Review of Future Energy Scenarios and the BEIS/Ofgem Upgrade Plan

written by Dr. Jacqueline Edge, Imperial College London

Last month saw the launch of two key documents influencing the future of energy storage in the UK:

  1. National Grid launched its Future Energy Scenarios on Thursday 13th July, aimed at shining a light on the uncertain pathway to 2050 for UK energy. The document sets out a number of credible pathways, based on the energy trilemma (security of supply, sustainability and affordability) and analyses the impact of each on UK energy infrastructures.
  2. The Department of Business, Energy and Industrial Strategy (BEIS) and Ofgem launched their plan for Upgrading our Energy System on Monday 24th July, a document which sets out the plan for integrating both smart technology and flexibility into the UK’s electricity grid.

 

National Grid’s Future Energy Scenarios

How things are (2016):
Future Energy Scenarios presents a number of summary figures for the current UK energy system:

  • The generating capacity from renewables was 34 GW, a 34 % share of the total installed capacity.
  • The installed capacity from distributed generation in 2016 was 26 GW (27 % of total installed capacity).
  • Electricity storage capacity totalled 4 GW in 2016.
  • Electricity peak demand was around 60 GW in 2016.

 

How things are expected to change:

  • Electricity demand will both increase and change in shape, potentially reaching peaks as high as 85 GW in 2050, driven initially by electric vehicles and later on by heat demand.
  • Electricity storage capacity could reach 6 GW by 2020.
  • High levels of distributed and renewable generation are expected, leading to greater complexity and operational costs.

 

The four energy scenarios for 2050 are:

Two Degrees: meets the 2050 carbon reduction target; Renewable capacity could increase to as much as 110 GW or (60 %) in 2050. Use of gas boilers declines considerably by 2050 and is overtaken by heat pumps, supported by improved heat retention of homes through insulation and other means. This scenario requires policy support, in the form of higher taxes on carbon emitting technologies, as well as clear policy and incentives for reducing demand and increasing the penetration of renewables.
Slow Progression: Slow economic growth and rising gas prices could require a longer term environmental strategy which may not meet the COP21 targets. Government support and incentives are required to keep the focus on decarbonisation, but the uptake of distributed generation and low carbon technologies will be at a reduced pace, due to limited funding.
Consumer Power: In a wealthy world driven by market forces, distributed generation could increase to a total of 93 GW (50 per cent of total installed capacity).
Steady State: Security of supply, affordability of energy and short-term thinking dominate this scenario, leading to the least affluent and least green outcome. This scenario is an extension of today’s situation, with limited incentives for long-term solutions.

Two Degrees shows the highest level of economic growth, offering affordable solutions to a world more conscious of the need for achieving the COP21 targets. Consumer Power shows the highest uptake of energy storage, but the predicted 10.7 GW by 2050 is down from their predictions published last year ( 18.3 GW of storage by 2040 was predicted under this scenario), owing to improved modelling techniques and a focus on installations which are likely to attain a viable economic return.

New technologies, such as microgrids, smart solutions and energy storage, are rapidly transforming the energy sector, providing flexibility and coordination while both increasing and diversifying the participants. New business models are emerging, requiring rapid market and regulatory adaptation to support them and deliver value for consumers.

Four main drivers have been identified for the predicted changes:

1. Electric Vehicles (EVs)

The UK government’s decarbonisation and air quality commitments to ban the sale of new petrol and diesel cars and vans beyond 2040 will boost the electric vehicle market, with numbers of EVs projected to reach one million in the early 2020s and may go up to nine million in 2030. If no schemes are implemented to encourage owners to charge during off-peak hours, then peak electricity demand could rise by 8 GW. The Government has announced the Faraday Challenge, to build a strong UK research, innovation and manufacturing base for automotive batteries. See commentary by Dr. Kathryn Toghill of Lancaster University on why this may not solve the UK energy storage problem.

2. Heating

Changes to heating could be incremental or dramatic. To meet the 2050 carbon reductions, decarbonisation of heat must begin in earnest now, however no one technology solution presents itself. If heat pumps dominate, this will further raise electricity demand peaks. It is expected that gas will play a transitional role, potentially with the incorporation of hydrogen as a way to reduce the carbon content of the gas mix.

3. Cooling

If temperatures continue to rise as predicted, the peak demand from air conditioning in summer could match those for heating in winter by 2050.

4. Gas

Gas currently supplies more than twice as much energy annually as electricity does and is a flexible, reliable and cost-effective energy source which is expected to continue to play a role in UK energy systems. However, traditional sources of gas are declining and the ageing gas infrastructure is in need of maintenance and upgrading to introduce new technologies.

BEIS/OFgem plan for upgrading the energy system

The Government and Ofgem received over 250 responses to their Call for Evidence on a smart, flexible energy system, published in November 2016. This plan is the result of reviewing these responses and actions to be taken fall under three main areas. Some of the actions listed are given below:
1. Removing Policy and Regulatory Barriers

  • The Electricity Act 1989 will be amended to explicitly define storage as a sub-set of generation, based on the definition proposed by the Electricity Storage Network.
  • The “double charging” of network costs will be addressed through Ofgem’s proposed Targeted Charging Review, but with the proviso that storage should not be charged residual charges at transmission and distribution level.
  • A new licence for storage will be introduced by Summer 2018, after an Ofgem consultation on the structure of a modified generation licence.
  • The Government will look into simplifying the planning regime for storage facilities, particularly for larger scale projects.
  • Storage will be exempt from Final Consumption levies.
  • BEIS and Ofgem are clarifying the rules for co-location of storage, to de-risk investments for these facilities.

2. Enabling EVs, Smart Homes and Businesses

  • Ofgem has been working with industry to enable half-hourly settlement, to facilitate smart tariffs. This will initially be elective, but a timetable for mandatory half-hourly settlement will be published soon.
  • Standards for smart appliances and EV chargepoints will be developed.
  • The Government has commissioned work to assess the scale of cyber security risks from smart technology.
  • The Government will work with both the energy and automotive sectors to assess the regulatory, network and tariff implications of increased use of electric vehicles and to support trials of vehicle-to-grid charging.

3. Ensuring effective markets for flexibility

  • Price flexibility (occurring when any party varies its demand or generation in response to the price of energy) will be enabled by ensuring that network tariffs appropriately signal the costs or benefits of using the network at different times and locations. Industry-led modifications and Ofgem’s Targeted Charging Review will progress this.
  • Contracted flexibility (where parties trade and directly contract with one another to procure flexibility) will be facilitated by simplification of requirements and services for those offering flexible solutions and allowing revenue stacking between the Capacity Market and ancillary services. Ofgem is setting out its views to guide industry thinking on code modifications to support independent aggregators’ participation. The System Operator has recently released its Future of Balancing Services to set out how balancing services need to evolve.

Sources and further information: