Ed Miliband quietly drops ‘zonal’ electricity pricing – what does it mean?

The energy secretary has pulled the plug on a plan for different prices in different parts of the country. Words: Staff

Ed Miliband, the energy security and net zero secretary, made a statement in the Commons today on the “review of the electricity market arrangements”. The bland words concealed a significant announcement: he has decided to stick with the longstanding policy of a single national price for electricity, rather than allowing cheaper bills in places (such as Scotland) that are close to a lot of wind power.

He claimed that consumers would benefit from a “fairer, cheaper, more secure, and more efficient energy system”, ending “uncertainties”, and that it is all part of the Labour government’s “mission” to “bring down bills for good”.

Claire Coutinho, the shadow energy secretary, did not appear to disagree with the decision, but wanted to know why, instead of energy bills being cut by £300 as Miliband promised at the election last year, they have gone up.

What is zonal pricing?

As Britain undergoes the transition away from fossil fuels to wind and solar power, some people, notably Greg Jackson, the boss of Octopus Energy, argued that this can be done most efficiently by allowing electricity prices to vary nationally.

The argument is that some places would benefit from lower prices, and that they would attract people and industry, allocating resources more efficiently. Given that a lot of wind power is in and around Scotland and the north of England, it would also rebalance the economy away from the South East.

The problem with this is that it would create visible winners and losers around the country, and politically, the losers in the South East would make more noise than the winners elsewhere.

It has taken Miliband a long time to decide to do the “conservative” thing and stick with the status quo, which suggests that the economic benefits of zonal pricing, though they might be quite significant, in the end were outweighed by the political calculations.

One particularly cheeky touch in his statement, though, was the claim that he had ended the “uncertainties” – the uncertainties caused by his reluctance to decide the policy for a whole year after the election.

So will prices go up or down?

Overall, electricity prices will be slightly higher than they would have been under zonal pricing, and prices in London and the South East will be cheaper. But they will be the same all over the country, so voters will not feel that people in other parts of the country are getting a better deal than they are.

It was notable, however, that Coutinho focused all of her attack on Miliband’s pre-election promise to bring prices down. The energy secretary has already admitted that bills will not be cut by “up to” £300 in the near future, trying to turn the blame onto the international markets – “petrostates and dictators” – which he claims strengthens his argument that green power will be cheaper when we have completed the transition.

Coutinho points out that there are a lot of assumptions in this argument. She claims that Miliband has no way of knowing if green electricity really would be cheaper, because he cancelled the work she started as energy secretary until last year to try to estimate the costs of a whole system powered by renewables alone.

She insists that his belief that renewables will be cheaper is just that – a belief – and that in the meantime, the web of green levies and incentives in the system makes it impossible to know the extent to which renewables are subsidised. And she points out that Miliband still has not solved the problem of what to do when there is no wind or sunshine, given that electricity storage technology is nowhere near enough to fill the gaps.

What does the prime minister think?

Coutinho claims that Miliband came under pressure from 10 Downing Street to abandon zonal pricing because the prime minister was more sensitive to the idea of creating electoral losers than the energy secretary was.

She also claims that Keir Starmer is beginning to have doubts about the idea of carbon-free electricity by 2030. “Even Downing St are waking up to the fact that Ed’s net zero zeal is going to impose huge costs on bills and jobs as we lose businesses to more polluting countries with cheaper energy. That’s bad for households, our economy and emissions,” she said.

With Kemi Badenoch having turned net-zero sceptic, this is going to be a critical political battleground for the rest of this parliament.