Scottish consumers will lose the opportunity for cheaper electricity bills after the UK Government indicated it would reject proposals to introduce zonal pricing.

Energy Secretary Ed Miliband has been swayed by opponents of the zonal system which would mean households in high generation areas, such as Scotland, paying less than those in regions, such as the south east of England, which consume more energy.

Industry critics of zonal pricing expressed concern over its affect on investor confidence and infrastructure investment which is vital for the transition process.

The UK’s current single market, known as “national pricing” is also in place in France, Germany, Poland and Greece.

The zonal pricing scheme would have divided the UK into regional electricity markets and is used by Australia, Italy, Sweden, Norway, and Denmark.

Octopus Energy chief executive Greg Jackson, who has been a strong advocate of zonal pricing, argued it would deliver substantial savings to consumers and cut the cost of updating the national grid. FTI Consulting predicted consumer savings of £52bn over 20 years.

Today Mr Jackson tweeted: “Something must change. It’s brutal for families and crippling for growth.” Jack Richardson, head of policy at Octopus, accused the UK Government of “capitulating” to lobbying from major generators.

Opponents include Alistair Phillips-Davies, the outgoing chief executive of SSE, who described zonal pricing as a “huge mistake” that would create a “postcode lottery” and raise bills by £200 to £300 for some households.

“It would inject more than five years of uncertainty, raise the risks and costs of investments, and ultimately leave us more exposed to gas prices for longer,” he wrote in City AM. “Ruling it out would generate an immediate boost to investment.”

Scottish Power, RWE and a number of trade associations — including Scottish Renewables and RenewableUK — are also opposed. The uncertainty around zonal pricing is said to have caused some companies to pause wind and solar projects.

Keith Anderson from Scottish Power said: “We want to get prices down but need to be careful reforms don’t unintentionally drive them up.”

An independent report co-authored by Rob Gross, the UK Energy Research Centre director, found the benefits of zonal pricing could easily be wiped out if renewable energy developers demanded higher subsidies to offset the risk of the new scheme.

A source close to Mr Miliband told The Guardian: “The government has been weighing this up carefully and concluded that the benefits of delivering the clean power mission at pace… would outweigh the purported benefits of zonal pricing — which at any rate would take beyond the next election to implement.”

The SNP had initially supported zonal pricing but is also said to have been persuaded against the system.

Alba Party member Angus Brendan MacNeil took the opportunity to turn the debate into a constitutional, rather than a commercial, issue. He condemned the decision as “yet another example of Scotland being sidelined to protect the interests of the South of England and big energy corporations.”