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deep dive

Piecing together the grid jigsaw

The grid must expand. Where it is currently a drag on growth, a well-executed plan could unlock new investments – but policy certainty is a must.

The modern world relies on hydrocarbons, with grid infrastructure underpinning this. With commitments to cut emissions, the source of energy is changing – but so too must the way in which energy is delivered.

In May 2021, the IEA report Net Zero by 2050 defined 400 milestones to achieve net zero by 2050. It called for “a complete transformation of how we produce, transport and consume energy.”

Few if any of those milestones have been reached. Several European governments are winding back on commitments to achieve those milestones.

Governments and companies must investigate and invest on a massive scale in existing and new technologies if the world is to get close to net zero in the next 25 years.

The US government has chosen to throw a huge amount of money into low-carbon technologies.

In Europe, and the UK, there are far fewer financial resources available. Making the right choices, and constantly reviewing choices, is critical. This should reset the environment for the energy industry and attract investment. 

At the same time, governments must keep a close eye on the true full cost of any strategy. In turn, industry should be pointing out to government the major obstacles to low carbon investment and help to ensure that there is a consistent policy focus on delivering carbon abatement in a timely, cost-effective way.

Governments and companies have recognised they must make huge efforts to develop known low-carbon electricity sources, such as wind and solar. They are also working on new opportunities to move quickly along this path.

As the generation mix evolves, the demands on the system also change.

Implications for GB grids

Although there have been many incremental changes over the last 15 years, the UK’s approach to grid development and operation has not fundamentally changed since the Climate Change Act of 2008.

The 2019 decision to adopt a legally binding Net Zero 2050 target adds a need for greater urgency.

Up until now, the UK has adopted a siloed approach. The government has overseen a separation of electricity and gas grids, with their own legislation, licensing and network price control arrangements.

Amid this has been a focus on controlling costs, to protect consumers. The result of this has been a reluctance to sanction “anticipatory” strategic investments ahead of proven specific need.

The transmission level was built up to channel supply from large generation assets, such as gas, coal and nuclear.

There has been a relatively loose connection between electricity transmission and distribution systems. This includes a lack of “visibility” at the electricity system operator level, in terms of distributed energy. This became apparent during the first wave of growth in solar generation.

Offshore wind has struggled to gain access to the transmission grid, because of its location and a piecemeal approach which has often led to disruption of coastal communities, with offshore transmission sometimes ill-coordinated with the onshore grid.

Local electricity distribution grids have traditionally flowed in one direction, based on the system’s roots in large generation. However, the system has become increasingly complex, with distributed generation, EV ownership, grid constraints and a need for demand-side response.

There is an overwhelming case for change at two levels – strategic and specific.

High level

Strategically, there is an urgent need for a coherent whole system view of the steps needed and the long-term objectives, in addition to well-informed debate and constructive co-operation. To be ready for the future, the UK must consider future demand and the expected full cost of different green electricity supplies or carbon reductions.   

Strategic thinking is required, not just for electricity grid itself, but also in related areas such as energy storage, hydrogen and CO2 infrastructure. A major area to address must be the transition away from unabated natural gas, which dominates UK heating.

Finally, we require urgent action to address the infamous “connection queue”. This stems from the drive to decarbonise, with a manifold increase in connection requests. This has driven a large number of so-called “zombie” projects, which sit in that queue with little realistic chance of proceeding.

Interrelated challenges

Interconnectors have undergone a notable transformation in the last 15 years, demonstrating the dynamism of the energy shift. A proliferation of these cross-border lines has squeezed margins, with a move towards unconventional interconnectors, linking in offshore wind farms.

There has been an extraordinary growth in offshore wind, largely in Scotland. There remains excess power in the country, with too little in the way of connections to deliver to demand centres in England. Would a move to variegated pricing tackle the status quo?

Another response to this dislocation of demand and increasingly intermittent supply is energy storage. Capturing power and shifting it to alternative times helps smooth out some of the swings seen in the grid. Hydrogen and pumped storage can have an impact, and it seems the government is moving to provide support for these mechanisms.

Our notion of the grid is evolving, with the new National Energy System Operator (NESO) set to add oversight of gas and hydrogen, to electricity in its portfolio. Hydrogen and CO2 management will play an important part in decarbonisation, with the pressure on clusters to move forward effectively.

Picking direction

The decision to move from an Electricity System Operator (ESO) to the new NESO is surely an important step in the right direction.

It will not be plain sailing. There are questions around how quickly a fully staffed and capable ‘whole system’ organisation will be up and running.

Furthermore, NESO will need to navigate various public sector bodies, most notably the Department for Energy Security and Net Zero (DESNZ) and Ofgem. Should Labour win the next election, GB Energy would also be in the mix.

The working relationship between government and Ofgem to date has not always been smooth. Effective policy, regulation and management is likely to be much more complicated when two important new players are added.

There is a risk that uncertainty will grow, rather than reduce, as government becomes more involved in the supply chain. GB Nuclear has taken an early start down this route – committing to huge payments to get industry up and running.

Labour’s stated aim is to decarbonise electricity production by 2030, while the Conservatives aim for 2035.

Shadow Secretary of State for Energy Security and Net Zero Ed Miliband has talked of a drive to cut across siloes when in government. This could bode well for NESO and GB Energy.

Risk on

E-Fwd's call to action on the grid

There are challenges ahead, but there is a sense that both political parties are aware of the scale of the challenge.

The agencies in government also agree that change is needed to deliver the grid we need. The aim to shift to a “first ready, first connected” will see some projects losing out. However, allowing NESO to focus on a slimmed down list will improve efficiency and it can then take a more proactive stance.

For too long, grid plans have been based on a “just in time” ideology. Deciding where grid will be built out will unlock new investments in the same way that clusters can crowd in development plans.

Moving to a “risk on” approach will put NESO and Ofgem in a position where they can trigger new investments in a meaningful way, as part of a broader industrial policy. We’ve played it safe, now it’s time to plan out.

Co-written by Paul Hallas.

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