Zonal Energy Pricing

[Tobes]

Is it a postcode lottery, or a long overdue overhaul to the UK energy market pricing.

A great short video that explains how it works.

I am all in favour of it.

View: https://youtu.be/8-WUhBtB_CM

 

[Sam Vimes]

I've been promoting this concept for a long, long while but nobody listens to me. Ironically given where I live, which generates a large amount of Wind Powered Energy, our costs are slightly higher than elsewhere - 'because of distribution issues'.

My other gripe is the Constraint Payments made to Wind Farm operators ( although conventional generators also get them but not as much). This year has seen just under £80m paid to operators not to generate power since it's either too windy or can't be used.

If you're interested in historical data then -

Month	Cost	MWh	Price	Num WF
2025-05	£5,272,994	121,476	£43	37
2025-04	£9,786,757	307,008	£32	77
2025-03	£23,352,225	996,779	£23	91
2025-02	£31,100,323	1,153,096	£27	89
2025-01	£9,934,302	557,924	£18	89

 

[Tobes]

It's an interesting area, and I don't pretend to understand it, but the more I look, the more a flat price seems absurd.

I was interested to find out how much it costs the grid (and consumer) to move generation to gas in areas where demand is high (e.g. London), but there is not sufficient local generation, even though there is wind constraint on generation in other locations (e.g. Scotland).

I found this article , which links to this report. If I am understanding correctly, page 33 and 34 discusses exactly this cost, and the price we pay to turn off wind is about 1/3rd of that which we pay to turn on gas to meet the demand. I.e. on very windy days in Scotland, we pay generators to turn off the incredibly cheap energy, but then pay gas to generate in low wind areas, and that peak generation set the price for consumer everywhere - including right next to the very cheap, still operating wind turbines. Is this a good understanding?

 

[otherclive]

It's an interesting area, and I don't pretend to understand it, but the more I look, the more a flat price seems absurd.

I was interested to find out how much it costs the grid (and consumer) to move generation to gas in areas where demand is high (e.g. London), but there is not sufficient local generation, even though there is wind constraint on generation in other locations (e.g. Scotland).

I found this article , which links to this report. If I am understanding correctly, page 33 and 34 discusses exactly this cost, and the price we pay to turn off wind is about 1/3rd of that which we pay to turn on gas to meet the demand. I.e. on very windy days in Scotland, we pay generators to turn off the incredibly cheap energy, but then pay gas to generate in low wind areas, and that peak generation set the price for consumer everywhere - including right next to the very cheap, still operating wind turbines. Is this a good understanding?

It should change when the two big Scottish east coast interconnecters bring electricity south. Interesting to see if it does though. Noticed in the news that two companies approved to build wind farms in Norh Sea have withdrawn has the contract terms don’t tie in with increased build and operating costs. Discussions are scheduled with HMG. Problem is that improved contracts terms will most probably lead to increased electricity prices and how long will the contract term be before cost reductions can be negotiated.

 

[Sam Vimes]

Interesting that Renewables Uk is a trade organisation representing renewable energy companies and will therefore put a spin on the numbers to indicate they are not the bad guys.

As usual if you search you can find conflicting stories.

Here's another link thats interesting on the subject from an independent organisation. Check their other pages if you have the inclination.

Constraint Payment Price Drop suggests Consumers Overcharged by more than £300 million

Renewable Energy Foundation

www.ref.org.uk

 

[Tobes]

Interesting that Renewables Uk is a trade organisation representing renewable energy companies and will therefore put a spin on the numbers to indicate they are not the bad guys.

As usual if you search you can find conflicting stories.

Here's another link thats interesting on the subject from an independent organisation. Check their other pages if you have the inclination.

Constraint Payment Price Drop suggests Consumers Overcharged by more than £300 million

Renewable Energy Foundation

www.ref.org.uk

While renewables UK is linked to the renewable energy sector, the article is based on the source report from NESO (National Energy System Operator) and is a public document.

It seems the REF have had their own impartiality challenges.

However - sources aside - I think we are talking about two different (but related) aspects of the same challenge - constraint payments. The REF article is suggesting (I think) that prior to signing up for a CfD, three large farms requested constraint payments at a level that far exceeded those after they signed up for CfD, and this leads to questions about how much constraint should cost.

The NESO report details the constraint payments to wind farms (£333M year to date Jan 25) and the balancing payments to gas generators to take up the slack (£1.035Bn year to date Jan 25).

However you look at this, the fact that in todays market model - the resulting single market wholesale price that is present for the consumers next to the constrained wind farm is the same as that for those based next to the gas combined cycle peaker plant, and set based on the price of gas - is nuts!

By doing what you have been advocating for (regional pricing), breaking the link between cost of generation and cost of supply into a far more local format, users in wind areas could benefit from considerably lower wholesale costs, and consumers in gas-heavy areas could benefit from lower transmission costs, and be able to more accurately plan for a stable price that is not so subject to constraint costs.