Ed Miliband has abandoned plans to move to zonal electricity pricing after senior officials warned it could put off investors and make it more difficult to build renewables.
The UK Government has this morning committed instead to reform of electricity markets to create a "fair, affordable, secure, and efficient system" and maximise benefits of clean power for consumers.
The government inherited a decision on whether to retain the current national system in which all areas in Britain pay the same wholesale price for energy - or undertake a major overhaul to split the country into different pricing zones depending on their proximity to where energy is generated.
Last month, the University of Aberdeen and Prof John Underhill strongly advised against adopting zonal pricing in the UK electricity market, urging policymakers instead to focus on national market reform and investment in grid infrastructure.
The government has now agreed, and concluded that reforming the system while retaining a single national wholesale price is the best way to deliver a fair, affordable, secure, and efficient electricity system.
Reform
Energy Secretary Ed Miliband said: “Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets and protect families and businesses for good.
“As we embark on this new era of clean electricity, a reformed system of national pricing is the best way to deliver an electricity system that is fairer, more affordable, and more secure, at less risk to vital investment in clean energy than other alternatives.
“Our package of reforms will protect consumers and secure investment as we drive to deliver our clean power mission through our Plan for Change.”
Further changes announced today will see the government taking on more responsibility for planning the system and determining where clean energy infrastructure is located, based on what is needed for the long-term - rather than the current fragmented, ad hoc and uncoordinated approach.
Spatial plan
The government has confirmed that the Strategic Spatial Energy Plan, to be published next year by NESO following consultation, will be at the heart of the reforms to improve the efficiency of the electricity system, under the national pricing model.
Commissioned by UK, Scottish and Welsh governments last year, for the first time the plan will set out how to best spread new energy projects across land and sea in Great Britain up to 2050. This will speed up development, cut grid connection waiting times and help to reduce costs, giving investors confidence on where to build and when.
Transmission Charges
Under the current system, the more that energy generators rely on the transmission network to move power to where it’s needed, the more they will need to pay – in what are known as Transmission Network Use of System charges.
The government will work with Ofgem to drive forward a review of these charges to provide stronger incentives for investors to build generation where it is needed, supporting a cheaper system for all.
Crucially this will include changes to make existing charges more predictable for investors – as currently the charges vary year by year, which causes uncertainty during long-term projects and can drive up prices as developers price in the risk of volatility.