On 10 July 2025 the UK government published its summer update to the Review of Electricity Market Arrangements, the programme launched in 2022 to decide how Britain's power market should work in a decarbonised system. The headline decision was clear. Great Britain will retain a single national wholesale electricity market and will not introduce zonal pricing. Instead the government will pursue what it calls reformed national pricing: a package built around a Strategic Spatial Energy Plan, reform of transmission network charges and connection charges, changes to balancing and settlement, and measures to manage grid constraints.
The decision ends a long and often heated debate. Supporters of zonal pricing, including some economists and parts of the National Energy System Operator's earlier analysis, argued that splitting Britain into several price zones would send stronger signals about where generation and demand should locate, reduce the cost of grid constraints and lower bills overall. Opponents, including many renewable developers, argued that zones would raise investment risk, hurt projects in Scotland and delay the clean power target. Our view is that the government has made a defensible choice for the near term, mainly because of investment certainty ahead of the next renewable auction. But it has also taken on a heavy burden. Reformed national pricing must now deliver through planning and charging the locational efficiency that a zonal market would have delivered through prices.
The problem both options were trying to solve
Britain's best wind resources are in Scotland and offshore in the north, while much of its demand is in England, particularly the south. Transmission capacity between the two has not kept pace with new generation. The result is that wind farms in Scotland are frequently paid to switch off when the grid cannot carry their output, while gas plants in England are paid to switch on. These constraint payments have risen sharply and are recovered from all consumers.
The REMA document describes this as a misalignment between where energy is generated and the availability of transmission to get it to consumers. It distinguishes between structural constraints, which will always exist, and transitional constraints caused by the historic failure to build network capacity alongside generation. The government says accelerating network reinforcement under its Clean Power Action Plan could cut future constraint costs at least in half by 2030 compared to earlier projections.
Why the government rejected zones
The update gives four reasons. First, with contracts for difference protecting generators from price risk, the locational signal under zonal pricing would mainly come from volume risk, which fluctuates half-hourly and depends on zone boundaries that could change over an asset's life. That makes it hard to price. Second, zonal pricing has distributional consequences, with different wholesale prices in different parts of the country, and the mitigations would themselves be complex and imperfect. Third, it would add risk and raise the cost of capital at a time when Britain needs historic levels of investment. Fourth, the government estimated that implementing zonal pricing would take seven years assuming no delays, while reformed national pricing could deliver benefits sooner.
The investment argument is the strongest. Britain's next contract for difference auction, AR7, is crucial for the clean power target, and the government explicitly published the decision when it did to give bidders certainty. Introducing a market redesign of this scale in the middle of a major build programme would raise risk premia, and higher risk premia mean higher strike prices, which consumers pay for decades.
What reformed national pricing must achieve
The centrepiece is the Strategic Spatial Energy Plan, being developed by the National Energy System Operator for publication in late 2026. It will map the optimal locations, quantities and types of generation and storage, and will be implemented through levers that include planning reform, seabed leasing, the Centralised Strategic Network Plan for transmission, connection reform and network charging. In other words, the state will plan where things go, and use its control over leases, planning and connections to steer projects to those places.
Network charges are the main price signal that remains. Transmission Network Use of System charges, the annual fees generators pay, already vary by location, but investors complain they are volatile and unpredictable. The government wants to reform them to provide stable, long-term locational signals, with reform delivered within this Parliament and by 2029 at the latest. It also plans to consider deeper connection charges and to review charges for storage and demand.
On operations, the government lists measures to lower the threshold for participation in the Balancing Mechanism, align the trading deadline with gate closure, require physical notifications to match traded positions and examine unit-level bidding and shorter settlement periods. It also supports a code modification, P462, which would stop subsidised generators from factoring their subsidies into the prices they offer to reduce output, which inflates the cost of constraint management.
The risk in the chosen path
Zonal pricing would have sent a locational signal every half-hour, to every generator and every flexible user, automatically. Reformed national pricing replaces that with planning, charges and administrative tools. These can work, but they depend on good decisions made by government, Ofgem and NESO, and on those decisions being implemented on time. Planning-led systems have a mixed record. If the Strategic Spatial Energy Plan is late, or network charging reform slips beyond 2029, or transmission build falls behind again, constraint costs will remain high and the case for zones will return.
There is also a risk for flexible demand and storage. A national price does not tell a battery in Scotland that its most valuable use is to absorb wind that would otherwise be curtailed. Batteries and flexible loads will respond to the national price unless constraint management products and charging signals give them a reason to do otherwise. The government's plans for long-term contracts to encourage demand to locate behind constraints, including data centres, are a step in that direction and should be pursued vigorously.
Our assessment
Rejecting zonal pricing was a reasonable decision for a government that has made 2030 clean power its central energy objective and needs investment certainty now. But it is not a decision to do nothing. Reformed national pricing commits the state to planning the system much more actively and to reforming charges that have resisted reform for years. The test will be whether constraint costs fall as promised by the end of the decade. If they do, the choice will look wise. If they do not, Britain will have to revisit locational pricing with less time and more cost.