Written evidence submitted by National Grid (CGE0019)

Understanding National Grid

National Grid connects people every day to the energy that makes modern life possible.  

At our heart, we are an engineering firm which invests in, maintains and operates over 16,000km of pipes and wires which form the ‘motorways’ of the UK’s energy system. Whether it’s tunnelling under rivers, climbing pylons, building connections to other countries, or analysing the country’s energy use, we use our years of knowledge to help keep the lights on, businesses running and homes warm at a low cost to bill payer.

Within a complex and rapidly changing energy system, the decisions we make have a huge impact.  Therefore it is absolutely crucial that Natioanl Grid uses our own insights and expertise to work with others throughout the energy industry to plan for the long term while managing the ‘here and now’. In doing this we can: 

• Provide first-class network reliability. We know that everyone depends on the service we provide, so we work hard to maintain our reliability levels of 99.99% across the electricity and gas networks.  We are investing the money we make to replace and upgrade our infrastructure, making sure it is fit for the future.  Last year we invested £1.3bn, and will invest the same very year for the next four years.
• Deliver good value for consumers. The whole country pays for the service that we provide, so we focus relentlessly on making sure costs are as low as possible.  Our service accounts for 3% of the average dual fuel bill, working out to just 10p a day.
• Supporting the low-carbon energy transition. As well as producing detailed modelling on Future Energy Scenarios, we are coming up with innovative solutions to new challenges as Britain moves to a green energy future For example our Power Responsive initiative is enabling non-traditional players to benefit from a changing system, while our engineers are working to make sure that Electric Vehicles can be charged quickly and easily across the country.

Amid an uncertain political backdrop, the country’s energy system is going through a major transformation, with innovative technologies and business models changing the way communities and businesses use and generate energy. At National Grid, we are actively seeking ways to work with policymakers, businesses, organisations and communities to lead this transformation.

1. What progress has been made on meeting carbon budgets to date? In which areas is more progress needed?

1.1.        We believe that the UK has made significant progress towards decarbonisation of the energy system, and that there is cause for optimism - if we maintain focus and ambition the electricity system could be largely decarbonised.  However, staying the course means we need to put much more effort into harder to reach emissions such as in heat and transport.

1.2.        The rate of change in the energy system has been phenomenal and is accelerating. Since 2013 the carbon intensity of UK power generation has almost halved, largely thanks to reduced carbon dioxide emissions because of the phase-out of coal-fired generation and switching to gas generation, the growth of renewable energy, and reduction in demand due to energy efficiency measures.

1.3.        Over the last 5 years, electricity demand has fallen 7.6% due to energy efficiency in all sectors of society (residential, commercial and industrial), energy labelling, low-energy lighting, the switch to LED TVs, computer screens, laptops and tablets, and reduced demand from heavy industry.

1.4.        However, the switch from coal to gas-fired generation along with increased demand for heating homes and commercial premises has resulted in an increase in demand for gas over the same period. If the UK is to continue on the decarbonisation trajectory then decarbonising gas needs to be an area of focus (see later).

1.5.        This change in the energy system has played a significant part in helping the UK to meet its climate change targets. The Committee on Climate Change says the UK met its first carbon budget and is on course to meet or exceed the second and third budgets covering the period to 2023[1]. Indeed, a recent study by PwC found that the UK is the fastest decarbonising economy in the G20[2]. This change has put us firmly on the path to decarbonisation, decentralisation and digitalisation.

2. To what extent can current and future technologies contribute to meeting carbon budgets?

2.1.        As a sign of how far things have already shifted, on 11th June 2017, the carbon intensity of power generation fell (temporarily) to around 90g CO2/kWh – lower than the target in the 5th carbon budget (which covers the period 2028-2032).

2.2.        Part of the shift in energy has been the staggering increase in renewable energy. The UK’s installed renewable energy generation capacity increased by over 320% between 2011 and 2017 alone, from 9GW in 2011 (equivalent to c. 14% of peak electricity demand) to 38GW in 2017 (equivalent to c.60%). In April 2017, we saw the first day without coal-fired electricity in the UK since the 1880s, and over the past year we have seen longer and longer periods without any coal-fired generation, recently managing 76 hours.

