What opportunities does COP26 represent for the utilities sector, and how can we capitalise on them?
The key opportunity overall is to accelerate co-ordinated action towards decarbonisation and build on the Paris Agreement to agree to measurable targets, whilst promoting the UK and the electricity industry as global leaders in the journey to achieve net zero by 2050.
The UK has a lot to be proud of – cutting emissions at the fastest rate of any G7 country, first major economy to pass laws for net zero carbon emissions by 2050, boldly setting a target to end the sale of new petrol and diesel cars by 2030, ten years earlier than planned.
As highlighted in the recent interim HM Treasury Net Zero Review, decarbonisation should be seen as an economic opportunity rather than a cost burden – the UK is in a unique position to demonstrate how a strong policy and regulatory framework will unlock £40 billion of private investment by 2030 as well as 250,000 jobs
UK utilities have played a pivotal role in the UK’s decarbonisation to date. There is a great opportunity to therefore showcase actions and a strong track record of delivery to accelerate the green revolution further and faster:
- Power sector has led the decarbonisation efforts in the UK – Since 2010 UK Power Networks has connected about 4GW of solar PV and wind capacity
- UKPN has been determined to develop the most advanced electricity networks in the world to enable us to charge our vehicles, power our homes and businesses at the lowest cost.
- UKPN has been independently ranked as the #1 electricity network company in the world for its smart grid capabilities. Two of the remaining five UK distribution networks also feature in the top 10 of companies.
COP26 presents a major opportunity for the UK to demonstrate how high penetrations of low carbon electricity can be accommodated without significant cost and disruption to consumers by using smart and flexible systems – the UK can show other nations how to integrate of renewables with batteries, demand side response and energy efficiency
- DNOs have collectively procured 1.2GW of flexibility services – UKPN have developed one of the world’s first markets at the residential street level and recently unveiled a £50m package of flexibility tenders covering 130+ sites
The experience of Covid-19 has taught us that utilities can be relied upon to act with speed and urgency. Climate change is an even greater threat and the challenge is how we apply a similar “emergency mindset” to tackling the issues to achieve net zero
What does the UK need to achieve in the next nine months to present itself as a world leader in tackling climate change? What role can utilities play in that?
The recent announcements such as the PM’s 10-point plan and Energy White Paper set out a clear direction with targets. The focus in the next months should be on agreeing an action plan to deliver on these commitments; this can build on the great work that the CCC has done and its recent recommendations too.
We need to look at:
What this means for EVs – where UKPN is forecasting up to 4.5m EVs in the next 10 years (from 132,000 today):
- Tackling range anxiety through the provision of public charging infrastructure to boost consumer confidence – both for trunk road services and local charging in towns and cities.
- Ensuring accessibility and fairness in charging provision for those that do not have a driveway who currently pay 97 per cent more to charge their vehicles.
- Unlocking potential for V2G services to enable consumers to lower their energy bills whilst maximising participation in the energy transition.
What this means for heat – where UKPN is forecasting 719,000 heat pumps by 2030 (we have 27,000 today):
- Off gas – we have 1.56 million customers off the gas grid, most of these will likely be switched to heat pumps. Accelerating the planning for transitioning these homes, including energy efficiency, consumer engagement and network investment – all combined to provide a comprehensive strategy
- Taking a whole systems perspective – our networks cover high heat density areas like London where district heating can provide the most cost efficient low carbon solution.
What this means for power generation – current forecasts all point to a continued growth of distributed generation:
- Forecasting up to 400,000 homes will have solar panels on our network by 2030 and battery capacity will be up to 4.8GW
- By generating closer to homes and businesses we can reduce the need for upstream transmission investment and we can reduce energy losses
- Through our flexible connections service we will use a smart grids approach to enable new low carbon tech to connect cheaply and quickly
- Distribution networks will be submitting business plans for the 2023-28 period in July 2021 and these will contain fundamental enablers to the UK’s net zero target – will provide evidence of how UK utilities are investing and adapting their services to enable the transition at least cost.
