As the UK continues its push toward a cleaner, more secure energy future under Clean Power 2030, big changes are rippling through the energy market — and not without turbulence. From grid connection reform to the evolving landscape of power purchase agreements (PPAs), developers, investors, and generators are all feeling the pressure.
One reform now back in the spotlight is REMA — the Review of Electricity Market Arrangements — and more specifically, its most debated proposal: a move from national pricing to zonal pricing.
Here’s why that matters, especially for those entering into PPAs today, and what you can do to protect your position in an uncertain market.
Zonal Pricing: What Is It and Why It Matters
Under the current model, electricity is priced uniformly across the country. Zonal pricing would change that, linking electricity prices more closely to local supply and demand.
In theory:
Prices go up in areas of high demand.
Prices go down in areas with excess generation.
While this is intended to encourage investment in the right places, it introduces serious complexity for PPAs — especially those that cross zones.
The Real-World Impact on PPAs
1. Greater Risk and Uncertainty
The UK PPA market is already challenging. Generators are often grappling with:
Volatile prices
Mismatched generation and offtaker demand
A shift toward safer but less lucrative options like CfDs
Zonal pricing could discourage long-term PPAs altogether, affecting bankability and slowing project development.
2. Change in Law (CIL) Clauses Come Into Play
A major policy shift like zonal pricing may trigger Change in Law provisions in PPAs. While these clauses aren’t typically designed to renegotiate pricing, they could be used by parties — especially offtakers — as grounds to exit a contract.
The key issue? Each CIL clause is unique, and much depends on whether the trigger is defined as the passing of legislation, or the actual implementation of zonal pricing.
3. No Grandfathering for PPAs
While CfDs might be “grandfathered” (i.e. protected from the impact of new rules), PPAs — as private contracts — likely won’t be. This leaves developers and funders exposed if their revenue assumptions are disrupted.
4. System Charges and Cost Allocation
Zonal pricing would also bring changes to TNUoS and DUoS charges, shifting the cost burden across parties. PPAs will need to be clear about who carries this risk — generator or offtaker — as part of the contract structure.
Impacts by PPA Type
Sleeved PPAs
These will be hit hardest, since they often involve a third-party supplier and buyers/sellers in different zones. Expect:
More CIL claims from offtakers
Pricing mismatches that are hard to manage
Complications in calculating compensation for non-delivery
Private Wire PPAs
Less exposed due to their local nature, but not immune:
If prices are pegged to wholesale markets, zonal price disparities still matter
Over time, local generation changes could shift zone-level dynamics
Practical Protections for New PPAs
For those negotiating PPAs today, consider these steps:
Audit your CIL Clauses
Clarify what constitutes a trigger
Define what can and cannot be renegotiated
Tighten Termination Provisions
Avoid “easy outs” based on loosely drafted change-in-market conditions
Stress-Test Sleeving Arrangements
Understand what happens if your supplier exits or costs rise significantly
Get Ahead on Pricing Strategies
Build in flexibility and clear pricing methodology
Consider structures with multiple offtakers or merchant exposure
🧭 Where This Leaves the Market
While we wait for the final outcome of the REMA consultation — expected soon — one thing is clear: if zonal pricing is introduced, the PPA landscape will change dramatically.
Long-term, it may lead to a smarter, more flexible system. But in the near term, it introduces uncertainty that will affect how projects are financed, contracted, and delivered.
For developers, funders, and corporates alike, now is the time to review your risk exposure and ensure your agreements are future-proof.
Need help navigating the future of PPAs?
Our energy team has deep expertise in structuring and negotiating PPAs in complex regulatory environments. If you’re considering entering — or exiting — a PPA, let’s talk.