norway.

In the South East, the price temporarily rises to £81.40 per megawatt-hour, securing power supplies from neighbouring European countries.

“So instead of trying to export from the UK to France, we’re now importing,” says FTI’s Mann. “So there’s less strain on the UK transmission system.

“In the long term, it could also mean that fewer power poles will be needed.”

In a report published in October last year, Ofgem predicted that consumers would benefit by billions of pounds under any scenario where local pricing rules apply.

According to Mann, these numbers are very conservative and may actually be higher.

He argues that the UK electricity market, like France and Germany, is a global outlier that drives assets such as batteries and interconnectors towards “bad behaviour” in about half the cases.

In Texas, Mann says, locational prices have encouraged energy-hungry data centers to set up in cheap areas, while new wind farms are being built in more expensive zones. Similarly, a green steel mill is under construction in a region of Sweden where energy costs are low.

However, Ofgem warns that the longer it takes to introduce the zone system, the lower the ultimate return on investment will be, as much of the money has already been spent on upgrading transmission networks.

Octopus and others also argue that making this change now will be an effective “backup” in case the power grid is unable to be modernized by 2030.

But the proposal is already controversial among the powerful lobbying groups that Mr Miliband must work with to achieve his goals.

Wind farm developers, through industry body Renewable UK, have expressed strong opposition to zone pricing, arguing that making such a big change so close to the 2030 target would be madness.

They argue this will make it harder for wind farm developers to assess the future profitability of their projects, introducing huge uncertainty into the investment process just when it should be picking up pace.