Ed Miliband issued warning over 'absurd' net zero pricing amid fears British factories to close

In theory, this would mean higher prices in south England compared to Scotland, but industry groups have warned the policy could have disastrous consequences and could force British factories to close.

Under the current system, electricity is traded across one wholesale market covering all of the UK.

By reducing costs in areas closer to wind and solar farms, it would allow other parts of the UK energy grid to be reformed and ease the shift to net zero by reducing the need for new power lines.

Industry lobby group Make UK is one group that claims zonal pricing would leave some manufacturers with “no realistic option”.

In a consultation response, the group claimed: “Steel or other energy intensive industries would have no realistic option to relocate their very heavy assets to more favourable pricing zones and would instead be forced to shut down.

“Moreover, encouraging a factory to move makes it open to moving out of the UK entirely, as it will reconsider all its options for the best location.”

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In areas where existing heavy industry is in place, other trade bodies have claimed that there could be disastrous consequences and businesses could be enticed to leave Britain altogether rather than move operations north.

UK Steel which represents Tata Steel, British Steel and several other producers is urging Ed Miliband to reconsider the plans.

Frank Aaskov, UK Steel’s Energy and Climate Change Policy Manager, said: “It is absurd that officials proposed to increase prices for the steel sector.

“The new Government clearly backs steel. But zonal pricing is an extreme reform of the electricity market, creating winners and losers through a postcode lottery.

“The new Government inherited this policy idea, but it now has the opportunity to bin it, ensuring the steel industry can invest.”

Supporters of the scheme such as Octopus Energy and EDF claim zonal pricing will reduce billions of pounds of waste from the system and simultaneously reduce household bills.

A Government spokesman said: “In an unstable world, the only way to guarantee our energy security and protect consumers from future energy price shocks is by moving towards homegrown power.

“We are reviewing responses to the consultation on reforming electricity markets, ensuring we focus on protecting billpayers.

“And our new industrial strategy will deliver long-term, sustainable growth right across the UK by supporting our industries and driving private investment into our economy.”