Bhikhu Samat, legal director in the energy team at law firm, Shakespeare Martineau
Now that zonal pricing has officially been rejected by the Department of Energy and Net Zero, national pricing reform stands as the viable pathway forward. While some are breathing a sigh of relief and others express disappointment, everyone now has questions about how the UK’s energy industry moves forward.
With technological advances, such as AI and data centres, steadily demanding more power, an increase in personal energy consumption in the general population, and aging infrastructure putting pressure on the grid, incremental reform will not address the scale of the problem quickly enough. Wholesale transformation is urgently needed – but what exactly needs to be done?
Although reform is absolutely needed, it’s important to acknowledge that the current system isn’t broken. The UK has one of the most advanced electricity systems in the world, with other countries looking to it as the benchmark to emulate. Subsequently, those in power may be tempted to simply make small upgrades in specific areas. However, the fact is that the National Grid in its current form won’t be able to service the Britain of the future. With Keir Starmer’s promise to become a “world leader in AI” and the government’s announcement of £25 billion investment in a range of digital infrastructure measures including new data centres, the UK’s energy consumption is on the verge of skyrocketing.
To adequately support and stabilise the use of AI, three foundational issues must be addressed: having enough, stable power to support the data centres; being able to connect sites to the grid easily and quickly; and ensuring affordable electricity prices to attract investment from the global corporations which could select anywhere in the world for the sites.
The UK’s electricity grid is currently incredibly stable, but that’s because of its reliance on non-renewable energy sources, with 58% of the grid powered this way according to Uswitch,. It’s not for lack of renewable energy either – constraint payments, where renewable producers are paid not to supply power to the grid are a much-criticised feature of the energy industry, underscoring the disconnect between production and infrastructure. The government has poured billions of pounds into innovation in renewable energy sources, including but not limited to, offshore wind, solar and biomass, and while there has undoubtedly been significant progress in these areas, it will take time before the technology that will allow the grid to be both stable and be 100 per cent renewable, can be scaled nationally.
The connection and infrastructure for developments is too slow catch up to where the demand for electricity actually is. The fact is it can take up to 14 years for a pylon to be built because of the delays in the planning process. Without this vital infrastructure, the grid cannot be effectively upgraded. There are two ways this problem could be tackled.
In the short term, the government could look at creating Green Energy Hubs. Instead of waiting for infrastructure to connect the power to towns, the government should site communities where there is an abundance of green energy. Earlier this year, plans were revealed to build new towns across the country, further driving their housebuilding agenda. While hundreds of sites have been submitted for consideration, the government should look at prioritising those that are already positioned near renewable energy sources. This would mean that instead of paying constraint payments, the renewable energy companies would be supplying communities, and the money that would have been wasted could be used to incentivise businesses, such as data centres, to also be developed alongside. To effectively achieve this, it will be important for the government to collaborate with NESO, which is releasing its Strategic Spatial Energy Planning Approach, which is mapping out the energy generation and storage infrastructure.
In the long term, there needs to be a drive to engage communities early on during the planning process. One way of doing this would be to offer a ‘community kickback’ for grid infrastructure development. Typically, local communities object to infrastructure because they are losing something, whether that be access to the land it’s being built on, a scenic view or even the value of their property. By giving them a financial incentive for infrastructure to be built in their town, the planning process could be eased, smoothing community relations and providing social value to the town.
Affordability remains the final and most visible pressure point to address. Currently, the UK has some of the most expensive consumer pricing in the world, ranking the fourth highest in Europe earlier this year. This is largely due to reliance on gas and fossil fuels for generation and the volatile prices that come with them, coupled with the ‘merit order’ pricing system meaning the price of non-renewable energy drives the price for every grid supplier. For as long as the country is relying on non-renewables for a stable grid, it’s subject to the myriad factors that increase prices, from geopolitical instability to seasonal changes.
As well as increasing the amount of renewable energy powering the grid, ensuring that properties, businesses and individuals are as energy efficient as possible will help, decreasing average demand. Demand-side resource (DSR) will therefore continue to be crucial to changing consumer behaviour and managing consumption, for example through smart meters, with 67% of homes now having them installed. The government must now educate consumers on making low-carbon choices, such as switching to an electric vehicle or installing a heat pump to help decarbonise homes, to achieve net zero and relieve pressure on the electricity grid.
While the current government’s election promise was to “make Britain and clean energy superpower”, that will take more than the £60 billion currently agreed as part of the ‘Grid for Growth’ five-year plan announced in 2024. It seems that current government is intending to upgrade and reform the grid, however, without any confirmed details, the industry is stilled left guessing at what exact changes will be made. Comprehensive reform is not just necessary, it is unavoidable. If the UK is to meet its future energy needs, the time for incrementalism is over. Whether the government has political goodwill to tackle all of the issues is yet to be determined.
This article appeared in the September 2025 issue of Energy Manager magazine. Subscribe here.
