Written evidence submitted by National Grid Electricity System Operator (DHH0034)

Introduction

National Grid Electricity System Operator (ESO) is responsible for the real time balancing of electricity on the GB electricity network.
We use our unique position, at the heart of the GB electricity network, to consider how energy use may change in the future, and the capability of the GB electricity network to meet these changes.

Future Energy Scenarios

Each year we publish the Future Energy Scenarios [1] which represent a range of different, credible ways to decarbonise our energy system to deliver net-zero by 2050.
Our submission is therefore based upon the analysis published in our 2020 Future Energy Scenarios which can be found on our website [2].

Key points of our response:

A clear pathway for the decarbonisation of heat is needed within the current Parliament to ensure that suitable regional and local solutions can be developed to deliver low-carbon heating alternatives to natural-gas boilers at scale from the mid-2030s
SMART low carbon heating technologies should be prioritised as part of this switchover to ensure that all homes are able to access the benefits of future energy digitalisation so that these benefits are not reserved only for those that can afford to make the change.
The decarbonisation of heat is likely to require greater consumer action than the decarbonisation of electricity and transport and will require correct policy incentivisation to ensure that a just transition can be achieved as part of the national adoption of low-carbon heating.
Energy efficiency targets should be considered as critical to the decarbonisation of heating as the transition from natural gas boilers to low-carbon technologies, as without improved home insulation etc low-carbon heating is unlikely to provide the equivalent consumer experience.

Response to Consultation Questions

What key policies, priorities and timelines should be included in the Government’s forthcoming ‘Buildings and Heat Strategy’ to ensure that the UK is on track to deliver Net Zero? What are the most urgent decisions and actions that need to be taken over the course of this Parliament (by 2024)?

Phasing out natural gas boilers by 2035

Natural gas boilers are not compatible with a net-zero future as they produce considerable levels of carbon. Under all three of our net-zero by 2050 compliant scenarios in FES 2020 we assume that natural gas boilers are either gradually phased out, or no longer sold, from 2035. This would ensure that the UK can reach its 2050 target on time or earlier, given the typical life span of existing natural gas boilers.
Whilst a phase out date of 2035 is significantly in the future, a pathway to low-carbon heating is needed within this Parliament to deliver the required outcome in time.
Over the course of this Parliament there therefore needs to be a clear strategy set out to establish which low carbon technologies should be adopted and where, to ensure the societal and consumer impacts of switching to low-carbon heating is the same for all consumers, no matter their location or the technology they use in future.

Adopting a pathway for Hydrogen

One of the solutions for decarbonising domestic heating is to utilise hydrogen boilers to replace natural gas boilers. Hydrogen has the potential to provide zero or low carbon energy to help the UK achieve net zero by 2050, however considerable challenges must be resolved.
Whilst methods to produce hydrogen already exist, nearly 97% of existing production uses fossil fuels, without the abatement of carbon. For hydrogen to have a role in net zero scenarios it must be produced without significant emission of greenhouse gases.
Low carbon production of hydrogen could be achieved by augmenting existing fossil fuel production of hydrogen with Carbon Capture Utilisation and Storage technologies, or from electrolysis of water using renewable electricity.
Hydrogen as a national heating solution will require the wholesale realignment of the national gas transmission network. This would require a nationally planned, phased approach to shift the mix in existing pipes from natural gas to hydrogen, ensuring that each nation and region was able to make the switch and that all UK homes had a hydrogen compatible boiler.

