Building resiliency, driving growth and advancing sustainability in a rapidly changing world.
“It is one of the greatest challenges facing our society – a ‘trilemma’ – delivering clean, reliable and affordable energy to support our world long into the future. And National Grid is at the heart of it.”
Steve Holliday, National Grid’s Chief Executive Officer
Fifty-five of Standard & Poor’s Global 100 companies have experienced the effects of extreme weather or expect to within the next five years.
Source: Center for Climate and Energy Solutions
In this speech given to the Chief Executives Club of Boston in October, Steve Holliday, National Grid’s Chief Executive Officer, offers his perspective on building resiliency, driving growth and advancing sustainability in a rapidly changing world.
Stronger and Smarter Energy Networks: Building Resiliency, Driving Growth, and Advancing Sustainability in a Rapidly Changing World
Prepared remarks by Steve Holliday, CEO, National Grid at the Chief Executives Club of Boston
Boston Harbor Hotel
October 24, 2013
It’s a privilege and an honor to represent National Grid here today on the podium.
National Grid’s job is to connect people to the energy they use, safely. It’s impossible to imagine life today without energy at our finger tips: our society is increasingly dependent on it. From the warmth and light we count on at home, and the power which drives our factories and offices, to mobile communications and technology. All are essential parts of our modern lifestyles.
Our business is focused in the northeastern states of the US and in the UK. We run networks that deliver gas and electricity to tens of millions of people, businesses, and communities.
Here, these systems help drive the industries that are the backbone of the New England economy: technology, education, manufacturing, healthcare, and biotech to name but a few.
We are proud that our job, everyday, helps the prosperity and wellbeing of our customers and communities.
But, we have a significant challenge. A challenge that will affect every single one of us in this room and it’s increasingly capturing the imagination and attention of the public. It is one of the greatest challenges facing our society – a trilemma – delivering clean, reliable and affordable energy to support our world long into the future. And National Grid is at the heart of it.
The emerging economies
But this energy challenge is not local to here in the northeast or even the whole US. It is global.
In the west, we have had the privilege of access to reliable electricity supplies for decades. We have become highly dependent on them for the lives we lead.
In much of the Far East and many emerging economies, we are seeing huge investments in energy infrastructure as they understand how reliable energy supplies and modern infrastructure underpin economic growth and social welfare.
For example, of the 1,200 coal plants that are in planning globally, 75% of them are in China and India alone. But the investments are not just in fossil fuels – China is the largest investor in clean energy in the world. In 2012, they invested $65bn – 90% more on an annual basis than the US ($34bn) and 600% more than the UK ($9bn).
Compared to 22% growth in China, year-on-year clean energy investment for Europe fell 29% in 2012, mainly driven by the economic crisis we are still recovering from. The US has essentially remained flat over the last three to four years.
Based on trends over the last few years, 2012 was supposed to be the year when investment in renewables globally surpassed fossil fuel generation for the first time; however, that didn’t happen. Investment in fossil fuel generation started to increase again at the same time global renewable investment dollars tailed off, partly as a result of a drop in wind and solar generation costs.
When I joined National Grid 12 years ago, months could pass without energy being mentioned once in the national conversation.
Today, there is barely a day that goes by without energy being on the front pages, whether it is risks to security of supply, new sources of energy, or prices. On Sunday, I was at home going through the UK press clippings. I counted 103 energy related articles in the national press alone.
This afternoon I would like to look more closely at four areas of this global energy challenge that we spend a lot of time focusing on:
– aging infrastructure
– the revolution in energy supplies
– extreme weather
To address these, we are fundamentally changing how we operate. There is also an opportunity for the US, and in particular the northeast, in leading the policy debate and how ultimately all of us as customers can play our part.
The first challenge is our ageing infrastructure. A few years back, the US National Academy of Engineering polled their membership and asked them, what was the greatest engineering achievement of the 20th century in the US?
Their answer? Not the transistor or microchip. Not the Golden Gate Bridge or Interstate Highway System, or even aviation.
They believed the greatest engineering achievement of the 20th century was our vast electric grid, from power generation and transmission to distribution to homes and businesses all across the country.
Our challenge is around how much of that infrastructure is still the original equipment and is reaching the end of its working life. In upstate New York we have a line that Thomas Edison built that is still in service. It was only in 2006 that we retired the 25 cycle equipment that Tesla and Westinghouse built in Niagara Falls.
