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Could Scotland have Europe's lowest electricity bills?

Kevin Keane
BBC Scotland environment correspondent
BBC Octopus Energy founder and CEO Greg Jackson looks at the camera with his arms folded, in front of a company logo and a bank of desksBBC
Greg Jackson, the boss of Octopus Energy, says bills need to be calculated regionally

The boss of one of the UK's biggest energy providers says people living in Scotland could have the cheapest electricity in Europe.

Greg Jackson, who founded Octopus Energy, wants the electricity market to be reformed to introduce zonal pricing.

He argues that if prices were based on local generation, the high levels of renewable energy being produced in Scotland would keep bills low.

But rival electricity firms say zonal pricing would create a postcode lottery and could lead to major infrastructure projects currently planned for Scotland being switched to other parts of the UK.

A single offshore wind turbine set against a blue sky sits on a yellow platform, called a jacket, on the seabed
Seagreen, off the Angus coast, is now Scotland's largest offshore wind farm

The UK government is currently exploring options for major reform in the electricity market.

Those options include regional or zonal pricing, which is used in some other parts of the world including Australia, Italy and Sweden.

At the moment, the wholesale price of electricity applies across the whole of Great Britain – and is based on the cost of the most expensive unit generated across the area at that time.

The national grid's reliance on gas, the most expensive source of power, keeps bills high - even if there's also large-scale generation coming from cheaper renewable sources, like wind power.

Under a zonal pricing system, bills would instead be linked to the most expensive unit generated in a specific area.

Because Scotland is already a net exporter of renewable electricity, the argument is that the country's bills would be much cheaper.

Mr Jackson, whose company is now the UK's largest domestic energy supplier, described the existing system as "crazy."

He said it does nothing to bring down bills and that billions are being wasted in payments to switch off wind farms when demand is low.

He told BBC Scotland News that under zonal pricing, bills in Scotland - where there is "a lot of renewable generation" - would be "cut very significantly from where they are now".

He said that amount would vary across Scotland, but some bills would fall by hundreds of pounds a year.

Keith Anderson, in a collar and tie with overcoat, looks to the camera in front of the Whitelee wind farm near Glasgow
Scottish Power's chief executive Keith Anderson says regional pricing would jeopardise investment

However, other energy companies - including Scottish Power and Scottish and Southern Electricity (SSE) - are opposed to the idea.

Last month, they were among 55 firms who wrote a six-page letter to the UK government raising "grave concerns" around zonal pricing and saying it would do nothing to reduce bills.

SSE said those in favour of the scheme had used "flawed logic" and that it would create a "postcode lottery" for energy bills.

The chief executive of Scottish Power, Keith Anderson, told BBC Scotland News that it would also create uncertainty around £75bn worth of investments.

This initiative to "rewire the country," the biggest in the history of the UK's electricity system, would see large new transmission pylons installed to increase the amount of new renewable energy being shifted around the country.

However, he warned that such projects could be diverted to other parts of the UK to bring down bills in those areas by making each region less reliant on expensive fossil fuel generation.

"What we're saying is, let's build it, let's get all the economic growth for the UK, let's get gas away from the electricity system, let's bring down people's bills and then look at whether we need a zonal pricing system," he said.

Turbines from the Seagreen wind farm on the horizon against a lightly cloudy sky with a hazy sun
Tens of billions of pounds is earmarked for investment in new wind generation and changes to the transmission infrastructure

Mr Anderson insists the aim should be to bring down bills for the whole of the UK, rather than in certain regions where renewables are in abundance.

He says zonal pricing is meant to encourage investment in particular parts of the country - but fails to recognise that wind farms need to be built in places where it's windy.

Octopus boss Mr Jackson believes that more renewable energy capacity could still be built in Scotland.

He also says cheaper prices would encourage data centre operators, who use vast amounts of energy, to build their sites north of the border.

Mr Jackson says that would reduce the amount of network upgrades needed to shift the electricity from where it's generated to where it's consumed, and make the overall system more efficient.

But that has been dismissed by Scottish Power, which says data centres have to be built close to the largest populations to maximise their response times for connectivity.

Mr Anderson and Mr Jackson both quote separate research that supports their arguments.

But neither will stake their reputations on what the UK government is likely to decide when it publishes its review of electricity market arrangement, mostly likely over the summer.