What is Zonal pricing?

Zonal pricing is a pricing strategy used in various markets, particularly in energy and transportation sectors, where a geographical area is divided into zones. Each zone can have different prices based on factors like supply and demand, transmission costs, or regional market conditions. This approach allows for more localized pricing, reflecting the specific economic realities of each zone, rather than a uniform price across a broader area. It helps optimize resource allocation and manage congestion in networks, such as electricity grids.