The average age of transformers on our system is 49 years old and the oldest transformer still on our system is 103 years old. This is high quality equipment that has a long life but, as I am sure you can appreciate, 100 years is way beyond its originally intended design life.
We have a similar challenge in the UK, where we have just agreed an eight year contract with the regulator to invest nearly $40bn dollars to not only connect new energy sources but also replace and modernize much of our aging infrastructure.
We will take this opportunity to not just replace new for old but to think more smartly and flexibly about future needs, and facilitate new technology and develop a very different energy system.
The rise of renewables
The second area of the energy challenge is the revolution in energy sources. This revolution is driven by three main factors: the first is that many of our power stations, like the wires they are connected to, are old and need to be replaced. The second is a growing realization of the impacts of climate and need for us all to reduce our carbon emissions. And the third is a positive, shale gas.
The World Energy Council reported two weeks ago that they expect the global capacity for renewables to rise from 23% to 34% in 2030. They also expect several new technologies to achieve price parity with traditional generation over the next few years. ($75/MWh)
But renewable energy needs a much more flexible approach to balancing supply and demand. On July 7 this year, at around 2pm, Germany had 23GW of solar energy being generated against a system demand of 44GW. That’s 54% of total demand being met by solar. Four hours later, at 6pm, this was down to 20% of demand and, two hours later, down to 0%. These are huge power swings.
Those of you who have been to the UK will know that we generally have more wind than sun. There, we are currently handling connection requests for 36GW of offshore wind and 15GW of onshore wind compared to the 4 and 6GW respectively we have installed today. That’s big wind that connects to our high voltage transmission system. At a smaller scale in Scotland they have had 2,500 applications for connection to their distribution system in only the last 18 months. That’s seven a day! Now, I don’t exp ect that all to come to market, but a significant proportion will.
More bi-directional networks
Here in Massachusetts the story is no different. So far this year we have over 1600 project applications, mostly solar, for connection to our distribution system. In addition, we are beginning to see large projects, including Cape Wind and Deepwater Wind off Rhode Island. I think we will see more of these, particularly as they become more cost competitive with traditional generation sources.
All these require investment in order to connect them to the network. As many are smaller than traditional power stations, they can be connected to our local, lower voltage networks that traditionally only distributed rather than transmitted power. This means that our distribution networks need to be more bi-directional and able to manage and optimize the benefits from these new intermittent energy sources.
Of course, another changing energy source whose impact in the US is the envy of Europe, is shale gas. The astonishing 26% a year growth for the last eight years in the US, and supply is forecast to deliver 50% of total domestic US gas production by 2040 (from around a third today).
Global forecasts vary enormously, with many countries, like France, barring the exploitation of shale gas. I believe that this will turn out to be a mistake as it is clear to me that natural gas, including shale gas, has a very important role to play as we transition to a lower carbon economy.
The benefits here in the US are clear and game changing. Not only in terms of security of supply, but the knock on impact to gas and electricity prices. The lower gas prices then drive up customer demand. We no longer advertise for oil-to-natural gas conversions, and yet we are inundated with people wanting connections – clearly a great problem to have for a business like ours. But one that will need new regulatory approaches to allow us to reinforce and expand our networks to meet customers’ growing demands.
It is great news that in the northeast US, helped by lower prices, there seems to be a renaissance of manufacturing – specifically new high tech manufacturing – which is creating jobs and economic growth. But the resulting increased energy demand, often in areas where there is limited network capacity and lower than required power quality, also challenges the network, and our regulatory framework in terms of how to most efficiently address.
Addressing climate change is not just about cleaner energy, as the third challenge is the extreme weather conditions our assets are increasingly up against.
Extreme weather events are on the rise, plain and simple. There were 800-plus extreme weather events worldwide in 2012. 800-plus events in one year around the globe. That translates into an unimaginable amount of human pain and suffering and more than $130 billion in damages globally.
International insurance giant MunichRe recently concluded that from 1980 through 2011, the frequency of weather-related extreme events in North America has increased by nearly 500% – rising more rapidly than anywhere else in the world.
Given this new reality, National Grid participated in a study just released by the nonprofit Center for Climate and Energy Solutions. The study takes a close and sobering look at how companies are beginning to assess and address these new risks.
The impact is not limited to power and gas companies. The study found that 55 of Standard & Poor’s Global 100 companies have suffered the effects of extreme weather. Aside from the very important and often tragic human effects, there are many brutal business realities: condemned factories, loss of power and water supplies, rising insurance and raw material costs, and disruption of global supply and distribution chains.