Where do you see further opportunities for pan-utilities co-operation on the path to decarbonisation?
Promoting Open Energy similar to Open Banking – making energy data open, accessible and reliable to fuel wider innovation and new service propositions for the benefit of consumers. This requires collaboration to open up data via standardised and secure services. Smarter networks powered by greater digitalisation and open data will be key to deliver net zero at lowest cost.
Developing new services for consumers to lower their bills by consuming when it’s cheaper and greener to do so. This requires acceleration of smart grid technologies in networks, retailers and the wider supply chain. It also requires adoption of smart metering and smart charging propositions that offer real choice to consumers. UKPN has been pioneering a number of real-world innovations with disruptors to explore just this with startling results.
Project Shift (an innovation project) is a great example of this collaboration in action:
- In partnership with Octopus Energy we’ve supported the co-design of a real tariff called Octopus Go Faster that uses financial incentives to stagger EV charging times across the night to prevent peaks in demand.
- This is one of 3 approaches we are trialling with market participants to incentivise smart charging with over 1,000 domestic consumer saving over 26.2 tonnes of CO2.
Through adapting their services and taking a flexibility first approach distribution networks can maximise participation into local flexibility markets. Retailers can then focus on developing compelling offerings to consumers that meet the networks’ requirements.
Through joined up planning utilities operating over the same footprint can coordinate investment decisions together, which saves cost as well as reducing the disruption of streetworks. We have been working with the Greater London Authority to do this in areas where digging up the streets is very disruptive.
What is your principle ask of government and/or regulators to unlock the sector’s potential to accelerate the green transition?
To drive more efficiency in energy networks to reduce the cost of net zero – this will mean supporting investment into greater visibility of the local networks, backed with strong incentives to maximise the utilisation of the existing networks and thereby reduce the cost of transition.
Whilst the regulatory framework should be adapted so that it incentivises, and rewards regulated companies for enabling decarbonisation at lowest cost, it is important that it continues to focus on output based regulation, which has proven to work well for customers and utility investors. This would place the UK regulatory framework as global best practice followed by a number of western economies.
The UK’s grid electricity now has lower emissions than the gas grid and at the same time renewables have a very low marginal cost. This means there is a strong driver for fuel switching from gas to electric – yet tariffs do not reflect this and consumers today pay much more to heat using electricity – this needs to be addressed by regulations factoring in the true cost of externalities.
Clear direction on how market failures (e.g. those caused by externalities not being monetised) can be addressed and the role of network companies in supporting this – this should include understanding the role of local authorities in justifying infrastructure investment that supports local needs.
EVs – taking a comprehensive approach to ensure we get charging provision jump started given that the uncertainty of demand and upfront capital costs of connection are hampering sufficient provision today
Heat – agreeing a framework to encourage greater energy efficiency ahead of electrification and providing stimulus to support communities to make the change.
Smart charging standards – interoperability and minimum standards should mean that smart charging of new low carbon technology is the default option.
How can utilities help to encourage all consumers to be more active participants in the net-zero journey?
Above all customers should be at the centre of the solution. To make the net zero revolution lower cost and to achieve it faster requires smart grid technologies, combined with innovative propositions that make it easy for customers to consume when it is cheaper and greener to do so.
Our customer research and engagement has told us that following three principles can increase participation in the decarbonisation agenda
- Provide a clear motivation: Multiple surveys we have run with over 1000 responses have shown the primary driver for smart charging is saving money. Despite this, a significant number of people on the trials had a flat rate tariff.
- Provide consumers with choice: We are trialling different price signals that can be shared with market participants which promote the development of innovative and customer centric propositions that appeal to a variety of customers.
- Build trust: 90 per cent customers surveyed said the ability to override smart charging schedules is important – this feature will be key in building trust to support adoption of smart charging. Giving customers this control will build trust and by understanding how often this is used we can account for this in our planning while putting customers in control.