With the UK government due to make a major decision on wholesale electricity market reform in the coming weeks, Cornwall Insight’s latest analysis suggests that a move toward zonal pricing would require at least five to six years to implement.  

Zonal pricing would divide Great Britain into multiple regions, each reflecting the true cost of generating and transmitting electricity locally. This is intended to encourage more efficient dispatch, incentivise investment closer to demand and reduce grid congestion.

But the reform, Cornwall Insight argues, is fraught with political, technical and regulatory hurdles. It says a full market redesign will require:

• Extensive stakeholder consultation to balance divergent interests and ensure consumer and investor protection.
• New legislation, which may not progress before the next general election.
• Overhauls of industry codes and licences, which, based on historical precedence, would be a multi-year process.
• Complex transitional arrangements to accommodate existing assets and contractual obligations.

Kate Mulvany, Principal Consultant at Cornwall Insight, says any move to zonal pricing would be ‘the most fundamental redesign of the GB electricity market in decades’. She adds that while the government’s commitment to a mid-2025 decision is welcome, implementation before 2030 would be ‘incredibly unlikely’.

Mulvany cautions: ‘This is the start of a long road, not the finish line. Clear, early communication and a credible delivery timeline will be essential to retain market confidence, keep renewables investment and avoid unintended consequences, which could have substantial impacts on government targets. Zonal pricing may still form part of the long-term vision for electricity market reform. But for now, its delivery sits firmly in the next decade.’

Industry split on benefits and risks of zonal pricing

The proposal has sharply divided the energy industry. Octopus Energy, the UK’s largest energy supplier, is a vocal advocate, calling the current pricing model a ‘legacy of the fossil fuel era’ that is ‘no longer fit for purpose’ and results in ‘some of the highest power prices in the world’. A report published by FTI Consulting earlier this year, commissioned by Octopus, claims that zonal pricing could save UK consumers between £55–74bn by 2050.

When the report was published in February, Octopus Founder Greg Jackson said: ‘Either Britain sticks with an outdated pricing system that leaves consumers exposed to skyrocketing bills, or adopts zonal pricing and saves over £4bn a year. Zonal unlocks massive savings by encouraging energy to be used nearer to where it’s produced, and at those times it is plentiful, rather than wasted. With the potential to ease any burdens in infrastructure delays, the government can embrace a modern system that delivers cheaper, fairer energy while also protecting us from shocks further down the line. The evidence is overwhelming – zonal pricing is the way forward, and we need action now.’

Countries including Norway, Sweden, New Zealand, Japan and much of the US have already adopted locational pricing – which adjusts electricity prices regionally based on local supply and demand – to good effect, according to the report.  

However, opponents such as the campaign group Fairer Energy Future warn that zonal pricing could derail existing renewable investment and create uncertainty that raises the cost of capital. The group argues that an ‘enhanced national pricing’ model could achieve similar goals with fewer risks and faster deployment timelines.

‘This latest report is further evidence that claims which suggest zonal pricing could be implemented quickly are fanciful,’ a Fairer Energy Fuel spokesperson said. They added that it risks putting billions in renewable investment and thousands of jobs at risk, while failing to offer households short-term bill relief.

Outdated grid planning and weak governance stalling Europe’s energy transition

Looking beyond the UK, a new report by Beyond Fossil Fuels, E3G, Ember and the Institute for Energy Economics and Financial Analysis (IEEFA) shines a light on systemic shortcomings in electricity grid planning and governance that they say are holding back Europe’s transition to clean energy.

The study, which examined 32 transmission system operators (TSOs) across 28 countries, including the UK, found that many are still working with outdated scenarios that fail to reflect the exponential growth of renewable capacity on the ground. As a result, grid operators are underestimating future demand and failing to plan adequately for a power system dominated by renewables.

This disconnect has tangible consequences. The report found:

• 1,700 GW of renewable projects across 16 countries are stuck in grid connection queues, over three times the capacity additions needed to reach EU energy and climate targets for 2030.
• €7.2bn worth of renewable electricity was curtailed in seven countries in 2024, meaning clean energy was wasted while power generators were still compensated, with the costs falling on electricity bill payers.
• Many TSOs and energy regulators are yet to reference the climate crisis among their responsibilities, with just 13 having any form of commitments or targets on climate. Only five TSOs are planning for coal- and gas-free grids by 2035.  

The report argues that grid operators and energy regulators urgently need clearer mandates, including climate targets, to modernise and expand electricity networks in line with decarbonisation goals.

The report concludes that the grid is the cornerstone of energy resilience, and warns that without updated mandates and planning assumptions, fossil gas will appear necessary not because it is, but because the system was never prepared for anything else.

While the UK is flagged as a leader – thanks in part to its independent system operator and the energy regulator’s new net zero duty – the broader European context is described as a ‘systemic handbrake’ on progress.