Yet, according to the study, relatively few companies are systematically factoring these increased risks into their business resilience planning and operations. At best, they continue to rely on a historical picture of past assessments.
Things have changed remarkably quickly, and even with all our focus, we were caught off guard in 2011. Let me explain.
As many of you in the room know, we at National Grid learned some hard lessons responding to Hurricane Irene and the October nor’easter. Our 2011 restoration efforts were, frankly, disappointing.
At the time, our planning didn’t account for the magnitude of the logistical challenges hitting our electricity and gas networks simultaneously, across three states and numerous regions. Why not? Because we hadn’t seen anything like it in our recent history.
An unprecedented response
So, we learned the hard way. We now look at future scenarios which include events we haven’t seen before, to make sure we are better prepared.
That’s the main reason why Superstorm Sandy, and later, last February’s nor’easter dubbed “Nemo”, were completely different in so many important ways for our company.
Whereas Irene and the October nor’easter took us 79 and 127 hours, respectively, to restore 90% of the electric outages, we cut that restoration time to 41 hours for Sandy in Massachusetts and 32 hours for Nemo.
The devastation from Sandy, particularly for our customers on Long Island, was unprecedented. Here’s some idea of the scale across our electric business. We replaced 5,000 poles and 3,000 transformers. That took 15,000 additional line workers, crews from 48 states and six Canadian provinces working 16 hour shifts – in some areas having to completely re-build the electric system.
In our New York City and Long Island gas businesses, flooding required us to manage the largest gas mutual aid event in the history of the US. Within a few weeks, we replaced 70,000 feet of gas mains, 100,000 gas meters, and 40,000 regulators.
So to be clear, the threat of extreme weather is here. Our future designs must account for it.
However, it does open up an important debate for society. How much should we invest upfront in resilience to “harden” our assets to make them “storm proof”, versus response and recovery? How much can society afford to pay, who decides how much disruption is acceptable and how much should customers be charged to minimize that?
Affordability always has to be a key consideration and never more so than in these tough economic times. There is no easy answer here.
But these challenges will require us to increase the levels of investment on behalf of customers.
Increased investment is critical. Without it, reliability will suffer, and for us to sustain a prosperous and modern economy, we need robust and reliable energy supplies.
What is important is that we make sure we find the most efficient solutions, that we are transparent and clear, not only on the costs, but also the rationale for investment, and that we clearly agree the trade-offs.
An inflection point
The first challenge I mentioned was our ageing infrastructure. The final challenge I want to share this afternoon is around our ageing workforce and the skills gap we face.
This week I hosted two lunches for National Grid employees with 40+ years service. In the US, we have 404 employees in that category, 2.6% of our workforce with 17,008 years of experience between them. By definition, they will all be leaving the business in the next few years.
We need talent to replace them. Like many businesses, we are struggling to find future employees with the skills that we need. We have the same challenge on both sides of the Atlantic. We need more students to study Science, Technology, Engineering and Math at school. Without STEM, we won’t have the abundance of talent that we need for the future.
So as you bring all these challenges – ageing assets, the revolution in energy sources, extreme weather, and an increasing scarcity of skills – together with the need to maintain reliability and manage affordability, it is clear that our industry – the electric and natural gas distribution industry – is at an inflection point. This is true not just here in the northeast, but across the US and much of Europe too.
The four characteristics
I’m talking about modernizing our grids – gas and electric – but also fundamentally changing how we operate. Some of you will have heard this described as Utility 2.0 or the “Utility of the Future.”
When we talk about the utility of the future, we think of four characteristics:
The first characteristic is a utility that encourages its customers to use less energy.
Take a look at the Energy 2030 report put out recently by the Alliance to Save Energy and a bipartisan working group of Democrats and Republicans. The working group was chaired by Senator Mark Warner of Virginia and our own Tom King, president of National Grid US.
Their working premise: 57% of the energy consumed in the US is lost to heat, leaks, and noise, making the US last or near last in rankings of energy utilization.
One of their findings: By halving the energy we waste by 2030, we would be able to reinvest $327 billion back into the US economy and of course, a carbon reduction of 4 billion metric tons – a full third less than where we are now in the US.
