Why Scotland's sky-high energy bills should be among Europe's lowest – and how to cut them

The UK’s energy market is outdated and broken, resulting in vast amounts of renewable energy being wasted, with the cost to billpayers expected to hit £8 billion a year by 2030

With so much renewable generation, Scotland should have some of the lowest energy bills in Europe. However, in reality, it has got some of the highest. Indeed, Scottish households and businesses pay more than those in London. The system is broken, and it’s time to fix it.

Drew Ratter, a customer of the company I founded, Octopus Energy, is a tour guide and sheep farmer with almost 400 ewes on Shetland. He has told us how unfair he finds it that their islands are producing more than their fair share of wind energy but still suffer from such high energy costs.

Increasingly, I hear similar frustration from Scottish communities. They are happy to host wind farms, but not to pay over the odds for electricity. And they’re very unhappy at the prospect of thousands of new pylons to ship the electricity produced to England – and France – without seeing the benefits themselves.

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A turbine on the Burradale wind farm near Lerwick in the Shetland Islands (Picture: William Edwards) | AFP via Getty Images

A colossal waste

The truth is the energy market was designed for the world of gas and coal. It’s simply not designed to handle the volatility and geography of wind.

As a result, we all pay Scottish wind farms to switch off when the wind is blowing, and then pay extra to fire up gas plants in southern England to meet demand. It’s like paying a taxi by the minute even when it’s sitting still, and simultaneously paying another cab to make the same trip.

Last year, some of the biggest wind farms wasted up to 70 per cent of the green energy they could have generated through this system – enough to power every home in Scotland for nearly four months. This meant that the effective price of the electricity they generated was three to four times higher than planned.

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This is not only a colossal waste, but it also adds unnecessary costs to energy bills. Billpayers have already paid more than £430 million for this inefficiency this year – and these costs are projected to rise up to £8 billion a year by 2030, according to the system operator.

High energy costs not only hurt families, they also stifle economic growth and employment across the country.

Almost three-quarters (72 per cent) of Scottish businesses say high energy prices have impacted their ability to invest in their businesses, with two-thirds (66 per cent) saying it has influenced hiring decisions and more than three-quarters (77 per cent) saying it has contributed to price hikes for customers.

The only solution

The introduction of a zonal pricing system – in which the prices reflect local energy supply and demand – is the only solution on the table that can significantly lower bills for households and businesses alike in less than two years.

This would reduce costs across Britain by around £4 billion a year, according to FTI Consulting, without changing the location of any supply or demand.

For Scotland, the prize is great. With its strong renewables base, zonal pricing would mean dramatically lower wholesale energy prices in Scotland and families and businesses benefiting from some of the cheapest bills in Europe.

Of course, the incumbent companies are opposed to change as they are the ones who currently benefit from this system. Some of their concerns are valid. For example, we need to ensure that historical investments in infrastructure are protected. It’s simply not right to pull the plug when investment decisions were made under the old rules.

They also worry about policy certainty in order to continue investing. However, introducing zonal pricing would give that certainty and not introducing it would create real uncertainty, as everyone agrees that the system is broken, but no one agrees on how to fix it.

Even better though – as new energy-intensive industries like data centres move to Scotland, more business, jobs and opportunities for these communities will follow.

Not a crazy idea, the norm

The prize is great. Sweden is attracting more than £70 billion in industrial investment to the north of the country where local pricing is delivering energy at a third of the price businesses pay in the UK.

The cost of energy is critical in the new business landscape – as it was in the business case for TikTok to build its huge new European data centre in northern Norway. US data centres are also increasingly building in areas where locational pricing delivers very cheap (clean) electricity.

More than half the electricity in the Organisation for Economic Co-operation and Development (OECD) countries is now delivered through locational pricing. This is not a crazy idea, it’s the norm – and it has worked everywhere.

In places where it was introduced, investment continued – including by companies which oppose this in the UK – and costs fell. There’s no reason Britain needs to be different.

Scotland has extraordinary potential that is being hampered by high energy costs and an inefficient system. That has to end. Let’s reduce the payments to wind farms to do nothing.

Let’s cut bills, reduce waste, and give Drew, his sheep and the rest of Scotland the cheap, clean energy powerhouse we were promised.

Greg Jackson is the founder and chief executive of Octopus Energy, one of the UK’s largest green energy companies, which champions sustainable energy solutions