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Utility of the Future: Climate change

How do utility firms navigate the complex and unknown territory that is the future? Global conflict and political upheaval, at home and abroad, the acceleration of new technologies and the existential threat of climate change adds up to a rapidly changing world.

Utilities of today – if they are to become utilities of tomorrow – will need to anticipate and adapt to the challenges and opportunities thrown at them. Are they up to the stretch? This is where our new campaign Utility of the Future fits in.

Over the next few months – leading up to the Utility Week Live Conference and Exhibition in Birmingham on 19-20  May 2020 – Utility Week will be exploring the changing landscape. In a series of five key themes we’ll be looking at what’s coming down the tracks – and what may be over the horizon. We’ll be talking to those in the business, of course, but we’ll also be looking for wider input, talking to experts drawn from further afield to present the facts, debate the issues and answer some of the questions.

These five key pillars are: climate change; customers; business models and workforce; regulation; and technology. For each of these we will be running in-depth articles, research, podcasts and events.

We kick off with climate change in this issue, with a big picture look at what it means for utility firms to meet the newly minted and stretching target of delivering net zero greenhouse gas emissions by 2050, and what the public thinks of it and how much support utilities can expect in their quest to decarbonise and conserve water.  As you’ll see from the results of our survey (p10) – carried out exclusively for Utility Week by Harris Interactive, it’s a mixed picture.

The good news is utilities don’t have to convince the public of its importance; they already know – but getting people to change behaviours won’t be easy. Nor, sadly, will it be easy to convince them of the part utilities are playing in the transition.

For a utility of the future – the journey starts here.

Denise Chevin, intelligence editor

denisechevin@fav-house.com

CHAPTER 1

Towards net zero

Zeroing in on emissions

Catherine Early kicks off our series on delivering net zero with an overview of the big challenges, solutions and timescale.

As the science on climate change becomes ever clearer and more alarming, countries, states and cities have lined up to declare that they will become “net zero”. In June, the UK became the first major economy to set this in legislation, with a target date of 2050.

Net zero means that all emissions of greenhouse gases will have to end by mid-century, or be balanced by schemes to offset an equivalent amount, such as through planting trees or using technology like carbon capture and storage (CCS). It is a significant tightening from the previous target of an 80 per cent reduction on 1990 levels by 2050.

It follows advice from the Committee on Climate Change (CCC) in May, which stated that a net zero target was achievable, both with known technologies and for the same economic cost as the existing target for an 80 per cent reduction by 2050.

The energy sector has been working on decarbonisation for some time. Latest government figures show that coal contributes only 3.5 per cent to the UK’s electricity mix, while renewable technologies generate 35.8 per cent. But the latest report from CCC published this week says policy is woefully inadequate to deliver this target.

But what does the new deadline mean and can utility firms rise to the challenge? Mike Thompson eloquently set the bar for energy companies, speaking at Utility Week Live, in Birmingham, in May. The head of carbon budgets at the CCC, said: “On power, we’re doing quite well. But we still have a lot of emissions from buildings, transport and from industry, so we need more low-carbon power to service those sectors.”

Demand for electricity would be doubled, with all power produced from low-carbon sources, compared with 50 per cent today. This equates to some 600TWh by 2050, he estimated. Many decisions need to be taken by the mid-2020s to ensure that infrastructure is ready in time, he noted.

The committee recommended the creation of a hydrogen economy to fuel energy-intensive industrial processes and electricity, and heating at peak times. By 2050, hydrogen production capacity will need to be a comparable size to the UK’s current fleet of gas-fired power stations, it says. The UK currently produces around 27TWh of hydrogen, and this must rise tenfold to 270TWh by 2050. “You could produce a bit more, or a bit less, but that gives a sense of scale,” Thompson said.

Carbon capture and storage

The committee has brought forward the timing for some of its previous recommendations. On carbon capture and storage (CCS), it had said that the first CCS cluster – where a number of industrial emitters are sited in the same area – should be operational by 2026, with two clusters capturing 10MtCO2 operating by 2030. The CCC now believes that CCS will be necessary both for industry and very likely for hydrogen and electricity production. This will lead to a need for annual capture and storage of 75-175MtCO2 in 2050, and at least five CCS clusters.

