UK zonal pricing decision: long live the reformed national market

Zonal pricing is dead. The bell has tolled and it tolled for zonal pricing. The UK government’s announcement to stick with a national structure brought clarity to a market that desperately needed it, even if opinions on the decision are divided. For the sector, any decision signals certainty about the rules that will shape this fast-changing landscape. The debate was raging for three years. In that time, investors have been making decisions based on an unclear view of what the market rules might have been in future. Could the country be moving to a zonal structure currently used in Denmark, Norway and Sweden and under discussion in Germany? The answer to that is now a clear “no”. 

What’s the alternative?

While the headlines have focused on the rejection of zonal pricing and the mixed reactions, less has been said about the alternative: a reformed national market. On the surface, a “national market” signals no change – the country’s wholesale power market has always been national. But it’s the “reformed” part that represents a major, and still opaque, shift in how the system could operate. 

Most government proposals so far are general, outlining principles rather than specifics. Still, reading between the lines reveals a clear direction of travel. The reforms point towards greater consolidation of information and control at system operator Neso. One example: there’s talk of lowering the threshold for mandatory participation in the balancing mechanism, forcing a wider range of smaller assets – many of which currently self-dispatch – to notify Neso of their plans. This visibility would allow it to manage these assets collectively when balancing the system.

Stricter oversight

There’s also a proposal for stricter oversight of wholesale activity for balancing mechanism units. Currently, an asset can trade, notify Neso of their intention to generate a specific amount and continue to trade closer to delivery – regardless of the intention to change their dispatch. Under the reformed model, each asset’s declared position would need to match its traded volume, with all actions aligned to gate closure. This would give Neso much clearer sight of the balancing problem, enhancing control – but it could also impact the extra liquidity brought by non-physical trading, a point the official documents don’t discuss. 

The government had previously steered clear of adopting a centrally dispatched market, sticking with the self-dispatch model. However, its ghost lingers as Neso’s control over market operations expands via the balancing mechanism rather than through direct instruction in the wholesale market. 

This shift is, arguably, necessary to accommodate the battery and flexibility assets the government wants to see built. Neso’s investment in IT and data handling suggests a future where a mass of small generators and flexible assets operate under more structured rules – a major step in system management for the renewables era. 

Consolidating power in publicly owned bodies under the Labour government is nothing new – Great British Energy itself was set up as a central, state-owned driver for renewables. Patterns are already emerging, just a year into the new administration. 

More uncertainties ahead

Yet while the fight over zonal pricing is finished, many skirmishes remain. For example, by how much should the balancing mechanism threshold drop? Too low a bar restricts smaller assets; too high fails to deliver the intended system benefits. The coming shift to shorter settlement periods – moving from 30 to 15 or even five minutes – remains unresolved and will have major consequences for batteries, flexibility and IT infrastructure. 

And while the focus has been on domestic reform, the UK power system is not totally isolated. Despite being an island market, it is connected to the continent via interconnectors. This means it is physically tied to Europe’s electricity markets, trading power daily across borders with France, the Netherlands, Belgium, Ireland and beyond. Reform cannot happen in isolation. Whether or not Britain adopts zonal pricing, the country remains an integral part of a broader energy ecosystem – influenced by and influencing, its neighbours. 

So while zonal pricing’s demise made headlines, this is not the end of the country’s evolution. The specifics of the reformed national market will dominate debate in months to come. How these reforms shape the landscape – and whether Labour’s centralised approach can withstand future political turbulence – remains to be seen. The bell may have tolled for zonal pricing but the story of market reform is still being written. 

This article originally appeared as a column on montelnews.com