A REPORT backed by tech giants has urged the UK Government to reform the energy market to encourage a data centre boom in Scotland.
Amazon and OpenAI funded a paper from the Social Market Foundation (SMF) think tank which called for zonal pricing to be used for the UK energy grid.
A zonal system would set different electricity prices for regions based on local supply and demand. The UK’s current national energy pricing system applies a uniform rate everywhere, regardless of regional variations.
Previously, Octopus Energy chief executive Greg Jackson has argued that a zonal system would give Scotland the cheapest electricity in Europe.
Research from Octopus has also found that, with zonal pricing, a large new data centre in Aberdeen would save 65% on electricity costs compared to one in Slough.
The SMF report cited both of these points from Octopus, adding: “Whilst estimates of the economic benefits vary according to the assumptions and methods used, moving to a model of locational pricing would help ease the energy challenges suppressing the UK’s compute infrastructure, and boost the wider economy through lower energy costs and a more efficient, less carbon-intensive energy grid.”
The paper further argues that a “national price for electricity is no longer fit for purpose”.
“Increasing amounts of the UK’s electricity is produced in places far away from where it’s needed,” it states. “Due to physical transmission constraints, the network cannot easily transfer power from one region to another.
“As the Government’s review of electricity market arrangements acknowledges: ‘This emerging system, where the location of supply and demand is increasingly at odds, is putting additional strain on network infrastructure in the form of greater periods of network constraints – times when parts of the network are at capacity and physically incapable of transporting additional energy from one point to another (e.g. from north Scotland to southeast England).’”
The SMF noted that even if not all data centres or tech firms could relocate to cheaper energy zones, the benefits would still be shared.
“Even users who can’t easily relocate benefit from the fact that others will, meaning there is more electricity left in constrained areas for those who remain,” the report states.
The UK Government has made chasing AI growth a key priority, and large data centres are widely considered necessary for that goal.
“Before the election, Labour promised to reduce energy bills by £300 a year – but since then they’ve skyrocketed. Most powers over energy are reserved to Westminster, so the ball is in their court.
“All decisions on energy must prioritise ensuring that Scots’ energy bills reflect Scotland’s massive energy resources, leading to lower energy bills.”
However, the Scottish Greens said that while there are “a lot of opportunities that could be unlocked with these data centres here in Scotland”, they urged caution.
The party’s economy spokesperson Lorna Slater MSP said: “We need to be cautious on many fronts of the dangers of Silicon Valley tech bubbles; Scotland should not be bending the knee to demands from billionaires like Elon Musk and Jeff Bezos.
“We’ve seen the destructive business practices of companies like Amazon before; they exploit loopholes in corporation taxes and treat their workers with total disrespect. I hope that any projects in Scotland will protect workers' right to join a union and that companies won’t offshore their profits to avoid paying UK tax.
“If AI data centres are to be built in Scotland, then we should use them as an opportunity to create cleaner, greener heating through heat networks. Harnessing the heat generated by data centres can help decarbonise neighbourhoods and provide cheap heating to all those living nearby.”
Slater further argued that “proposals to introduce zonal pricing and further complicate the UK’s energy grid wouldn’t be needed if we ended the corporate greed in the energy industry by nationalising the big five energy companies”.
A spokesperson for Ofgem, the UK Government’s energy regulator, said: “This is a decision for Government. We’ve recommended that ministers examine the case for new zonal markets, not simply reform the existing national market.
“Our analysis shows zonal pricing could benefit consumers through the improved operation of batteries and interconnectors – but protections need to be built in to stop clean power investment being disrupted or capital costs driving up.”
