Posted: 16 August 2017
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The Future of Gas: Progress Report

In July, we published our Progress Report on our Future of Gas engagement programme. Nicola Pitts, Head of Market Change – Gas, explains how stakeholder insights are shaping the debate and outlines what we’ve learned so far.

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The Future of Gas: Progress Report

The Future of Gas: Progress Report

The numbers support the view that gas is here to stay.

"The ‘consumer experience’ needs to be part of our thinking, alongside the energy trilemma of affordability, sustainability and security of supply"

Nicola Pitts, Head of Market Change – Gas.

Insight:

Great Britain is still seeing 60,000 new domestic gas connections every year.

Source: National Grid ‘The Future of Gas: Delivering for our Customers’, December 2015.

Back in November 2016, we launched our Future of Gas programme. It was designed to facilitate a debate on the role that gas can and should play in the UK’s future energy mix, and what this will mean for the national gas transmission system. We’ve spent the past eight months engaging with many different stakeholders from across the energy industry and beyond. This Progress Report summarises the work we’ve done to date.

Nicola Pitts, Head of Market Change – Gas.

The message we’ve heard loud and clear is that gas has a critically important role in the UK’s future energy system. But at the same time, due to uncertainty about exactly what a future decarbonised UK energy landscape will look like, it is difficult for the industry to commit to investing in innovation.

Certainly, the numbers support the view that gas is here to stay. Great Britain is still seeing 60,000 new domestic gas connections every year. Meanwhile, gas supplies more than twice as much energy as electricity today (with this differential increasing even more during peak demand on cold winter days) and could still supply more energy than electricity by 2050, according to National Grid’s 2017 Future Energy Scenarios.

Testing the boundaries of our network

We do not know for sure what the supply and demand picture for gas will be in 2050. To test the capabilities of our network we have developed three sensitivities that examine the impact of different levels of supply and demand:

High electrification describes an ambitious approach to the electrification of heat and sees a very high roll-out of renewable generation, requiring significant government support and intervention. This is effectively a low case for gas demand.

Two degrees is one of our core Future Energy Scenarios and reflects a medium case for gas, where carbon capture and storage (CCS)-enabled generation is deployed along with nuclear and renewable technologies.

Decarbonised Gas is our high gas case and sees the 2050 carbon reduction target met without a wholesale switch to electric heating. Heating in some cities is provided by burning hydrogen rather than natural gas.

Going forward, these sensitivities will be used as a way of testing that the National Transmission System (NTS) is robust enough to cope with a wide range of future supply and demand scenarios.

Engaging widely

Since November, we’ve engaged with stakeholders in bilateral meetings, seminars, workshops and national and international conferences.

We’ve also worked with consumer interest groups such as the Citizens Advice Bureau and Age UK, which has helped us to understand what really matters to consumers now and in the future. The ‘consumer experience’ needs to be part of our thinking, alongside the energy trilemma of affordability, sustainability and security of supply.

During February and March, we ran a series of themed workshops for stakeholders. Based on feedback from our Gas Customer Seminar in November 2016, they focused on four emerging themes: Gas and Electricity Interaction, Supply, Heat, and Industrial Demand.

The workshops were very well supported, with representatives from many different sectors and organisations taking part. Stakeholders gave us their insights on the challenges and opportunities for the future, so that we can now start to think about how we will need to adapt the NTS and commercial frameworks to meet future energy needs. You can read more about the output from the workshops here.

Themes from the workshops

Customers and stakeholders consistently highlighted several themes and together with our own research and thinking, we’ve distilled these into the following areas:

National policy: There is broad agreement that a national policy aligning heat, power, transport and industry would be a positive step in helping to cut emissions and support the drive towards the 2050 carbon reduction target.

Whole energy system: As Great Britain makes the transition to low-carbon energy, gas and electricity systems need to work in harmony. Consumers are likely to achieve better outcomes if there is greater consistency between the two markets and more emphasis is placed on whole energy system solutions.

Affordability and economics: Given the number of potential routes to meeting decarbonisation targets, maintaining an attractive and accessible gas market helps to keep options open for the future. Macroeconomics and global market forces will be important in the attractiveness of the GB market.

Optionality for the future: No single option in isolation will achieve decarbonisation in an affordable way. Industry, government and regulators should work together on the development of network and market frameworks to keep credible scenarios open for as long as possible.

Agility: Responding quickly to changes in supply and demand is becoming increasingly challenging for networks and markets as the energy mix changes. Gas continues to provide electricity security of supply, but industry and government must ensure that market arrangements value this flexibility and encourage investment.

Innovation and technology: Expanding current innovation mechanisms beyond the networks or creating funding that extends to all parts of the supply chain would potentially result in even greater returns on innovation investment. There is also consensus on the need to clarify the UK’s approach to CCS.

Consumer experience: End consumers must be part of the energy debate and their thinking will likely be driven by a combination of cost and convenience. Smart technology will help them to make informed decisions.

Our conclusions so far

So, what have we learned from the engagement programme to date?

Firstly, gas is critical to security of supply now and as Britain transitions to a low-carbon future. It will have a long-term role as a flexible, reliable and cost-effective energy source favoured by many consumers.

We also recognise that while the pathways remain uncertain, network options should remain on the table where possible. An approach to identify and incentivise ‘least regrets’ options is also needed.

Thirdly, heat needs to be decarbonised by 2050 in the most affordable and least disruptive way. The continued use of existing assets will give consumers good value, as well as being convenient. Stakeholders have told us that the impact of disruption to end consumers needs to be considered alongside affordability.

We are also going to face more challenges in operating the energy system in the future with less predictable sources of supply and changes in demand patterns. Gas will be an essential partner to renewables in balancing the electricity system.

Finally, innovation will help us unlock a better future. There are already exciting developments in this area and there is a need to speed up activities to prove concepts around CCS and hydrogen. National Grid will play its part in facilitating and accommodating new technologies and the markets around them.

Next steps

We believe that the gas industry needs to continue to work together. It’s also essential to work with the electricity sector because greater collaboration will ensure we can deliver secure and affordable energy for consumers.

We are going to be hosting a series of follow-up workshops and webinars in the coming months. Over the winter we will publish a further document focusing on issues such as potential changes to market frameworks, the future role of the NTS and where next for innovation.

This document will also set out the actions that we recommend should be taken in each decade by policy-makers, industry, the supply chain and networks so that the right solutions are delivered at the right time.

Our next price control period starts in 2021, and prior to this we will need to submit our business plans to enable the operation, maintenance and development of the NTS over the next regulatory period. In the current changing energy environment the views and inputs from our customers and stakeholders will be essential in ensuring we continue to have a Gas Transmission Network that efficiently meets the needs of the UK energy consumer now and into the future. Our RIIO T2 engagement will build on this Future of Gas work to ensure the views of our customers and stakeholders are fully reflected in our business plan submissions.

Final thoughts

The debate we’re having on the Future of Gas is very timely. The discussions we are having today will help to shape tomorrow’s energy system. We are very keen to gather as many views as possible, so please get in touch via our Future of Gas website.

We know that gas will have an important role to play. Together, we can define exactly what that role will be.

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