Scottish consumers could pay less for electricity under UK proposals

Households and businesses in the north of England and Scotland could potentially pay less for their electricity in future than those in southern Britain, under proposals published by the UK government on Monday.

Varying prices according to location and proximity to power generation assets, such as wind farms, was one of the options set out in a review of Britain’s electricity market, which also contained proposals that could see households benefit from cheaper prices if they shift consumption outside of peak hours.

The Review of Electricity Market Arrangements, described by the Department for Business, Energy and Industrial Strategy as the “biggest electricity market reform in a generation”, is designed to address problems in the electricity market, where electricity generally tracks the price of gas even though Britain has been building more renewable capacity, such as offshore wind, which produces very cheap energy once turbines are installed.

This is because the cost of the most expensive form of generation — usually gas-fired power stations — sets the price for the entire market. Gas remains the single biggest source of electricity generation in the UK.

Under the current system, consumers also have to shoulder the costs of paying hundreds of millions of pounds to turn off wind farms, primarily in Scotland, on particularly blustery days because there are insufficient cables and wires to ensure all of that electricity reaches areas such as the south-east of England and London, where there is more demand for it.

Under the new proposals, wind farm owners in Scotland might be paid less for their electricity on blustery days and generators in other locations might receive a higher price. This would potentially incentivise energy companies to build generation capacity in places without grid constraints.

How those prices are then passed on to households could vary. Suppliers could potentially charge consumers in all locations an average price, or prices could differ based on where people lived to encourage greater electricity usage when more renewably produced energy is available, the consultation document suggests.

The review argued that “prices that vary by time of day and location have the potential to significantly reduce costs for consumers”, though it acknowledged such a system would create “winners and losers”. It also acknowledged that any such reforms would need to be carefully thought through so that low-income households, or those unable to flex their usage outside of certain times, would not be disadvantaged.

Any changes based on location are likely, however, to raise concerns about consumers in the south of England being unfairly disadvantaged.

Darren Jones, Labour chair of the business select committee, said it was right for bill payers to have the opportunity to pay less for cheaper renewable energy.

“But it would be a great shame if the British public at large suffered as a consequence of weak ministers unable to do the right thing in the first place,” he added. “Ironically, this is most likely to affect constituents who live in the areas represented by backbench Conservative MPs who blocked onshore wind in the first place.”

A study published in May by the research group Energy Systems Catapult and the supplier Octopus Energy suggested location-based pricing would produce savings for energy users in all locations but that these would be “proportionately greater” in Scotland and the north of England.

Electricity pricing based on location already exists in some international markets, including the US, New Zealand and Singapore, although consumers are not always necessarily exposed.