Miliband's minefield Renewables and the bitter fight over postcode pricing

How would you prefer your electricity prices to be set - nationally or locally?

- Nils Pratley

There is little middle ground in the bitter lobbying battle over zonal pricing, the proposal that Great Britain's electricity market should be split into regions with prices set by local supply and demand. The energy secretary, Ed Miliband, must decide in the next few months, in time for this summer's auction for new wind and solar projects.

One camp - led by Greg Jackson, the politically plugged-in founder of Octopus Energy, the UK's biggest retail energy supplier - argues that customers' bills will "skyrocket" unless zonal pricing is adopted. It points to the wasted money spent paying windfarms to shut down when, for example, it is blowing a gale in the Shetlands and the local grid is overloaded with more power than can be transported south.

So-called constraint costs were about £1bn last year, according to figures from the National Energy System Operator (Neso). The figure covers payments to windfarms to stop generating plus the cost of requiring other generators to fire up on the other side of a bottleneck. The cost all ends up on bills - indeed, constraint payments equated to 2.4% of consumers' total electricity bills last year.

Flexible zonal pricing would fix the problem - or prevent it getting worse, advocates argue. More generating capacity would be built nearer to where it is needed. Demand would move nearer to supply. Overall costs would fall because price signals would force the system to run more efficiently. Fewer pylons might be required. They paint a happy picture of windy Scotland as a place of low bills and a background purr of AI datacentres running on cheap energy.