EVs

 On electric vehicles, the committee proposes that the government target to end sales of internal combustion engine cars by 2040 should be accelerated to 2035, or even 2030 if possible. This would require the upgrading of many electricity networks to support charging infrastructure. The CCC points out that anticipatory investments will be needed through the 2023-28 regulatory period for the distribution network (covered by the RIIO-ED2 price control) to ensure that upgrades are timely.

All of these measures require new policy decisions, commentators point out. “Even for the 80 per cent target, there was a massive gap between policy and what needs to be achieved. That’s even bigger now; the policies don’t match the rhetoric,” says Keith MacLean, managing director of Providence Policy. Until much clearer action is taken in legislation, significant risk remains for investors, he says.

Heat

Industry has already been waiting a long time for a promised strategy on decarbonising heat. Richard Lowes, research fellow at Exeter University’s Energy Policy Group (EPG), points out that there are currently no proposals for a successor to the Renewable Heat Incentive, which supports generation from technologies such as heat pumps and solar thermal, but which ends in 2021.

“You’d think that would be fairly fundamental if the government wants to do something about this,” he says.

The committee’s recommendations make clear that there is no future for natural gas in its current form, MacLean points out. “But there is a very strong argument for biomethane and hydrogen, which strengthens the moves that a lot of gas networks have taken to demonstrate hydrogen as an alternative to natural gas – the initiatives that companies have taken have now lined up with policy,” he says.

Decarbonising heat in people’s homes and replacing gas with electricity from hydrogen or other sources is politically tricky, he says. “It’s difficult to see a politician taking any big decision around heat because it’s so invasive and affects people’s homes,” he says.

The CCC is very aware that the public will need to become far more engaged with decarbonisation. Thompson said: “We’ve gone from brown electricity to green without people even realising. They turn the lights on and nothing is different. But when they’re driving an electric vehicle, or when they’re using an electric heat pump, they’re going to know about it and they’re going to need to want to make the change.”

There could potentially be a communication role for utilities here, Harrison believes. “It’s something that utilities could start to take forward even in the absence of direction of government. I’m sure that forward-thinking companies will be giving some serious thought to this.”

Another politically charged issue is CCS. The government last week awarded £26 million to fund CCS demonstration projects, including £4.2 million toward the construction of a facility at Tata Chemicals Europe in Cheshire, the UK’s largest CCS project to date.

In any case, the need to trial CCS technology in such a way is a “fantasy debate”, says Richard Black, director of the Energy and Climate Intelligence Unit (ECIU). “We’ve had CCS under the north sea since 1997, so the issue with it in my view is not, and never has been, technological.

“The difficulty is the levers to make this happen. To get a CCS cluster up and running on Teeside, which makes sense in so many ways, you’re probably talking about an investment the same size as for Hinkley Point C nuclear power station. Arguably it works better in public hands, so you’re talking about a big commitment by government to perhaps building and owning stuff, and certainly to giving economic levers to business that will last multiple decades,” he says.

Singing from the same hymn sheet

Academics at Exeter University’s Energy Policy Group have called for better governance to be established through a new Energy Transformation Commission to co-ordinate multiple advisory and regulatory bodies which currently work to different objectives, leading to conflicting policy signals reducing certainty for investors.

Simon Harrison, group strategic development director at Mott MacDonald, who led work on the government-commissioned Future Power Systems Architecture project, agrees that better governance is needed to drive work that cuts across so many different government departments, some of which could be politically unpopular.

“We need to decide which measures are market led, which are delivered through regulation and which are public sector-led, and what that will mean for how we manage the whole energy system in a coherent way,” he says.

The net zero target provides an unequivocal direction for the power industry, Black says. “While the target was 80 per cent, it was quite possible for any company to think that they could have a slice of the remaining 20 per cent and carry on with business as usual. That is clearly off the table now. Energy utilities have to be looking at 100 per cent decarbonisation, and getting there within 30 years. That’s spelt out now.”

MacLean agrees: “There’s now nowhere to hide, everyone is clear that they have to play a part. That is very positive and removes a lot of doubt.”

The water sector

The water sector has already set itself a target to achieve net zero operational emissions by 2030. This was part of its public interest commitments laid out earlier this year, which set out how water companies will tackle wider social and environmental challenges.

