What is REMA and why has the Government decided against zonal pricing?

Zonal pricing would have seen the nation divided into geographical zones. In areas with higher demand than supply, prices would rise to encourage energy efficiency and investment. Conversely, in zones where energy supply is greater than demand, prices would drop to attract energy-intensive industries. Ideally, this would balance out congested zones, with industries moving to low-price areas and generators developing in high-price zones. The idea was that smaller zones would provide precise price signals for development decisions, but could also lead to price variability.

While zonal pricing had both strong support and opposition since its initial consultation in July 2022, the Department for Energy Security and Net Zero (DESNZ) delivered its verdict on 10 July 2025 with the release of the ‘summer update’.

In short, DESNZ confirmed that the UK electricity market will not transition to zonal wholesale pricing, because “there are significant risks to zonal pricing that we have not been convinced can be satisfactorily addressed compared to our preferred approach of reforms to national pricing.” 

Rejecting zonal pricing

The Government’s choice reflects a preference for incremental changes over potentially disruptive structural reform. According to the REMA update, this decision prioritises investor certainty over theoretical gains in operational efficiency. DESNZ highlighted that avoiding zonal pricing reduces investment risk and helps keep financing costs low, supporting the Government’s rapid decarbonisation goals under the Clean Power 2030 Action Plan.

Why is reform needed?

There’s an imbalance between where renewable energy is created and where it’s needed. In 2022, 28% of UK electricity was consumed in London and the South East. As of 2025, nearly 40% of installed, onshore, renewable energy capacity is in Scotland. Between the two is an outdated network of infrastructure incapable of transporting electricity from north to south.

Addressing this imbalance is expensive. When grid congestion occurs, renewable energy producers must reduce output to prevent damage to the system while generators nearer the source of demand must increase production to keep the system balanced. Flexible combined-cycle gas turbines are commonly used for this purpose. This involves two payments: one to the renewable energy producers to reduce output, and another to the substitute generators to increase theirs. In 2024, costs exceeded £1 billion and in Q1 2025 reached £400 million: without reform, this is projected to hit £6 billion per year by 2030, according to the National Energy System Operator (NESO).

Addressing the needed reform without zonal pricing?

Instead of zonal pricing, the Government is pursuing a multi-year reform programme to strengthen the national pricing system, aiming to:

1. Improve locational signals within national pricing: Through reforms to network charges, including Transmission Network Use of System (TNUoS) charges, and better incentives for generation and demand to site where they add most value, supported by the forthcoming Strategic Spatial Energy Plan (to be released in late 2026) to align planning, leasing, and network buildout.
2. Reform the ‘Balancing Mechanism’: Making it more flexible, cost-reflective, and granular in locational pricing, with planned changes to widen participation and increase transparency.
3. Support investment in flexibility and low-carbon technologies: Improving market arrangements for storage, demand-side response, and interconnection so that they are awarded appropriately.

This pipeline also includes the Constraints Collaboration Project (targeted for 2026) and a ‘Reformed National Pricing Delivery Plan’ (end of 2025), to coordinate the legislative changes, design details, and delivery timelines necessary to bring these reforms together into a coherent national pricing system designed to enable a decarbonised electricity system by 2035.

Further information

Contact Kyle Rarick & Phil Pearson

Future Homes Standard to mandate solar panels for all new homes