Zonal pricing may undermine Scottish power sector, warns Forbes | USAEMALL.com

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The introduction of zonal pricing for electricity would be “hugely challenging” for Scotland, the deputy first minister has warned, and urged the UK government to provide urgent certainty on the pivotal decision.

Kate Forbes told a gathering of business executives at Holyrood on Friday that the scheme risked undermining investment into Scotland’s energy sector while also failing to deliver lower energy bills.

“Zonal pricing is going to be hugely challenging as we could end up in the position where we don’t get industrial opportunities and consumers don’t get lower bills,” she said.

“We are urging the UK government to provide as much certainty as quickly as possible on what market reform will look like,” she added.

Ed Miliband, UK energy secretary, is considering the introduction of zonal pricing that would mean different parts of the country pay different rates for electricity based on local supply and demand.

Its proponents say it would reduce bills for Scottish residents while critics believe zonal pricing would disincentivise green projects in Scotland, which has a large pipeline of future developments.

Forbes echoed warnings that renewables developers could withdraw from Scotland because of the lack of certainty that would be created by the shift to a new zonal pricing structure.

Uncertainty caused by the introduction of the scheme, she warned, could leave “consumers without lower bills and leaving us without jobs that can be created for the energy transition”.

Renewables companies in Scotland have urged the UK government to reject such reform, arguing that policy would undermine investment into Scotland’s large and growing offshore wind sector.

With reform taking years to introduce, they argue that any benefits to the consumer would be obviated by the higher cost of capital for developers facing a lack of clarity on investment decisions.

“Our focus has to be entirely on de-risking and maximising certainty,” Forbes said. “So, while market reforms are needed, the longer it takes to conclude, the less certainty there is to make funding decisions now.”

Scotland is at the heart of the debate over electricity market reform. About a third of Scots live in energy poverty, compared with 11 per cent in England. Investment into renewables is also vital for the nation’s transition from oil and gas.

Some energy suppliers, such as Octopus Energy, have argued that zonal pricing would reduce bills in Scotland, where residents face some of the highest electricity costs in Europe in spite of the abundance of renewable energy north of the border.

Companies in energy-hungry sectors, such as data centres and hydrogen production, had also been advocating for the change, executives said.

John Swinney, first minister, last week said the government was considering the “range of opinions” on both sides of the debate and continued to engage with the UK government on the matter.