Plan for electricity bills based on region dropped

Plans to set energy prices in Great Britain based on region have been dropped by the government.

Energy Secretary Ed Miliband said in April the government was considering zonal pricing, but on Thursday it said it would reform the current Britain-wide pricing system instead.

Zonal pricing supporters say it can lower bills in areas generating more energy, such as Scotland, though some energy firms say it could have scared off investment.

Energy UK, which represents the industry, welcomed the governments decision while the Conservatives called Milibands promise of lower electricity bills "a fantasy".

The current electricity pricing system in England, Scotland, and Wales means energy suppliers throughout Britain pays the same flat rate when buying energy wholesale, to resell to customers.

Energy bills then include additional charges from the supplier for things like network upkeep and environmental obligations.

However, critics argue the wholesale energy price is calculated based on the most expensive electricity generated in the country at any given moment.

Greg Jackson, founder and chief executive of Octopus Energy, told the BBC that zonal pricing works in countries such as Australia, Sweden, and Italy and calculates it could "reduce bills by around £100 a year for most households".

Supporters also say zonal pricing could have encouraged energy hungry industries to locate closer to the sources of energy, such as Scotland where supply exceeds demand, and away from densely populated cities.

However, energy provider SSE said zonal pricing "would have added risk" to the system, arguing that national pricing creates "a stable and investable environment".

Firms had warned the government that a major overhaul of the electricity pricing would have deterred bidders for the upcoming auction of renewable projects later this year.

SSE welcomed the "much-needed policy clarity" from the governments announcement, but Kate Mulvany, principal consultant at Cornwall Insight, said "clarity is not the same as resolution".

"This move will not solve the deep-rooted issues in Great Britains electricity market, and it must not be used as an excuse to continue business as usual," she added.

The decision to stick with a national pricing comes after a three year consultation. In April, Miliband the BBC that pricing reform was "an an incredibly complex question".

"There are two options, zonal pricing and reformed national pricing," he said at the time.

"Whatever route we go down my bottom line is bills have got to fall, and they should fall throughout the country."

Update 3 August: This article has been amended to make clear that zonal pricing would have applied to wholesale energy prices in England, Scotland, and Wales.