The UK energy sector has faced significant turmoil in recent years, marked by price fluctuations, supplier insolvencies, and escalating costs, placing remarkable strain on households and businesses.

The recent failure of Rebel Energy and the latest hike in the price cap serve as stark reminders of the difficult decisions confronting policymakers determined to lower energy expenses.

It is crucial to mitigate this burden without resorting to oversimplified measures that could worsen the situation, such as zonal energy pricing. Additionally, shifting policy expenses from electricity to gas could inadvertently raise consumer costs. For years, there has been a call for a more equitable energy framework that fosters efficiency while minimizing complexity—this includes eliminating standing charges, standardizing prices for electricity and gas, and introducing a social tariff to aid vulnerable consumers. This is why we oppose these proposals, which, while appealing to some, ultimately represent a threat to consumers by complicating costs.

The fundamental premise of zonal pricing is to adapt to local supply and demand in a bid to enhance renewable energy investments and grid efficiency. However, this could lead to pronounced inequalities and escalated expenses for consumers in areas with limited renewable resources. Rather than straightforward, it would create a postcode dilemma, imposing higher costs on those in industrial zones compared to regions rich in wind and solar energy.

In addition to raising prices, it remains uncertain how this system would work alongside the national price cap. Would the country require multiple price caps?

Proponents of zonal pricing suggest it will motivate consumers to change their energy consumption based on local rates. However, nearly half of UK households currently lack smart meters, and prioritizing quicker distribution of these devices alongside flexible tariffs would lead to better demand management. While promoting heat pump installation is essential, we should not disadvantage individuals unable to transition from traditional heating solutions.

The assumption that businesses will relocate for cheaper energy is unrealistic; they require skilled labor, infrastructure, and services. Should they relocate, funding for new roads, hospitals, and schools would increase taxation. Investors seek stability rather than a chaotic environment that complicates planning and investment.

While zonal pricing might introduce new market distortions, we should also reject proposals to transfer current policy costs from electricity to gas.

This approach, if superficially appealing, would simply create further market imbalances, burdening lower-income gas users to subsidize wealthier electricity clients. Current levies reflect the costs of electricity decarbonization, and if they need to appear on bills, it’s reasonable for them to be included in electricity costs. Shifting them to gas merely to increase its price lacks a solid justification. The notion of redistributing costs from one group to another has never been sound. Instead, a more balanced method would involve reallocating policy levies within general taxation, ensuring a fair distribution of energy transition costs among consumers.

At Centrica, our priority is addressing costs in a manner that protects consumers while being candid about challenging choices. This entails accelerating investments in grid infrastructure and storage solutions that reduce waste and enhance efficiency. It also involves reforming the contracts for difference system to ensure that renewable producers are not compensated for energy that cannot be utilized. Moreover, it is essential to resist unnecessary interventions that hike bills unnecessarily.

All reforms should be assessed based on their ability to provide affordability, sustainability, and investment appeal. This means steering clear of zonal pricing, rejecting unfair shifts in policy costs, and focusing on effective, time-tested solutions that minimize expenses.

A well-informed and transparent discussion is required, based on evidence and consumer needs—not speculative theories funded by consumers.

Chris O’Shea serves as the chief executive of Centrica.