Water companies can use measures such as buying and generating renewable energy, planting trees, and restoring peatland to reduce emissions. Many have already had their own climate change strategies and targets for years, with the average operational greenhouse gas emissions per megalitre of treated water falling from 337.5 KgCO2e in 2015/16 to 251.7 KgCO2e in 2017/18, according to analysis of Water UK figures. Draft business plans for the period 2020-25 recently submitted to Ofwat include measures to slash CO2 by 45 per cent by 2025.

Some companies, such as Northumbrian Water, are buying all their energy from renewable sources, while others including Thames Water and United Utilities are generating their own through installing floating solar panels on reservoirs, or anaerobic digestion of sewage sludge.

Northumbrian Water and Anglian Water will be leading on the route map with Water UK. Graham Southall, group commercial director at Northumbrian Water, says that one of the biggest challenges will be fugitive emissions from treatment of effluent.

“You’ll get methane from anaerobic digestion processes, and you can’t avoid some leaking out. You need to generate more from renewable sources to balance it out,” he says.

Transport

The other area that will be hard is transport, he says. Vans, tankers and other vehicles used by the sector emit a significant amount of carbon emissions. “We’ll be looking at moving to predominantly electric vehicles, but also maybe compressed biomethane. But there are a lot of challenges. At the moment, battery technology is okay for light vehicles, but as soon as you get to bigger commercial uses it’s quite tricky to match up the vehicle and the distance people need to drive,” he says.

Charging is also an issue because most drivers keep their vehicles at home overnight, so their ability to charge batteries will depend on what type of property they live in and local charging infrastructure, he points out.

Michael Roberts, chief executive of Water UK, says that the sector
is now beginning work on a route map to 2030, to work out the technical detail of how and where it will cut emissions. “It’s an exciting opportunity to look at how we can build on what companies are already doing,” he says.

Catherine Early is a freelance journalist

Is regulation fit for purpose?

Dr Jeffrey Hardy argues that a change to regulation will be needed to deliver net zero – and greater engagement with customers.

The UK is on the verge of adopting a welcome and ambitious net zero greenhouse gas emission target. What could this mean for today’s utilities?

To answer that, it’s important to first understand what net zero greenhouse gas emissions entails.

First, it means by 2050, there can be no UK emissions from homes, transport, farming and industry. The “net” part of the target is important, because it recognises that in some sectors, farming for example, it is harder to completely avoid emissions. Thus, it may be necessary to remove greenhouse gases from the atmosphere to allow room in the budget for these sectors.

Second, is that a net zero target does not mean net zero impacts of climate change. Globally, because of the greenhouse gases already emitted to the atmosphere, we are committed to around one degree Celsius of warming. A net zero UK target is our contribution to the October 2018 global Paris Agreement on Climate Change that aims at “…keeping a global temperature rise this century well below 2 degrees Celsius … and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius”.

The challenge for future utilities is therefore twofold. First, to adapt to deliver services in a world where the impacts of global warming are manifest. Second, to deliver utilities with zero greenhouse gas emissions.

Energy utilities are a good proxy for the transformation required in other sectors.

On adaption to climate change, energy utilities, particularly electricity and gas network operators, are already managing the impacts of climate change. Flows of energy are affected by temperature change, both in terms of demand for energy (heating and cooling) and in terms of efficiency of the system, for example the capacity of power lines to carry electricity reduces with temperature. In addition, more extreme weather events such as storms, place additional strains on infrastructure, for example by bringing down power lines or flooding essential infrastructure. The energy system is resilient to today’s environment but will need to anticipate and adapt to the climate of tomorrow.

An additional adaptation challenge is that utilities are becoming increasingly interdependent and interconnected. For example, the smart energy system of the future will be increasingly reliant on data and ICT (information and communications technology). Thus, a climate related issue in one sector could impact another.

The second challenge is that utilities need to deliver their current services without greenhouse gas emissions. For energy, the challenge is to deliver net zero electricity, heat and transport in a way acceptable (or possibly even delightful) for consumers.

This challenge is multi-faceted – it combines technology, policy and regulation, business models and people. Together with colleagues from Imperial College London, Laura Sandys and I outlined elements of the solution in our Redesigning Regulation report, published at the end of 2018. We argue that a net zero emissions target requires rapid transformation of the energy sector, and that enabling this requires a rethink of how the sector is regulated.

