For over 50 years, the Drax power station has been helping to power the UK – first as a coal-fired plant, and today as a biomass facility. Could Drax, and other energy infrastructure from the same era, evolve yet again to help meet the soaring electricity demand of the coming decades? Richard Gwilliam, Future of Drax Power Station Director, outlines his vision in a session at RBC Capital Markets’ Energy Transition conference in London.

Powering Sustainable Ideas - It’s rich in cloud data centers, but can the U.K. compete for AI assets? | Transcript

Speaker 1

Welcome back to Powering Sustainable Ideas, a podcast series from RBC Capital Markets, where we speak with the leaders and companies powering the sustainable future.

In today's episode, you'll hear highlights from a session at RBC's Energy Transition Conference in London from this past June. The conversation examined the future of the UK's power system, from rising electricity demand to the role existing infrastructure could play in supporting growth.

Our guest is Richard Gwilliam, Director of Future at Drax Power Station, the UK's largest power station in North Yorkshire. Originally coal-fired, Drax has been

transformed into a biomass-powered facility and is exploring new ways to support the country's evolving energy needs.

Richard joined Alex Wheeler, of RBC's European Utilities Research team, to discuss the opportunities and challenges facing the UK's power sector, and how Drax could help meet the demands of a more electrified future.

Now, let's dive into the conversation.

Alex Wheeler

Perhaps the best place to start is on the evolution of the power system. First of all, it'd be great to get your thoughts on how you see the expected change in UK electricity demand after what's been quite a stable period. What you see as the key drivers and what this means for the system as a whole.

Richard Gwilliam

Alex Wheeler

How should we think about power prices and the evolution there, when we have, I guess, the demand drives on one side, but also you have lower marginal cost technologies, energy efficiency, and an increase in behind-the-meter generation.

Richard Gwilliam

If you can harness power from free sources, the consequence should be that the power costs go down. Now, obviously, we know that to get developers to invest in those sorts of technologies, you need to put the right incentives in place, so you end up with very large policy costs on the bill, which contributes to a higher level of cost overall, but I would expect over time, with this sort of increased penetration of renewables, that the wholesale cost of power should go down, apart from this little bit at the end where you have to have some flexibility to respond to weather-dependent events, and I think what we'll see, while the sort of the trend might go down, the volatility evidently will increase. I mean, at the moment we're having increasing numbers of, you know, negative pricing events, or very low pricing events, but that corresponds with gas assets brought on the system at short notice that are able to command quite high price because they're used in frequently responding to those events, so we see larger spikes in the cost of power overall.

Alex Wheeler

There's been a lot of talk about potential market reforms in the UK, given the sort of the broader global political environment, which brings me on to the question around whether the design of the UK power market is appropriately aligned to that reforming system, or whether you think actually there are some structural changes that need to take place.

Richard Gwilliam

How do we deal with this in global political level? I don't think we are, to be honest, at the moment. And I think you know politicians will talk about decoupling power from the gas price, that seems to be a buzzword that everyone seems to think will solve some of the challenges, but I don't think we're seeing a substantive policy that is driving that change, so I think there's a lot of head scratching goes on as to how we can evolve the sort of policy backdrop and the investment backdrop against the evolution in the energy system generally. If you look at the events that we saw last year in Spain and Portugal, and the blackouts, in part, you have plants that drop off the system, which is evident. If plants aren't available, you can't have power, but you need to be able to push power around the network as well. So, not only do you need to produce megawatts and get them on the system, you need to find a way of moving that power from places of generation to places of demand. So, you're right, short circuit frequency response, inertia, voltage control are three services that the National Energy Systems Operator are looking at tendering at the moment. To date they have done procured services over a relatively short period. Last year they launched a tender for a 10-year period. And that's driven again by the change in the mix. So short circuit, frequency response, voltage control, inertia were all services that were provided when you had large spinning plant on the network, so Drax is a really good example of that. We have effectively almost the largest power station in the UK, and it has six power stations within it. Each is a very large turbine that rotates. We've seen the closure of coal, we've obviously transitioned to run on biomass, but if we’ve seen the closure of coal and these large plants have gone off the system, those services, which effectively were there for free, are having to be procured separately. You can get synthetic inertia-free batteries, but these other services are still required. So, we're seeing, you know, companies build fly wheels, for example, and sit them on the network, just a spinning plant to keep the energy systems moving. So the change has brought about a different market that, you know, as an industry, we've had to figure out how we respond to.

