Locational pricing is dead, but the problem it was trying to solve – the inefficient use of grid – is still here. Building major AI data centres in Scotland’s central belt could be part of the solution, writes Michael Hunter, Head of Commercial at Apatura.
Locational pricing is dead. After months of uncertainty, with claims and counter claims from each side, Energy Minister Ed Miliband has now killed off the prospect of differential energy prices across the country.
On one side of the pricing debate – supported strongly by Octopus chief Greg Jackson – was the idea that zonal pricing would encourage businesses and major users of energy to locate to parts of the country where it was plentiful and cheap – e.g. Scotland; whilst generators would be incentivised to develop projects where prices were higher – i.e. the south.
On the other – many energy developers and existing generators (such as RWE) argued that adding more complexity to what is already an extremely complex system would increase the cost of capital and deter investors just at the point they were ready to bet large on major projects, such as offshore wind. This was likened by one major investor as ‘changing the menu just as we’re about to sit down to dinner’.
Whichever side of the debate you were on, the problem we are all trying to solve is the same – we have lots of renewable energy in Scotland (with plenty more to come) and it needs to get to the main demand centres in the south of the UK via an electricity network that was not built that way – with a major ‘pinch point’ around the central belt.
Constraint payments
The result is what is termed ‘constraint payments’ – generators in the north who cannot transport their energy down south are compensated by the system operator for the failure to provide the electricity highways required.
It is a significant problem, which cost consumers around £1 billion last year and are forecast to rise to more than £3 billion by 2030.
And whilst it is appealing to think that more generation down south and more demand up north will solve the problem, the harsh reality is the UK and Scottish governments have bet the house on Scottish renewable energy doing the heavy lifting to get us to Clean Power 2030.
Grid delay
Grid reinforcements are coming, with major plans for significant upgrades the length of Scotland, but growing local opposition, plus national and local elections in 2026 and 2027 respectively, raises the very real prospect that grid will become a political live wire, bringing the risk of political indecision and delay.
We have been here before. Many of us still remember the long period between 2007 and 2015, during which the inquiry into the proposed Beauly Denny transmission line upgrade was held, which was eventually given the green light.
My fear is this is where we are heading now.
AI data centres
So, what can be done?
Zonal pricing may be off the table, but there are other effective and investable solutions, ones that not only cut curtailment costs but help build the industries of the future.
If we can build large centres of energy demand on or close to the major curtailment boundary between Scotland and England, then we can both play to our strengths in renewables and reduce consumer costs.
The rapid rise of AI – and the need for the vast, power-hungry data centres that go with them – could be key.
In particular, a new generation of AI-ready data centres located in Scotland can make full use of our constrained renewable energy, soaking up clean power that would otherwise go to waste.
This would ease grid congestion, reduce curtailment payments for billpayers, and support the UK’s ambition to lead in AI, quantum, and advanced compute.
Apatura’s proposed development at Ravenscraig, is a case in point. This 550 MW project would alone bring over 2,000 new jobs and £3.9 billion in capital investment to the region, while putting stranded renewable capacity to work.
And if this type of data centre could be replicated across the central belt, then the benefits would be multiplied.
The UK Government’s new Industrial Strategy rightly identifies the need to cut industrial electricity costs for industry. That remains critical if we’re serious about reviving the economy, boosting productivity, delivering sustainable growth and competing in AI with countries both in Europe and globally.
And by focussing this support on the energy intensive industries of tomorrow, Britain can secure a significant win-win.
We continue to believe that location-specific pricing can support smarter energy use and industrial investment, and the current raft of measures being announced this week won’t change the fundamentals on the ground for a number of years.
But with the right political support, AI data centres and Scotland’s clean energy advantage can deliver industrial renaissance in the years to 2030 and present a realistic solution to the thorny challenge of a constrained grid.