HOUSEHOLDS in Scotland will be paying much more for electricity over the coming year than those living in London, new analysis has shown.
Energy Secretary Ed Miliband said last week that the UK Government will not proceed with plans to introduce zonal pricing – which would split the UK’s into regions based on supply and demand – if it raises people's bills in certain areas of the UK.
But fresh analysis has shown bills are already set to be lower in London than places outside the capital, including Scotland.
Consumers in north Wales and Merseyside will pay £120 more than households in London for their electricity over the coming year, Cornwall Insight forecasts, while those in the north of Scotland will pay £96 more than those in the capital.
The large differentials stem from variation in the charges levied on bills to fund the upkeep of Britain’s 14 regional electricity distribution networks, which are regulated by Ofgem.
The headline figure for the energy price cap on standard tariffs, which stands at £1849 a year at present, is a national average that masks such regional differentials.
“In regions like north Scotland, and north Wales and Mersey, network operators face higher costs due to factors such as challenging terrain, greater distances between populations, and colder weather conditions, making electricity distribution more complex and grid maintenance more expensive than in densely populated areas like London,” Cornwall said.
The analysis will further fuel the debate over the benefits of moving to a system of zonal wholesale prices which would vary in different regions depending on the scarcity of power supplies in that area, reflecting cabling constraints on the network.
Octopus Energy has long suggested Scotland would enjoy some of the cheapest energy in Europe if zonal pricing was introduced given its enormous renewable potential, with Scots currently getting the "raw end of the deal" in the UK's outdated market.
Critics have said the plans would lead to a “postcode lottery” in which households in London and the South East would be likely to pay the highest prices.
However, proponents say the differentials under zonal pricing may be no greater than already exist largely unnoticed today.
Guy Newey, chief executive of the Energy Systems Catapult, said that zonal wholesale pricing would make the electricity system operate more efficiently, cutting costs.
“The choice for the Government is how you shield different consumers and that is a political choice. Different international markets have done it in different ways: Some levelling between households in different zones; some protecting industry," he said.
"But the benefit of zonal is you get significant savings to play with.”
Lee Drummee, senior analyst at Cornwall Insight, said: “While the debate about the potential introduction of zonal wholesale pricing continues, it’s important to recognise that regional pricing is already baked into the system. In that sense, energy bills are already a postcode lottery.
"Zonal pricing is just one part of the picture, the reality is that regional differences are already having a big impact."
An Ofgem spokesman said: “The costs of moving energy around the system and powering our homes has always varied from region to region. These costs have to be reflected in the price cap which allows us to ensure that energy firms are only able to recover fair and efficient costs, which was not the case before its introduction.
“The Government’s review of electricity market arrangements is considering a wide range of options for market reform. In the short term, we continually keep this situation under review through network pricing controls and the price cap.”