Alex Wheeler

On the demand point how supportive do you think the UK government is to the evolution of that system? What have they done so far in supporting that sort of AI data center deployment?

Richard Gwilliam

There's more demand for data centers in the grid queue at the moment than there is peak demand capacity in the UK. It's evident that not all of that will be built, but it's also evident that lots of people see lots of value in that market. Now, in the UK, at the moment, as I think we have the second highest number of data centers in Europe, just behind Germany, then the proliferation of those around the M25 corridor, because you want data centers that are close to where the demand is. The AI story is really interested in bringing a different dynamic, and it could fundamentally change the sort of geography of data centers. AI data centers can primarily do two things: one, machine learning - they are really high energy-intense, but can be located anywhere, because they're not sensitive to latency, and two is inference, so us asking questions of AI of machines that have learned a certain thing, and it's that inference AI we're forecasting the largest growth. There's an argument I think to suggest that data security can, will become as important as energy security in the next, in the next decade, so that then brings two things: one, you need to look at data residency, where the data is processed, if it's sensitive, do you really want it to go abroad, and then data sovereignty, so those things absolutely must be within the remit of the UK. In recognizing this trend and in not wanting to be left behind by the sector, the government has set out an AI strategy. It set out a delivery plan, and the sort of centerpiece of that was a series of AI growth zones. That’s sort of really interesting, because I was involved in the whole journey as to when these things were conceived and to what they would look like, and I think at the time it was an idea that seemed to be something the UK should do, but without any definition as to what being an AI growth zone is. I think that persists to some extent today, but the government have now announced six, I think the initial one was in Oxfordshire, at the old AEA site, where they have large amounts of electrical imports. There's a couple in Wales, there's one in the North East, Scotland, and these are the sort of the spatial areas that government sees growth in AI data centers for. And having said that, however, the number of sort of AI data centers that are being constructed in the UK at the moment is not huge, and that's partly driven by the high energy prices and some uncertainty on how you'll manage the system during the energy transition, so I think government are doing a lot. They're certainly grappling with the issue. I speak to DESNZ, department for energy security and net zero, a lot. They set up their own both AI teams and AI data sovereignty teams, so you can see this is an issue they’re getting to grips with.

Alex Wheeler

I want to talk a little bit about existing infrastructure, and specifically how, how important existing infrastructure will be to service the needs of the grid going forward.

Richard Gwilliam

Alex Wheeler

And one of those uses, I guess, which is a little bit more public for Drax, is the ongoing negotiations around potentially having a data center site at Drax Power Station.

Richard Gwilliam

Alex Wheeler

We've obviously heard a lot of media around longer connection queues, connection reforms. It doesn't sound like you're too optimistic on the opportunity for that to resolve in the short term.

Richard Gwilliam

Yeah, I mean, if we are electrifying the economy, if the value of economic growth is driven by access to electrons, not being able to get power off the system is a real constraint and a problem. The market for data centers, in particular, is evolving at such a significant rate, if you are wholly dependent on building presence in that by joining a grid queue, the opportunities will just go elsewhere. So, we must find a better way of using existing assets more effectively.

Alex Wheeler

Drax, as a business, has been building a footprint across a range of storage assets and flex-gen assets, as you noted earlier, and I'd be interested in your views on how you know long-duration assets, such as hydro pump storage, fit in with peakers, batteries, and the other assets within the flex gen.

Richard Gwilliam

Drax’s pivot into that flex-gen space is driven by an understanding that those assets will have enhanced value because the system will need them to keep the lights on. Our grid system in the UK globally is probably in the sort of top five. I think we got Singapore, Netherlands, and a few others that are slightly ahead of us in terms of reliability. Over time, having reliable access to power has helped us build economic growth for the nation, really, and if we have a system which is dependent on the weather, you need some form of backup, and you'll get more resilience. So, yeah, we've looked at both long duration and shorter duration storage of batteries through to Cruachan power station, the pumped hydro asset we have in Scotland, and it continues to be a really interesting growth opportunity for us.

Alex Wheeler

Perfect. Okay, thank you very much, Richard. Appreciate your time.

Speaker 1

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