I know I’m preaching to the converted here in MA, on energy productivity. You are number one in the US in energy efficiency. Your Green Communities Act of 2008 is the model for energy efficiency programming and has driven you to the top of the nation’s state-by-state rankings. Governor Patrick and the Legislature were forward-looking when they wrote the Green Communities Act, and I thank them for the productive partnership we have had over the last seven years. And congratulations to you, Mayor Menino, for putting Boston at the top of the list of Green Cities in America.
I am very proud that this is an area where National Grid has been a leader since the 80’s too.
But we can, and must do even more; especially when it comes to natural gas emissions, transportation, building standards and so much more.
However, energy efficiency will not mitigate the need for investment in new smarter infrastructure.
The second characteristic will be critical to this, taking a holistic approach with our customers. We need a coordinated and holistic plan. We all know the waste and cost that can be created by siloed thinking.
As well as the engineering challenges such as redesigning our transmission and distribution systems to be more resilient, more adaptable and smarter to respond to current and future market needs, coping with embedded generation and renewables, we need to make sure they meet our customers’ and communities’ needs.
Our current plans involve us investing over $2bn in infrastructure improvements in MA, RI, and NY next year but more will be needed. The risk between the over and under provision of critical infrastructure is asymmetrical. In a changed political and economic context, aided by lower gas prices, there is an opportunity – a paradigm shift that needs a new framework.
We are changing.
We fundamentally need to change how we engage with our customers and stakeholders – becoming more of a listening organization, that is flexible, that communicates clearly and simply.
Giving customers more control
Thirdly, the utility of the future will be more innovative. This applies to both technology and policy innovation, as they will both act as catalysts in enabling this change.
We also need to find more innovative customer-centric solutions – driven by information and choice – that will give our customers more control over consumption behaviors, power quality, efficiency, and ultimately pricing.
The future must be built on better informed, engaged and efficient consumers.
I have two examples showing some of the progress we are making in both technology and policy innovation:
- Our smart grid pilot to 15,000 customers in Worcester: This was co-designed with residents, businesses, the city, and regulators. This pilot is as much about customer behaviors as the technology.
- Our pilot for gas expansion in Rhode Island: There, we are laying 2 miles of new gas and 3.5 miles of new electric distribution infrastructure that will facilitate up to 36 new commercial customers in a “build it and they will come” program, avoiding old-style, customer-unfriendly contributions.
The final aspect of the future utility is being more linked into the next generation through schools and colleges.
We have much experience here but we are determined to do more, in a much more co-ordinated way.
We already have a number of strong relationships with universities and colleges including:
- MIT where we have a focus on energy research and quantitative modelling.
- Elsewhere, we have partnerships researching sustainable energy technologies (including CCS), carbon management, sustainability metrics, and smart grids.
The next generation
Relationships like these, and the many more we have, help us develop innovative solutions and attract talent into our organization.
We also have a number of relationships with schools and colleges which are equally critical in inspiring the next generation to study STEM subjects and consider careers in engineering.
- Our employees go into schools, such as BC High, share with them what they do, participate in practical activities, talk about sustainability and inspire them about the world of work.
- We also run a number of summer camps with 10th and 11th grade students to raise awareness of engineering, with activities like building robots and designing and building wind turbines. The kids have a great time and it is amazing how many perceptions are changed, particularly for girls.
Clearly, this is not just something for National Grid to do on its own, and there is a role for all businesses here to better engage with the next generation.
So, there is our view of your utility of the future.
It’s focused on:
- energy efficiency – selling less product
- investing in smart, modernized infrastructure
- developed via a holistic plan, in partnership with customers, regulators and other stakeholders
- driving innovation….
- and much more strongly linked into colleges and universities
All this to create energy networks that are more efficient, resilient in the face of extreme weather, and flexible.
To enable this, we need to create the right regulatory paradigm. We will not be able to deliver this in our current environment.
Customers’ objectives and needs will be fundamental inputs to our future plans. We will share the difficult trade-offs. The resulting regional plans will be more comprehensive and collaborative than ever before, and will give policy makers and regulators the confidence we are moving in the right direction together.
There is a real opportunity for the northeast to take a leading position on the development of future energy policy. It will need the policy makers and industry leaders to join us as we step up together to create the right framework and incentives to make this happen.
I started by talking about US National Academy of Engineering’s view of the greatest engineering achievement of the 20th century in the US. I believe, by working together to modernize these old networks, making them more efficient, smarter, and more innovative, we can repeat that achievement in the 21st century.
If this can start anywhere, it will be here in New England.