I’m at Gitex Global, Dubai, one of if not the biggest tech exhibition in the world. All the big names that you would expect are here, Microsoft, AWS, Google and of course most talk about AI. And part of this conversation is energy. Is there enough, where do we get it from and how do we get it to the place it is going? Greg Jackson, co -founder and CEO of Octopus Energy is here as a speaker to go over these things, and just before he got on stage we grabbed a coffee.
I met Greg just outside the speaker stall when he humbly negotiated with certainty to let him back without a lanyard. The bouncer smiled and we set off to get coffee. The following conversation has been edited a little to make it a little more readable. For example, I take the part where we actually buy coffee.
So do we have the energy infrastructure needed for AI?
We did not have the infrastructure even before AI. There are parts of the UK where you cannot build houses because you cannot gain power. So that was the starting point. And then AI shook up with some notable forecasts for energy consumption. So I think we weren’t even at the starting line.
On top of that, we don’t have the markets. If you see the way energy works, it is essentially everything based on the idea that system operators can plan a decade in advance. Then they can design the perfect system. But the reality is three years ago that no one had heard of big language models. They did not contain in anyone’s plans. Markets respond quickly to needs and change, but regulated grids do not. So we don’t have the infrastructure, but we also don’t have the signals that let us say, hello, see how do we use the existing infrastructure better and where should we build new infrastructure?
So how should the rules be changed?
What we really need is to take advantage of hyperscalers that are used to being able to get what they want if they can build it or pay for it. There is more capital available now than has ever been in history for anything. So you also have this challenge; In the US, you have been told consumers who are told that their energy rates will increase to build the infrastructure for AI, and the UK and large parts of Europe have been told that we may not get AI at all because our energy is too expensive. And yet, this phenomenal amount of capital is available.
So what we need to do is create markets where that capital can be implemented. When I talk about creating markets, it allows hyperscalers to put their capital to work and build infrastructure that they can use instead of having to wait for regulated devices to decide what they want to get.
What does it stop from happening?
So across Europe, governments created the central plans for energy. Now the central plan does not work at work. It was already fighting. It really won’t work with AI. So what to do is first and foremost to introduce more price signals. You need prices that vary by location and by time, so entrepreneurs, companies, hyperscalers, can find out where they can get the cheapest power and what extra power they can put into the system and what the economy will be.
If you look at Scotland in the UK, the UK has spent a billion pounds so far this year, just turned off wind farms in Scotland and paid for gas to replace it. All the electricity we turn off could be used for things like data centers.
Why do they pay to turn it off?
The system operator, which varies by country, runs an auction and causes every generator to offer the auction. And then they pay them for the electricity they get to generate. However, they do it without looking at the map of the grid. So they pay a wind farm for electricity, and then they realize that there is a grid load that wind farms can’t get its electricity on the market. So they tell it not to generate, even if it has been paid for and then they pay someone else.
By 2030, the UK spends $ 8 billion a year doing so. All the electricity that we do not generate but pay for can be used to do things like power data centers. In the industrial revolution, steelworks were built near the sources of iron ore and coal. In the initial phase of the construction of grids, power plants were built near the coal fields in the UK, in Germany, around Europe. Now data centers, the large consumers of energy, must be built where we have energy. Currently, you have no friendly incentive to build near the energy where it will be cheaper.
How did it come in this situation?
I think there were two things. First of all, the world is changing exponentially. So two or three years ago, no one knew we would have this demand for electricity. We had a world where the electricity demand changed by one or 2% a year. Suddenly it is set to explode and the system and rules are not built for it.
The second number is that, for example, to meet the climate goals, we built a whole strain of infrastructure for generation without thinking about consumption. And then, for example, in the UK we have built wind farms in northern Scotland, but all consumption is in southern England. So we built the infrastructure in the wrong places. We can solve it. We can build a new demand where we have built the infrastructure, but only if there are financial incentives to do so. And that would mean giving data centers access to where we turn off the wind, we just use it for data centers. Scotland would go from having the most expensive electricity in Europe to almost the cheapest.
Why is energy so expensive?
