According to the RAC fuel is much cheaper in Scotland than England, it’s also more expensive in motorway service stations and cheaper if you buy from a supermarket – location matters.
Why should electricity be any different?
Today, all generators get the same price regardless of where they generate their power in the UK. Under the Reform of Energy Market Arrangements (REMA) the government is consulting on moving away from this setting local generation prices.
The picture for electricity consumers isn’t quite so simple. Households pay roughly the same price with small local differences, businesses pay the best price their broker can get them, and industrial players directly negotiate prices.
An earlier version of REMA suggested nodal pricing (very granular) but this has been rejected. A system called zonal pricing, with seven zones covering Britain, remains an option.
The idea is that zonal prices will send a signal to the market on where it is best to build generation assets and tell industry where electricity will be cheaper so locate there, so we’re all off to Scotland to build our data centres as electricity is cheaper there.
There are few more polarising issues in UK energy.
Renewable UK are against, Octopus are for. This unusual for an industry that works mostly by consensus and wants to provide stability to support long term investments.
A lot of the debate on the pros and cons is based on the notoriously difficult process of forecasting the future economics of electricity. The assumption that either generation or consumption can move location doesn’t seem particularly sound: Generation can only be placed at certain sites, which are mostly planned rather than market determined. The cost of electricity isn’t the main factor in deciding where to place a factory. Most use is at homes, shops, schools and hospitals that can’t move.
Until we can get everyone aligned this is probably a great idea that needs a bit more time to mature.