As an example, net zero energy has implications for lifestyles, in that all services, such as lighting, cooking, heating and mobility must be net zero. In addition, consumers may be asked to be flexible in their energy use, so that energy available from variable output renewables can be used when available. For consumers, this could result in more complexity than today, and come with a stiff, and for many unaffordable, upfront costs. Therefore, utilities will need to engage consumers in the net zero journey and, where required, manage this complexity and address issues of upfront costs (for example, the cost to install a zero-emissions heating system).

In conclusion, the net zero challenge for utilities is twofold. How to adapt to climate change, particularly within increasingly interconnected and interdependent systems? And how to transform utility business models and regulation to drive the net zero transition?

Dr Jeffrey Hardy, senior research fellow, EnergyREV, Grantham Institute, Imperial College London

CHAPTER 2

Survey

The general public thinks utilities are part of the problem

Our exclusive survey sought out public opinion on utilities and cutting emissions.

Utility companies have a long way to go to convince the public of their efforts to tackle climate change, according to a poll carried out for Utility Week that pointed to widespread misunderstanding about the role utilities were playing in moving to the net zero emissions target by 2050.

The survey, carried out by Harris Interactive, was commissioned by Utility Week to gauge levels of public support for the net zero emissions target. It found a public sceptical that net zero could be achieved, but there was widespread support for onshore wind farms and encouraging signs for the transition to hydrogen gas for heating.

Currently, utility companies are viewed more as part of the problem (47 per cent) of climate change rather than as part of the solution (32 per cent), the research found. One-fifth (21 per cent) of the 1,022 people surveyed by Harris were undecided.

Those interested in environmental issues were more likely to view utility companies more favourably as part of the solution.

The research, carried out in June of a cross-section of age groups, revealed that climate change and other environmental matters are currently topics of interest for the public, with four-fifths (82 per cent) citing they were interested in environmental issues.

Support for the UK’s 2050 net zero emissions target was high, with over three-quarters (78 per cent) of respondents stating they were supportive of such a policy. Support was significantly higher among the 18-34 age group (86 per cent) and those interested in environmental issues (86 per cent).

Most respondents (89 per cent) said they were happy to make changes with regards to their energy and water consumption to support the target, yet only 38 per cent of these would consider making significant changes.

Half (51 per cent) felt they could make smaller changes to support the UK’s policy.

Younger respondents were significantly more likely to take up bigger, more significant changes while the over-55s would only commit to smaller changes.

Education, education, education

However, again pointing to the need for a high-profile education exercise, a third of those surveyed found it surprising that the UK had significant water shortages.

Just over one-quarter (28 per cent) would be happy to pay more on top of their current energy bills if it meant the UK could meet the 2050 net zero emissions target. Again, this was significantly higher among younger respondents and those interested in environmental issues. The results potentially support the view of the regulators, who want to keep bills for consumers down even though some water and energy firms are arguing that they need to invest more to tackle climate change, which may be passed on to bills.

In terms of supporting renewables, almost eight in ten (78 per cent) were happy for new onshore wind farms – the lowest cost form of renewable energy – to be created in order to help the UK meet its net zero emissions target. This should add weight to those in the industry trying to get government to relax its policy of directing any new wind development in England offshore.

However, there was not the same support for nuclear power stations to help meet the net zero target, where only four in ten (43 per cent) were happy for new ones to be built. This figure was higher for men than women, at 55 per cent and 33 per cent respectively.

Moves to decarbonise heat

One of the biggest challenges the UK faces on the road to net zero is the decarbonisation of heat. Our survey results suggested there is a strong foundation of support for switching from gas boilers to hydrogen, but understandably a great deal of education will be needed.

Of people currently using gas central heating, when asked if they would be willing to replace it with an alternative technology within the next ten years if it was shown this would support the UK’s net zero emissions target – 62 per cent said yes, they would.

One in four (25 per cent) said they would be willing to have hydrogen-powered central heating installed in their homes, rising to more than half (57 per cent) if they had more information about it.

CHAPTER 3

Chief executive views

Phil Graham, chief executive, NIC

“Your business strategies must encourage collaborative approaches to reducing emissions.”