This is not just a British subject. In every state in the United States, I meet the energy regulators and utilities. They all say there is this huge demand for AI in our state, and we cannot build the infrastructure without dramatically increasing energy bills. And then again, we need to find a way for these AI companies that have gained access to huge capital sums to build and implement their own energy infrastructure quickly.
Instead, the systems are so slow and companies are so desperate that they try to resume old nuclear systems or build new nuclear quickly. But all this is very, very slow. You cannot imagine that a new nuclear plant has been built in less than five years. And these people need electricity now.
You can build a wind farm in three months, you can build a solar farm in three months. Batteries are so cheap now that they have announced a 24 -hour battery and solar system to generate electricity for data centers that do not need gas or nuclear power.
Just on batteries?
Yes. It is quite possible. I think what happens is because it feels complicated, people try to do what sounds simple, rather than walking around trying to balance your batteries and your sun and your wind. They say, let’s build a nuclear station (which is also complicated). I think in the last year I will start to see this realization that there are no silver balls, it will take some hard work and regulatory reform.
Giving you an idea of how outdated the regulated grids are. The cost of lattice scale batteries 10 years ago was $ 1,000 per day. Kilowatt hour. Last year it was $ 100, this year it is $ 52 and it is expected to be cheaper. The world’s largest battery company has announced $ 10 batteries. The British regulator, the United Kingdom Grid, for its planning for 2030 assumes batteries for $ 300. It uses the 2019 price for a product that falls 100 times in 15 years.
Now, because they use the assumed figure, instead of getting the most out of these technologies that are available right now, what they are doing is that they are kind of to build … It’s like building landline after the invention of the smartphone. And it happens in most western nations.
China, completely different. China’s not caring about the power of AI. In China, if you want to use a lot of electricity, you need to build your own generation and then trade your profits or deficit. By forcing these market mechanisms, they just don’t have the same concern. While in the West we built kind of this huge dinosaur system and it still couldn’t handle And it’s screwed now.
Me: That’s the headline!
Greg: Yes, if you want. I’m not sure it’s scanning. Can a dinosaur system can be turned up?
Me: I paraphrase a little.
So what is the fix?
One of the reasons why the Soviet Union collapsed was central planning could not cope. There was this central planning body called Gosplan, and in a world of rapidly changing technology, Gosplan just couldn’t keep up. And in the same way now the central planning of our grids cannot keep up. So countries that enable and create market mechanisms that let us take this private capital available in abundance and implement it quickly are those who get the AI infrastructure. So we really need more and more market mechanisms so people who know batteries cost $ 52, not $ 300 or $ 400, can implement these solutions.
Unfortunately, we all have a trend when something is not going well to tighten our grip. Very often what you need to do is loosen your grip and that is what we need. We need regulators and planners to loosen the grip. Let this capital be implemented, use it to speed up implementation to AI, and by doing so it can reduce costs for everyone else.
I was with one of the biggest hyperscalers in the world two weeks ago. And they said you know we would gladly pay a 30% premium for electricity if we could get it now. And if you use it 30% to pay everyone else to, for example, use it more flexibly or build another system, we are comfortable with it. That’s what we need to do.
What can we do in the meantime?
When Trump visited the United Kingdom a few weeks ago, Howard Lutnick, one of his teams, “there was a regulation in Arizona, which meant it would take six to eight months to get a clean air permit for a silicon factory, and considering it has no chimney, it really shouldn’t need a clean air permit. And I think there’s a world where governments are under pressure to deliver results …
Greg is interrupted by a panicked phone call from the organizers of Gitex asking him to return to the speakers.
So I say in a world where governments are struggling not to miss the AI option, it’s a golden chance to say, see you know, if you want to win this, you need to change the regulation quickly. And you can change rules. It would not only benefit AI, but citizens would take advantage of cheaper electricity, more generation, more ability to build things like houses, data centers and factories that are all currently suffering from a lack of electricity.
We reached the main scene. I would have liked to have done our conversation, but we had both places to be. I shook hands with Greg and thanked him for his time and coffee.
