While zonal pricing would have split Great Britain into multiple regions to reflect local generation and transmission costs, concerns from renewable operators and campaign groups about investment uncertainty and increased costs led the government to choose a ‘reformed national pricing model’ with strategic reforms aimed at ensuring a ‘fair, affordable, secure, and efficient electricity market’.

The government said it was publishing the decision now in order to ‘provide certainty for investors ahead of the AR7 auction round’, which is due to open in August. It is planning to publish a more detailed Reformed National Pricing Delivery Plan later this year. This will set out the next steps for government to work together with the regulator Ofgem, the National Energy System Operator (NESO) and industry to deliver the reforms.

The decision was broadly welcomed by investors, developers and consumer groups who had expressed concerns about regional disparities and uncertainty under a zonal pricing system.  

Keith Anderson, Chief Executive of ScottishPower, said: ‘This is the right decision from government as it lifts a big cloud of uncertainty over investment in the energy system. Now we will crack on with investment in the grid to deliver the goals of Clean Power 2030 – supporting economic growth and energy resilience, and removing up to £5bn of annual constraint payments by making the energy system more efficient.’

RenewableUK’s Executive Director of Policy and Engagement Ana Musat added: ‘This decision is good news for billpayers, in part because the prices set in the government’s auctions for clean power contracts will be lower than they would have been under the costly zonal pricing regime.’

Dhara Vyas, Chief Executive at Energy UK, continued: ‘Ensuring that our electricity market can evolve in line with the rapid transition to clean power is a sensible approach… In recent years, we’ve seen substantial reform to key mechanisms such as the contracts for difference, capacity market and ancillary markets. These reforms, however, have not always aligned with a clear, strategic vision for the future of the energy sector.’

Chris Matson, Partner at consultants LCP Delta, commented: ‘Today’s announcement significantly reduces investment risk and increases the likelihood of achieving the Clean Power 2030 ambition.’

However, Matson also warned that: ‘Constraint costs – which zonal pricing aimed to reduce – will continue to be a significant issue under the national pricing system. Our analysis shows that, even accounting for announced network upgrades, constraint costs could double from last year’s levels to reach £3.2bn per year by 2035. Further investment in network upgrades, demand-side flexibility, and storage will be crucial to bringing down these costs.’ 

Disappointment voiced

The government’s decision was not welcomed by all. Greg Jackson, founder and CEO of Octopus Energy, a vocal advocate of zonal pricing, said: ‘Electricity bills are spiralling and zonal pricing would have reversed that. The government and generators need to come up with an alternative which will prevent the now seemingly inevitable price rises that will hit over the next few years.’  

Octopus Energy, the UK’s largest energy supplier, maintains that zonal pricing ‘could cut bills by at least £3.7–5bn/y while unlocking investment and driving a more efficient system’, based on detailed modelling published in February 2025 by FTI. In addition, it says zonal pricing could also ‘save bill payers up to £27bn more by preventing the construction of nearly 3,000 km of unnecessary, costly grid infrastructure’, according to an April 2025 study from FTI.  

It says the alternative to zonal pricing – reformed national pricing – is ‘non-existent’, adding that: ‘There are no published models, no cost-benefit analysis and therefore little hope it’ll tackle the rising costs of the system.’

The Association for Decentralised Energy (ADE), the trade body for the demand-side energy sector, also expressed disappointment. Caroline Bragg, CEO said: ‘The government needs to get a handle on the cost of living. But, by rejecting zonal reforms that align us with our peers [such as Australia, Sweden, Norway and Denmark, which are already using the zonal pricing method for their respective electricity markets], today’s decision risks higher costs. Piecemeal tweaks won’t deliver the lower bills for all that Ofgem itself says is possible. With grid costs potentially hitting £8bn by 2030, how does the status quo stop consumers footing the bill?’

Future debate

Meanwhile, Phil Hewitt, Director at Montel Analytics, suggested the debate is far from over. ‘There are still outstanding uncertainties, including reforms to transmission charges and how the balancing mechanism will evolve,’ he said. ‘There are still many detailed questions to be answered, as the government’s announcement today makes clear, so there will be more debates. These will be important for consumer costs but unlikely to play out on front pages. REMA is not finished, but the major battle is over.’

*For more about the debate that has ensued around zonal pricing, read New Energy World’s ‘A country divided: exploring the pros and cons of zonal electricity pricing’, ‘Zonal pricing should lower the cost of UK electricity by encouraging generators and consumers to come together – report’ and ‘Zonal pricing for the GB electricity market, or fix transmission infrastructure first?’