2.3.        At National Grid, we have been developing innovative solutions to enable this transformation.  Historically, centralised coal-fired generators have provided much of the energy needed to balance supply and demand on a second-by-second basis. But with the shift towards renewables, which by their nature are intermittent, we have developed new ways to ensure that consumers continue to enjoy a reliable supply of electricity. We are harnessing the benefits of technologies such as batteries to manage the intermittency of renewable forms of energy.

2.4.        Technology and digitalisation are also moving fast – Demand-Side Response (DSR), Distributed Energy Resources (DER) & storage technologies are all growing quickly, and National Grid is working with developers to ensure they can connect to the system and participate in the market through programmes like Power Responsive.

2.5.        Power Responsive is National Grid’s programme to promote flexible energy consumption and generation from non-traditional sources, aiming to create a level playing field for all technologies. We have been working with industrial and commercial energy users and owners of DER to raise awareness of revenue streams and remove barriers to entry. In the last year, Power Responsive membership has grown by 650 members to over 2000, representing more than 1000 organisations. Over the last year, more than 30% of tenders received for electricity system balancing services have been from non-traditional parties, and some months this has exceeded 50%.

2.6.        Also, the way in which communities and businesses generate and consume energy locally is changing radically. The UK is now generating much more of its energy from renewable sources that are spread around the country and embedded within local communities.  Local energy connections increased from 12GW to 27GW between 2011 and 2017.

2.7.        National Grid is encouraging these new decentralised technologies to take part in electricity markets traditionally dominated by centralised generation. We are working with new market entrants and distribution network operators to remove barriers to market entry – increasing competition to help keep the lights on at the lowest cost to bill payers.

2.8.        To support more localised energy, National Grid’s Electricity System Operator is currently involved in Regional Development Programmes with UK Power Networks, Western Power Distribution and Scottish Power Energy Networks to undertake detailed analysis of whole electricity system capability in areas of the network with large amounts of distributed energy. The programmes then use this analysis to find ways to speed up system access for these energy sources.

3. Which sectors or technologies should the Government focus on in order to meet carbon emissions targets while supporting the UK economy?

3.1.        A huge amount of progress has been made in decarbonising energy and whilst we shouldn’t regard that task as complete, continuing progress on decarbonisation and air quality will need action on heating and transport as well as energy. Part of the solution to delivering cost-effective emissions reduction will be taking a more holistic, whole system approach.

3.2.        Whereas the policy focus so far has been more on reducing emissions from the power sector, the progress that has been made here means the focus must now shift to those of the economy where less progress has been made. In other words, areas that are “harder to reach”. In particular, the future will be about reducing emissions in heating and transport.

3.3.        Decarbonising heat is a major challenge. The overwhelming reason for this is the potential cost to UK consumers, as all the low-carbon heat solutions involve substantial up-front costs and/or higher operating costs than natural gas provided through the grid.

3.4.        Gas today provides heat to 8 out of 10 UK homes, and if decarbonisation of heat is to be successful, around 20,000 homes a week between 2025 to 2050 will need to move to a low carbon heat source.  The optimal solutions will need to be considered in terms of their impact upon, and acceptability to, the end consumer, both in terms of disruption (inside and outside of the home) and cost.

3.5.        If we are to decarbonise heat in the most affordable way for consumers, there is no single solution, technology or fuel that can decarbonise (or replace) the UK’s entire gas system. A combination, including both electricity and decarbonised gas, will be the most cost-effective way to meet the needs of consumers in different areas.

3.6.        The likely options include renewable gas, hydrogen, CCUS (carbon capture, utilisation & storage), heat pumps, hybrid heating systems, heat networks and energy efficiency.  However, the combination that will develop will depend on the needs of the communities and consumers being served and remains uncertain.  To manage this uncertainty, policy decisions made in the short term should not preclude potential long-term options prematurely.

3.7.        Given its likely enduring role in heating homes, we believe that decarbonisation of gas needs to be an area of focus.  There are exciting initiatives across the country looking gas decarbonisation and to deliver hydrogen and biofuels alongside natural gas. Our Future Energy Scenarios document[3] envisages that by 2050 renewable gas could could meet up to 39% of total GB gas demand.

3.8.        In addition to focusing on decarbonising heat, a focus on electric vehicle (EV) infrsastructure will support emissions reduction and improve air quality

3.9.        National Grid welcomes the announcement to end the sale of diesel and petrol vehicles by 2040, and we would be able to support an earlier target if needed. By 2030 there could be up to 9m EVs in the UK – and 36m by 2040. This could present the UK with an opportunity to become a global leader in the development and commercialisation of EV technology.