Installing smart solutions from the outset

Smart technologies play a critical role in the future efficiency of domestic heating but also national networks that will need to balance increased demand. Incentivising the uptake of these smart technologies through subsidy or other measures is critical to delivering a flexible low-carbon heating system.
Low carbon smart capable heating systems will provide greater flexibility for the system, supporting networks and consumers by allowing them to move heating demand to support the management of the network, whilst allowing consumers to minimise the impact of price spikes on their bills.
A recent example can be seen in the Network Innovation Allowance funded 4D Heat project [3] (Conducted by National Grid ESO and SSEN) which has modelled how using flexibility from electric heating in off-gas grid homes in Scotland can manage network constraints, by marginally increasing heating in homes to consume wind energy that would otherwise be curtailed.
This approach could save networks £24million a year by 2030 and provide smart heated consumers with a double saving, by reducing the cost of their personal electricity use and the cost of managing the network, which is paid for through all consumers bills.
These savings require the adoption not just of smart meters and time of use tariffs but also the availability of smart compatible low-carbon heating solutions. Prioritising these smart heating alternatives now will avoid painful retrofitting in future and ensure that those least likely to afford smart heating solutions can also access the potential savings.

Improved Energy Efficiency

Under all our Future Energy Scenarios one of the key no-regrets actions that can be taken to support the UK’s move to net-zero is to improve energy efficiency [4]. For the decarbonisation of heating in homes to be successful, energy efficiency targets must be met, as they are critical to ensuring that homes can be kept warm under new technologies.
In scenarios where there is widespread uptake of heat pumps, there is a 50% reduction in the energy needed to heat homes. A third of the 50% reduction in this scenario w is due to the wholesale introduction of more effective insulation, demonstrating the criticality of energy efficiency measures.

Which technologies are the most viable to deliver the decarbonisation of heating, and what would be the most appropriate mix of technologies across the UK?

No single technology currently represents a perfect solution uniformly across the country or different types of housing. Greater analysis will be needed to establish which solutions are best suited to the different regions and housing types. As set out in our 2020 FES report there are multiple technologies that could work for different housing options [5].
Flats tend to be in urban areas, with access to a robust electricity supply network making electric heating an easier transition. For rural areas, the switch to low carbon is harder if not already on the gas grid, as heat pumps require improved insultation and may require upgrades to the local electricity network.
For new homes built between 2025 and 2050, which will account for 8% of housing stock in 2050, heating will be provided via either energy efficient electrical appliances or hydrogen in our scenarios. The extent to which electrification is preferred over hydrogen solutions will have an impact on the technologies used and the network developments required to support them.
District heat networks feature in all our scenarios, with up to five million homes (both new build and existing) connected in Consumer Transformation by 2050. Connecting homes to a central energy centre provides efficiencies of scale, cause minimal disruption to consumers, though removes individual choice.
As outlined in the answer above, energy efficiency should be considered as important to the decarbonisation of heating, from a policy position, as the adoption of low carbon technologies. Improved energy efficiency standards in homes will reduce residential demand for heating, both supporting consumers with their bills and reducing the energy that must be produced.

How can the costs of decarbonising heat be distributed fairly across consumers, taxpayers, business and government, taking account of the fuel poor and communities affected by the transition? What is the impact of the existing distribution of environmental levies across electricity, gas and fuel bills on drivers for switching to low carbon heating, and should this distribution be reviewed?

In a more digitised energy system, there will be the trade-off between maintaining an efficient system and a fair system. Time of use tariffs and smart enabled heating and heating storage will allow consumers to move their heating needs, based on “cost reflective” price signals in the energy market to reduce their bills. Those without smart heating solutions could therefore lose out considerably in comparison.
Smart and flexible consumers will however support the overall management of the network, as consumers able to move their demand to reflect shifting price signals reduce the need for network operators to take more costly actions. By reducing the actions of these more centralised actors the overall cost of energy bills would therefore be reduced to the benefit of all consumers.
Incentivisation of smart low-carbon technology is an important step to support the effective decarbonisation of heating in future, how this can be achieved to support both those in fuel poverty and those who already have the ability to make the low-carbon transition will be critical to the fairness of this part of the low-carbon transition.
One solution would be to make the price signals strongly cost reflective, and to use other policies to support those disadvantaged by those prices. Another is to recover part of the cost through progressive taxation rather than through the price of energy.

What incentives and regulatory measures should be employed to encourage and ensure households take up low carbon heat, and how will these need to vary for different household types?

