Household energy bills are playing out like a “postcode lottery,” with recent analysis revealing significant regional price differences even before potential changes to wholesale pricing are considered.

According to forecasts from Cornwall Insight, residents in north Wales and Merseyside are expected to incur electricity costs that are £120 higher than those in London over the next year, while households in northern Scotland will face bills that are £96 more than those in the capital.

The noticeable variances in prices are primarily due to the differing charges applied to energy bills, which fund the maintenance of Britain’s 14 regional electricity distribution networks regulated by Ofgem.

The current energy price cap for standard tariffs is set at £1,849 per year, reflecting a national average that conceals these regional disparities.

“Regions such as North Scotland, North Wales, and Merseyside encounter higher operational costs due to factors including difficult terrain, increased distances between populations, and harsher weather conditions, complicating electricity distribution and making grid upkeep more costly compared to more densely populated urban areas like London,” Cornwall Insight noted.

This analysis adds to the ongoing discussion about the potential shift towards zonal wholesale pricing, where costs would fluctuate across regions based on local power supply availability and grid infrastructure limitations.

Opponents of the proposed changes argue that it may create a stark “postcode lottery,” with households in London and the South East potentially facing the highest prices, while residents in northern Scotland might benefit from some of the lowest bills in Europe. Ed Miliband, the energy secretary, acknowledged last week that he is contemplating this approach but emphasized that he would not endorse a decision that would increase prices for certain areas.

Supporters of zonal pricing contend that existing price differences are already significant and often overlooked, suggesting that the government could choose to protect households from fluctuations in regional wholesale prices.

Guy Newey, CEO of the Energy Systems Catapult, stated that zonal wholesale pricing could enhance the efficiency of the electricity system, leading to lower costs. “The challenge for the government lies in determining how to shield different consumer groups, which is a matter of political choice. Various international markets have employed different strategies, with some balancing costs between households in various zones and others focusing on protecting industry. However, zonal pricing offers considerable savings opportunities,” he explained.

Lee Drummee, a senior analyst at Cornwall Insight, remarked, “As discussions regarding zonal wholesale pricing evolve, it is crucial to understand that regional pricing is already integral to the system. In essence, energy bills are functioning as a postcode lottery. Zonal pricing is merely one aspect, while regional differences are already significantly impacting consumers.”

He added, “With the rising concern over energy affordability, it is imperative to engage in a comprehensive dialogue on how we can assist households in various regions in reducing their energy expenses and support all vulnerable populations regardless of their location.”

An Ofgem representative commented, “The costs associated with transmitting energy throughout the system and powering homes have always varied by region. These factors must be accounted for in the price cap to ensure that energy companies recover fair and efficient costs, a situation that was not addressed prior to the cap’s implementation.”

“The government’s review of electricity market frameworks is examining a broad array of reform options. In the interim, we are consistently reviewing this situation through network pricing regulations and the price cap,” the spokesperson added.