How Zonal Energy Pricing Could Impact UK Businesses

A recent proposal from Shadow Energy Secretary Ed Miliband could bring major changes to the way businesses in the UK pay for electricity. Ed Miliband, the Shadow Energy Secretary, has proposed zonal energy pricing.

The proposed move to zonal energy pricing would introduce regional variations in commercial electricity rates, potentially lowering costs in some areas while increasing them in others.

In this blog, we explore what zonal pricing is, why it’s being considered, and what it could mean for your business energy costs.

What Is Zonal Energy Pricing?

Under the current system, most UK businesses pay the same wholesale electricity price, regardless of their location. Zonal pricing would change this by dividing the country into regions with prices that reflect local supply and demand.

Regions with strong renewable generation, such as Scotland or parts of the North, could benefit from lower electricity prices. In contrast, areas with higher energy demand and limited local generation, like the South of England, may see prices rise.

This model aims to reduce system-wide inefficiencies and help the UK transition more effectively to a greener grid.

Why Is Zonal Pricing Being Proposed?

The UK’s national energy grid is under pressure. Energy prices have fluctuated significantly in recent years, and there’s a growing need to increase the efficiency of how electricity is distributed and consumed.

Supporters of zonal pricing believe it could:

• Encourage more efficient energy use
• Lower infrastructure costs
• Deliver savings to energy users in low-demand or high-supply regions

Octopus Energy CEO Greg Jackson estimates that a zonal system could save UK energy users as much as £7 billion a year by reducing the need for costly grid upgrades and better matching supply with demand.
(Source: The Times)

What Does This Mean for Businesses?

The impact on business energy bills would vary by location:

• Positive impact: Businesses located in energy-rich zones, especially those with access to local renewables, could benefit from reduced electricity costs.

• Negative impact: Energy-intensive industries and businesses in the South of England may see higher commercial energy prices, increasing operational costs and reducing competitiveness.

Industry bodies representing steel, ceramics and other manufacturing sectors have raised concerns about the potential for regional inequalities and the effect on job retention in higher-cost zones.
(Source: Financial Times)

Could This Slow Renewable Energy Growth?

While zonal pricing could benefit areas rich in renewables, developers worry that uncertainty about future regional prices may slow down new project investment. A UK Energy Research Centre report suggests the change could cost energy users an extra £3 billion per year until the 2040s unless subsidies increase to offset the risk for developers.
(Source: The Guardian)

What Can UK Businesses Learn from Other Countries?

Several countries in Europe already operate zonal or locational pricing systems for electricity. Their experiences offer useful lessons for the UK, both in terms of benefits and potential pitfalls.

Norway: Political Fallout from Price Disparity
Norway introduced zonal electricity pricing to reflect local supply and demand. While it made the system more efficient from a grid perspective, it created stark price differences between the north (where power is abundant and prices are low) and the south (where demand is higher and prices soared). These regional inequalities sparked public outrage and became a major political issue. By early 2025, the situation had escalated to the point where it contributed to the collapse of the ruling coalition government.

Lesson for UK businesses: Regional pricing can become a flashpoint for public and political tension, especially if high-demand areas, which often include economic hubs, face significantly higher energy costs. UK firms based in the South or in cities like London and Birmingham may want to factor in future-proofing strategies or consider site location flexibility where possible.

Sweden: Industry Pressure Leads to Compensation Schemes
Sweden’s zonal pricing system has been in place since 2011. In theory, it should encourage smarter energy use and investment in local renewables. But in practice, businesses in the southern zones, where prices are much higher, have struggled to remain competitive. In response, the Swedish government introduced compensation measures to support energy-intensive industries hit hardest by rising prices.

Lesson for UK businesses: If the UK adopts a similar model, we could see lobbying from industry groups to secure financial support for affected sectors. Manufacturing and industrial firms should stay engaged in policy discussions and trade body activity to ensure their concerns are heard. It’s not just large manufacturers who may be affected, smaller businesses in high-cost zones could also face rising operational expenses.

Germany: Cautious Approach to Regional Pricing
Germany has considered zonal pricing but has so far stuck with a uniform national system, in part to avoid regional disparities. However, there are ongoing discussions about how to evolve the system as renewables play a larger role and grid congestion becomes more common.

Lesson for UK businesses: Germany’s hesitation shows the importance of balancing efficiency with fairness. UK policymakers may choose a phased or hybrid approach to avoid sudden shocks, something businesses should monitor closely when planning long-term energy strategies.

Summary: Proceed with Caution
The experiences from Norway, Sweden, and Germany highlight a common theme: while zonal pricing can improve grid efficiency and support the energy transition, it must be handled carefully to avoid disproportionate impacts on businesses and regions.

For UK businesses, especially those in energy-intensive sectors or operating across multiple sites, now is the time to review energy procurement strategies, stay informed on policy developments, and engage with sector voices to help shape the outcome.

What Happens Next?

The UK Government is expected to make a decision on zonal pricing later in 2025. If adopted, zonal pricing would likely take several years to implement, although no timeline has yet been confirmed.

How Tritility Can Help

At Tritility, we work with businesses of all sizes to navigate an evolving energy landscape.

We’ll continue to monitor the developments around zonal pricing and provide clear, jargon-free updates for our clients. If you’d like to talk to us about how regional energy pricing could affect your business, get in touch today.