The transition to low-carbon heating will require considerably greater consumer engagement than other sectors, as greater changes will be needed in homes, through new heating sources, radiators and energy efficiency upgrades, than have been seen in the decarbonisation of transport (where consumers will only need to purchase an electric vehicle) and electricity (where changes have been at a network level away from consumers). Incentivisation to support this decarbonisation is therefore more necessary, though given the various ownership models of UK housing there is also a requirement for regulatory targets to ensure compliance.
Heat pumps are currently more expensive than traditional boilers. In addition, switching to a heat pump usually requires radiators to be replaced with ones better suited to the lower flow temperature of heat pumps. The combination of cost factors, and the disruption involved, may require subsidies to overcome.
Less financial incentivisation is required for the adoption of hydrogen, however there is a need for greater consumer education given the perceived risks of running hydrogen through a natural gas boiler.
A ban on natural gas boilers would support the phase out over time. However, a public education campaign, similar to those used to remind people of the switchover to digital tv, will be needed to ensure that necessary action is taken.
As previously stated in question three, the introduction of more thorough energy efficiency standards is critical to the success of low-carbon technology but also the wider decarbonisation of UK homes, as greater energy efficiency will reduce heating needs.
The Government’s current Green Homes Fund provides welcome subsidy to those already engaged and looking to better insulate their homes. However, more consumer engagement is needed, particularly in the growing rental sector, where energy efficiency grades are generally lower and there is limited existing incentive for energy efficiency standards to be improved by owners, as in most cases they do not live at the property.

What action is required to ensure that households are engaged, informed, supported and protected during the transition to low carbon heat, including measures to minimise disruption in homes and to maintain consumer choice?

As set out in our answer to question six there are a variety of regulatory targets and incentives that will require greater education of the public to ensure compliance with a transition to a low carbon heating future.
As part of regional and local decarbonisation strategies there therefore needs to be some form of consultation or public information campaign to ensure that local residents are aware of the heating solutions that are under consideration and that are deliverable in their home.
Regarding disruption in the home, this is likely to be unavoidable regardless of heating solution, as the majority of homes will need considerable improvements to their energy efficiency rating, in order to maximise the benefits of low carbon technologies.
As stated in the question above the adoption of an air/ground source heat pump will require the replacement of existing radiators to ones more suitable to work efficiently with heat pumps. Switching to hydrogen boilers will likely be less intrusive in comparison, as it is more similar to fitting a new boiler.
Consumer choice will likely remain minimal in the future as the cost of adopting non-optimum solutions will largely disincentivise consumers moving between different technologies.
The choice will therefore remain between different suppliers rather than different technologies. For instance, an off-grid detached home will likely need to compare different suppliers of air & ground source heat pumps rather than look to fit a hydrogen boiler given the associated costs of connecting to their local gas network.
As we have set out previously there is limited choice for those that will be supplied in future by district heating, as they will not have the flexibility to choose alternative technologies or suppliers without significant financial burden.
Currently consumers have a choice between gas and low-carbon heating technologies, however this is weighted in favour of gas due to cost and performance. It should be the objective of policy makers to ensure that low carbon solutions become the favoured choice in the same way gas is today, though this will need to be area specific, as no single low-carbon technology would provide the same benefit to users uniformly across the country.

Where should responsibility lie for the governance, coordination and delivery of low carbon heating? What will these organisations need in order to deliver such responsibilities?

The delivery of a decarbonised heating future will require the oversight and cooperation of various organisations at a regional and local level, as well as central government. A clear framework and single point of coordination would help to facilitate this transition.
As the Electricity System Operator our role would be to facilitate and support the adoption of electrified heating solutions, by ensuring through our existing planning processes that the GB network would be able to support increased electricity demand.
We would work closely with the Transmission System Operators in Scotland and England & Wales, as well as the existing Distribution Network Operators to ensure that the decarbonisation of heat could be delivered effectively at a national but also street level.
For the roll out of hydrogen as a heating solution, similar work would be required by the Gas System Operator and the various other gas network operators to deliver this solution, as well as the electricity networks, given the role of electricity in the future production of hydrogen and the role it will potentially play in providing flexibility to the electricity networks.

November 2020