Decision to drop zonal pricing for GB electricity generation welcomed

The conclusion means that the government does not intend to introduce zonal pricing and instead will implement an ambitious approach to reformed national pricing – a cohesive package of reforms to improve the effectiveness of the national pricing model. This package sets out to deliver a more strategic and co-ordinated approach to the energy system, provide strong signals for efficient siting of new assets, and improve overall operational efficiency, whilst also increasing stability and certainty for investors.

Ronan Lambe, energy projects expert at Pinsent Masons, said: “Stakeholders warned that the introduction of zonal pricing would cause significant investment risk, creating uncertainty and raised costs. We have already seen the potential impact of these proposed changes to create such uncertainty across a variety of deals, particularly where electricity prices need to be secured across an extended period of time.”

The government hopes that reformed national pricing will provide certainty for investors, aligning network and connection charges with strategic planning to support long term investment. The strategy also aims to provide fairness for consumers. Consumers will continue to benefit from uniform national pricing, with locational costs absorbed through broader market mechanisms like contracts for difference (CfDs) and the capacity market. It is also hoped that reformatted national pricing will provide lower costs, simplifying the investment processes and better siting reduce costs, helping to lower consumer bills

Gabby Greenslade, energy projects lawyer at Pinsent Masons, said: “The reformed national pricing approach emphasises stability and resilience – both crucial to navigating the energy transition by offering investors and consumers the predictability required to plan confidently.”

At the core of the reforms will be the strategic spatial energy plan (SSEP), which will guide co-ordinated planning and proactive network investment. It will map optimal locations and types of energy infrastructure to support the UK’s clean energy transition, aiming to reduce delays and costs in connecting new projects to the grid. The plan will work to coordinate important levers such as planning reform, seabed leasing, network development, and connection and charging reforms.

The first version of the SSEP, covering electricity and hydrogen generation and storage, is expected in 2026 and “will assess infrastructure needs regionally, providing clarity to industry while allowing market competition to determine the best projects to pursue”,  said Lambe.

Further upcoming actions include the publication of a reformed national pricing delivery plan, outlining the design and implementation roadmap – expected later this year. The government is expected to release the final review of electricity market arrangements (REMA) analysis, including a full cost-benefit analysis of wholesale market reform options later this year.

By the end of 2026, a collaboration between National Energy System Operator (NESO) and the government is expected in order to deliver the SSEP. The government will also work with Ofgem to advance reforms to transmission network use of system (TNUoS) and connection charges. Additionally, a consultation on balancing reform and completing NESO’s constraints collaboration project is also expected by the end of the year.