The government has abandoned plans for “zonal pricing” that would have charged electricity users in the south-east of England more than those in Scotland, saying that a single national price would help ensure the system was “fair, affordable, secure and efficient”.
The energy secretary, Ed Miliband, had been considering proposals for zonal pricing that would mean different parts of England, Wales and Scotland being charged different rates for their electricity, based on local supply and demand.
It was intended to encourage heavy electricity users to relocate to areas that have more generation such as Scotland, where windfarms sometimes have to switch off because of a lack of demand.
But senior officials said earlier this week that the scheme could put off investors and make it more difficult to build renewables.
The energy department confirmed on Thursday it was abandoning the proposal after a lengthy consultation that had been running since 2022.
Miliband said: “Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets and protect families and businesses for good.
“As we embark on this new era of clean electricity, a reformed system of national pricing is the best way to deliver an electricity system that is fairer, more affordable, and more secure, at less risk to vital investment in clean energy than other alternatives.
“Our package of reforms will protect consumers and secure investment as we drive to deliver our clean power mission through our plan for change.”
Instead, ministers said new proposals would let the government take more responsibility for planning the system and determining where clean energy infrastructure was located, based on what is needed for the long term.
The long-awaited decision ends the bitter feud within the industry between those who believe that zonal energy pricing could make the market more efficient and those who argue the disruption would raise costs and jeopardise the UK-plan to create a virtually carbon-free power sector by the end of the decade.
The energy regulator, Ofgem, welcomed the decision and said it brought “certainty and confidence for the future of the energy system”.
It added it would work with the government “to build a decarbonised system which will bring stability and protect consumers from international volatility and the rollercoaster effect that has on bills. We’ll be setting out our thinking on network charging reforms shortly”.
Those who backed a move to zonal pricing included Greg Jackson, the founder and boss of Octopus Energy, while some of Britain’s biggest renewable energy companies including SSE, Scottish Power and RWE opposed the idea.
Responding to the government’s decision, a spokesperson for Octopus said: “We must reverse the spiralling costs of electricity, so we respectfully disagree with this announcement. The UK should have followed the majority of the OECD (Organisation for Economic Co-operation and Development) and put consumer interests ahead of producers.
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“The alternative to zonal pricing – reformed national pricing – is non-existent. There are no published models, no cost-benefit analysis and no hope it’ll tackle the precipitously rising costs of the system.”
However, SSE said the move provided “much-needed policy clarity” for investors and consumers.
Chris O’Shea, the chief executive of British Gas’s owner, Centrica, said it was a “commonsense decision” and that the “theoretical benefits never stacked up against the real-world risks” in potential zonal pricing.
Under the dropped proposals, zones with an abundance of electricity generation relative to local demand – such as Scotland – would have had lower market prices. But densely populated areas in the south-east of England would have run the risk of higher energy bills due to higher market costs.
Those on both sides of the debate paid consultants to produce detailed analysis to serve as evidence, and engaged in rigorous lobbying to put forward their point of view.
Ana Musat, executive director of policy at RenewableUK, said: “This decision is good news for billpayers, in part because the prices set in the government’s auctions for clean power contracts will be lower than they would have been under the costly zonal pricing regime.
“It will give confidence to private investors that the UK is one of the best markets in the world to build new renewable energy projects, by ending the uncertainty that zonal pricing would have caused.”