3.10.    To support this ambition, we have been engaging with car manufacturers, charge point operators and others to look at potential barriers to progress.

3.11.    Studies have shown that one of the key blockers to uptake of EVs is “range anxiety” – concern about being unable to complete a journey due to the lack of availability of vehicle charging facilities. 

3.12.    From our discussions, we believe that charge points will be required in five places: the home or on a nearby street overnight, destinations (e.g. the workplace), local fast charging stations, and stations along the motorway network. In addition, commercial fleet charging solutions will be required.

3.13.    We have studied the strategic road network in England and Wales and estimate that we need only 54 charging stations which, if placed correctly, would mean that 99% of drivers in England and Wales are within 50 miles of a charging station, regardless of the direction they are travelling.

3.14.    We estimate that connecting these 50 key motorway service station sites in England and Wales to the transmission grid will cost in the region of £0.8bn or about 65p per year, for all registered road vehicles, over the 40-year lifetime of the assets. The 50 key motorway service station sites will enable a future-proofed transmission connection that not only supports EVs but also hydrogen fuel cell vehicles and HGVs that could electrify in the future.

3.15.    Charging vehicle batteries could add 8GW to overall demand at peak times. Smart charging and vehicle-to-grid discharging could help realise the benefits offered by decarbonisation of both energy and transport, and this presents opportunities for developers and suppliers.  However, clear data and information flows will be vital, for example, to coordinate charging of vehicles with periods of high output from renewables.

3.16.    In association with the Environmental Defense Fund Europe, WWF and University of Oxford Department of Computer Science, National Grid has launched a new online tool  which provides a 48-hour-ahead forecast of the carbon intensity of electricity generation across the UK on a region-by-region basis[4], enabling users to plan their power use to coincide with periods of excess (cheaper) electricity from greener sources when the wind blows or the sun shines.

3.17.    To roll out rapid charging points at motorway service stations, our analysis indicates that investment will be needed by industry and enabled by government. Whilst the private sector has ambitions to invest in the ‘connection to car’, and we will support the wider grid reinforcement, there is a risk that the ‘connection to the grid’ may not take place until mass market EV adoption kicks in.

3.18.    Without some targeted intervention in this specific area, there is a risk that the roll-out will not happen fast enough, or with sufficient capacity to be able to meet the needs of the increasing number of cars that will require charging. Addressing this issue will be key to unlocking the market, and private sector investment on the motorway network.

3.19.    The need to decarbonise heat and transport at the same time as continuing the decarbonisation, decentralisation and digitalisation of energy means that coordination across system boundaries (transmission/distribution, electricity/gas, energy/transport/heat) will be needed to deliver the most efficient outcomes. For example, a lower cost option such as a distribution network asset or battery storage could be used in place of a transmission asset, to manage costs while the need case for a transmission line becomes clearer, and charging of vehicle batteries will also provide flexibility when there is a surplus of output from renewable energy sources.

3.20.    A report for the National Infrastructure Commission, by Goran Strbac from Imperial College, concluded that if implemented correctly, whole system flexibility could produce savings in operating and investment costs of £8bn a year by 2030.

3.21.    There is clear merit in taking a more holistic approach to manage the wide range of approaches and achieve the most efficient outcomes.

4. Conclusions & Recommendations

4.1.        To support the decarbonisation of heat, government and regulators should continue to support investment into further research and testing of the role of green gases. This will help to ensure that decisions about the decarbonisation of heat are based on full consideration of the costs and practicalities of all available options.

4.2.        The Government should appoint a lead official to cover cross-departmental issues relating to the role of decarbonised gas in the whole energy system.

4.3.        To promote decarbonisation of transport and electric vehicles, the UK needs to start planning and investing today in a national network of electric vehicle charging points that will be able to cope with anticipated demand.

4.4.        Government and Ofgem should work with the energy industry to identify and remove barriers to working more closely together between electricity and gas, transmission and distribution networks, and across the sectors of energy, heat and transport

4.5.        This response can only give a flavour of the rapid change that the industry is going through, and the innovative ways in which we, our customers, and other network operators are seeking to ensure consumers can continue to benefit from the decarbonisation, decentralisation and digitalisation of the energy system.  We would be very pleased to discuss these issues, and any other energy-related topics, with the Committee.

October 2018