Strategic Grid Investment Now Is Money Well Spent for the Future

The UK aims to hit its net-zero target by 2050, which is not too distant considering the five-year investment cycles for electricity and gas networks.

The ENA defines¹ a whole energy system approach as "the development of a range of options for clean energy in all its various uses (incl. electricity, transport and gas) and fitting them together in the best combinations to deliver value for business and consumers, as well as keeping the energy flowing."

Electricity and gas networks are currently developed in isolation, with little or no coordination stemming from different investment timelines, planning and incentives, based on the existing regulatory framework. At the same time, ongoing work is mostly focused on single vector analysis (e.g., electricity only, or hydrogen only) for the next 10-12 years, rather than long-term whole system integration.

DESNZ and Ofgem have recently agreed² that a new body, the Future System Operator (FSO), would apply a whole systems approach to network planning across fuels and technologies in the energy sector. However, the role and responsibilities of the FSO in relation to strategic planning and delivery of a decarbonised system have not yet been explicitly defined. This becomes particularly sensitive when it concerns overall system planning and how this impacts national security of supply.

For example, earlier this month, National Grid’s Electricity System Operator (ESO) put back-up coal plants into action for the first time during a period of tight supplies as a cold snap swept the country. Fossil fuel generation amounted to 36.3% during that week, of which 35% and 1.3% was generated from natural gas and coal, respectively. The figures highlight the importance of dispatchable peak supply on the system at times when renewables cannot provide the required electricity, considering that fossil fuel generation would need to be drastically reduced for the country to meet its net-zero target. If we are facing such security of supply challenges today, we surely face a very serious peak supply situation in 2040 or 2050?

Guidehouse has recently completed a study³ that provides an optimised gas and electricity transmission infrastructure outlook for 2050, and demonstrates the value of a whole energy system approach to transmission infrastructure planning in Great Britain. The study found that even in a highly electrified, net-zero compliant scenario, hydrogen-fired generation would play a key role in providing over 30GW of electricity to the system, on a limited wind, peak day in 2050. Hydrogen turbines would feature next to other flexibility options such as demand side response, storage and imports, but sufficient peak power capacity will be a crucial design feature of a low carbon energy system.

Decarbonising electricity generation is only one area where a whole energy system approach can deliver tangible benefits. The Guidehouse analysis also suggested that hydrogen storage would be critical in supporting system demand during peak and low wind days, delivering up to 95GW of firm, dispatchable supply by 2050, supporting both electricity and gas systems. This form of storage would also strengthen energy security and system resilience, with salt caverns being one of the most mature options available in the country.

The above highlights that the government and the new FSO body will need to do more to ensure that the UK remains on track to meet its net-zero targets. A truly whole energy system approach would require the development of a long-term cross-sectoral infrastructure strategy across energy carriers, the emergence of new business models for (hydrogen) storage, as well as the promotion of low regret investments in energy generation and transmission infrastructure that would support both electricity and hydrogen systems in the future. This may include the selection of optimal locations for hydrogen production and storage, identification of incentives for low-carbon peaking plants, strategic reinforcement of the electricity network to address potential bottlenecks and more in-depth regional analyses with whole system focus.

Ofgem is now consulting⁴ on the process for deciding the overarching framework design for the next RIIO price controls. Particular attention should be paid to coordination of future investments that would set us on the path for timely decarbonisation. The clock is ticking…

This article originally appeared in Utility Week and was co-authored by Guidehouse’s Mark Livingstone and Konstantinos Anagnostou.

¹ https://www.energynetworks.org/creating-tomorrows-networks/open-networks/whole-energy-systems

^₂ Future Systems Operator: Government and Ofgem's response to consultation

³ Study is expected to be published next month

⁴ https://www.ofgem.gov.uk/publications/consultation-frameworks-future-systems-and-network-regulation-enabling-energy-system-future