Achieving net zero by 2050 challenges utilities to deliver a low-carbon future while maintaining service levels for customers. They can do it, but a business-as-usual approach won’t cut it.

The National Infrastructure Commission supports the Committee on Climate Change’s vision and the recommendations in our National Infrastructure Assessment would make a major contribution to delivering it.

We’ve called for substantial reductions in high-­emitting sectors, particularly energy and transport. We also want a minimum 50 per cent renewables generation by 2030; a swift decision on replacing gas heating with hydrogen or heat pumps, either of which changes long-established supply models; and action to achieve 100 per cent of new vehicle sales being electric by 2030.

Water companies too must play their part: reducing water consumption through cutting leakage and increasing metering will cut emissions from treatment and distribution.

Carbon reduction will also shape their future infrastructure mix: companies will have to weigh emissions from transferring water against those from desalination.

Such measures will put pressure on existing networks. Boosting electric vehicle (EV) charging infrastructure will increase demand on the electricity network; a more renewable mix of generation requires significant new storage capacity to cope with uncertainties.

In the assessment and our earlier Smart Power report, we’ve set out answers to cope with these new challenges. In our resilience study we’re particularly interested in the increasing connectedness of infrastructure networks and how vulnerabilities in one system have implications for others.

A system-of-systems approach should help us better understand existing and new interdependencies and the implications of climate change on them. Better data and modelling, too, will transform our understanding of these increasingly interconnected systems – but only if data is shared more widely.

Utilities must therefore ensure their business strategies encourage collaborative approaches to reducing emissions, particularly with providers outside of their immediate sectors. Planning together is essential to deliver net zero. The scale of the challenge demands we start now.

Michael Roberts, chief executive, Water UK

“The water sector is fully behind UK’s environmental goals.”

Water companies are determined to play their part in delivering net zero.

In its desire to tackle climate change, the water sector is no different to any other utility, which is why in April we announced our intention to achieve net zero carbon emissions for the sector by 2030. The announcement formed part of our “public interest commitment” (or PIC), which set out how water companies in England intend
to complement their business plans in tackling wider social and environmental challenges.

As energy-intensive businesses, we believe we can make a real difference through measures such as greater water efficiency and buying green energy, as well as generating renewable energy ourselves, planting trees, restoring peat land and working with our supply chain.

Mike Foster, chief executive, the Energy and Utilities Alliance (EUA)

“Make it easy for consumers to hit emission targets”

I’ve visited refugee camps in Nepal where survivors eke out a subsistence existence because of floods caused by melting Himalayan glacial lakes; and I’ve visited homes and businesses in Worcester flooded thanks to intense localised rainfall. Scientists tell us both situations will become more frequent as a result of climate change. So, yes, there is a “climate emergency”, and yes, decarbonisation is essential.

Despite what some Extinction Rebellion activists and anti-capitalist agitators claim, the energy and utility industry I work in is deeply committed to hitting its legal targets, including net zero.

Gas networks, for example, are injecting biomethane into the grid to reduce carbon emissions. They are examining the implications of blending hydrogen into the existing methane mix. They are investigating how hybrid heating systems might deal with peak heat demands. They are interrogating how bills are calculated with gases containing varying energy densities. And they are exploring ways to repurpose the grid to carry 100 per cent hydrogen.

This is industry at its best. Given a target, asked to tackle it and dedicating their expertise and resources to deliver solutions. But not everyone in the utilities sector is going about it quite so straightforwardly. There are some who see an opportunity to market new products or technologies. Perfectly normal and understandable. But what is not acceptable is offering up higher cost and disruptive options, to be paid for by hard-working families, all under the guise of meeting carbon emission targets.

That’s why solutions that don’t involve the consumer making any conscious change to their behaviour are ­successful. Removing coal from our power generation system has been done without the consumer noticing. They flick on a switch, the lights come on.

That’s why decarbonising the gas grid is such an attractive option. Keeping existing technologies, familiar to consumers in how they work, ticks so many boxes. Decarbonisation needs to be done with consumers, not to them. It also needs to be done as cost effectively as possible.

In part, that’s why international off-setting holds its attractions. Buying carbon off-sets is virtuous, not a policy of last resort. The UK’s response to net zero has been entirely appropriate and should be applauded.


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