Roads to Net Zero: A view on NGESO’s latest Future Energy Scenarios
Yesterday, National Grid ESO (NGESO) released its Future Energy Scenarios 2022. A report published annually which outlines NGESO’s views on how the energy system may develop. This year it presented four different pathways for the decarbonisation of the UK electricity system to reach net zero by 2050 (Fig. 1).
Figure 1. Future Energy Scenarios illustrating the level of societal change and speed of decarbonisation.
This year has highlighted the importance of energy security and reducing exposure to fossil fuel.
However, in the grips of a cost-of-living crisis, now more than we cannot lose sight of the importance of the role consumer must play in the energy transition. The FES focuses on the following themes, the changing generation mix, the decarbonisation of heat and transport, the challenges of managing this new generation and consumption mix, and the role consumer demand side flexibility will play in achieving all of this.
The proliferation of renewable generation
The UK generation mix is changing. Wind and solar generation currently make up 43% of GB energy supply and this rises to at least 66% across the scenarios by 2030. This is driven by the decline in the levelized costs of wind and solar which are now much lower than unabated marginal cost of natural gas generation. This trend is set to continue (Fig. 2). Only one scenario, leading the way, reaches the UK Governments offshore wind target of 50 GW by 2030.
Figure 2. Installed capacity in 2021, 2030 and 2050 for each scenario. Small amounts of natural gas may be needed to some extent in all net zero scenarios for industrial sub-sectors that are particularly difficult or costly to decarbonise due to their reliance on high grade heat. Emissions from this will need to be abated or offset via negative emissions through predominately BECCS but also nature-based solutions like afforestation, reforestation and peak restoration all feature heavily too. Most of the generation will still be transmission connected and this is a result of both transmission connected onshore and offshore wind.
The electrification of heat and transport is critical for decarbonisation
Currently, road transport and residential heating accounts for 23% and 15% of the UK’s greenhouse gas emissions, respectively. Electrification is key to decarbonising transport and heat, all except Falling Short scenario, forecast that large proportion of all road transport will be electrified. This supports Government policy which brought forward the ban on petrol and diesel car and van sales to 2030, and a 2035 ban of plug-in hybrid cars and vans.
In Consumer Transformation and Leading the Way scenarios over 20 million households could have heat pumps (double that of System Transformation and Falling Short). This highlights the importance of and the challenge faced by the Government’s pledge to install 600,000 heat pumps per year by 2028 in homes across England – especially when compared to the approximately 30,000 installed annually.
Even in System Transformation, electrification is often more cost-effective than hydrogen for decarbonising heating in the commercial sector. For this reason, hydrogen demand has been revised down year on year in the latest FES (Fig. 3).
Figure 3. Annual Hydrogen demand by sector by 2050 in the three latest published FES (2020, 2021, 2022) in Consumer Transformation and System Transformation pathways.
So, how do we manage a changing generation mix and increasing electricity demand?
Electricity demand is projected to more than double by 2050 (Fig. 4). In scenarios where residential heat pump numbers are the highest, electricity demand does not increase significantly more than in System Transformation. This is owing to the assumption that thermal storage would be installed alongside heat pumps to release energy at peak times reducing peak demand from heating by up to 30%. Additionally, home appliances could become highly efficient in all net zero scenarios, reducing demand (compared to today’s levels) by up to 40% by 2050.
Improving energy efficiency is a no-regrets policy that can provide immediate benefits in terms of both affordability and energy security while also facilitating more enduring decarbonisation. Heat pumps are three times as efficient as gas boilers and EV's are more efficient than petrol and diesel vehicles. Policy support needs to address the current barriers to uptake of low carbon technologies. Reference is made to the need for reduction in the costs of heat pumps and their installation, however they neglect to mention the ongoing operating costs for running a heat pump compared to a gas boiler. If the cost of social and environmental policies were removed from electricity bills and recovered in another ways (e/g through general taxation), the marginal cost of operating a heat pump will be lower than a gas boiler.
Figure 4. Annual total electricity demand (TWh) has been revised upwards over the three latest FES of 2020, 2021, 2022.
Annual transmission constraint costs have increased from £170m in 2010 to £1.3bn in 2022 and they could hit £2.5 billion per year over the next decade, as the. Therefore, operating a future energy system with high levels of renewables and no unabated natural gas generation will require significantly more flexible capacity than what we have today.
Today, flexibility is predominately provided by gas generation. However, by 2050 the system could require 160 GW of additional flexible capacity. Over 30% of this flexibility is expected to be from end consumers who engage in smart charging, V2G and smart heating technologies (Fig. 5).
Figure 5. Total installed electricity system flexibility (GW) by 2050. Note this is a 10 GW increase in the installed capacity of flexibility outlined in FES 2021.
Consumer demand side flexibility is pivotal to decarbonisation
Significant levels of demand side flexibility are required to operate the electricity system without unabated natural gas after 2035. In Leading the Way, demand side flexibility reduces unmanaged peak demand by over 40% by 2035. To engage consumers, energy retailers must be able to provide customers with incentives or price signals that will reward them for their flexibility. The energy market of the future must harness the vast potential of consumer flexibility to be able to integrate renewables and ensure security of supply at the lowest cost possible. Market changes must facilitate flexible tariffs, support not stifle innovation and reduce barriers to participation for new market entrants from the residential and small commercial segments.
Since most consumers won’t manually adjust their demand in line with prices, smart digital automated solutions must do this for them. In Consumer Transformation, electric vehicle charging could be responsible for shifting 25 GW of demand through smart charging and V2G (Fig. 6). It is important to recognise that to achieve these levels of V2G, the market will require more V2G enabled cars and chargers.
Figure 6. Unmanaged EV charging demand compared to smart charging and V2G. The greatest benefit arises from V2G charging however, smart charging still offers up to 40% of a reduction in demand.
This year, the FES included the projected uptake of domestic batteries for the first time (Fig. 8) as well as, a revised forecast for the uptake of residential PV systems.
Since the closing of the FiT scheme, domestic PV installations have stalled. In Consumer Transformation, there is nearly a 5-fold increase in domestic solar PV capacity by 2035 and this is likely driving the uptake of battery storage in homes, too. The uptake for residential PV has been revised upwards in all scenarios compared to FES 2021 (Fig. 7).
The business case for domestic storage differs significantly from grid scale storage solutions whereby most the revenues are currently derived from ancillary services and a portion of wholesale trading and balancing actions. For end consumers, domestic batteries are more likely to be used to maximise in home PV consumption. Nevertheless, there is still little evidence to suggest that this model stacks up. At a commercial scale, this year’s FES have revised upwards electrical energy storage in both power (from 62 to 71 GWs) and energy (from 305 to 335 GWh). The increase in energy, reflects the changing nature of battery deployments moving from 1 to 2-hour systems.
Figure 7. Installed residential PV capacity between 2020 and 2050 in both system transformation and consumer transformation for FES 2021 and FES 2022.
Figure 8. Residential Battery Energy Storage uptake for the three scenarios that reach net zero by 2050.
COP26 exposed how important it is for the world to reach net zero by 2050 if global temperatures are to remain below 1.5 degrees. The FES have demonstrated the need for substantial change to our GB energy system in the coming years and it is abundantly clear that all sectors and users have a role to play. Whilst the long-term strategic priorities of ensuring high levels of low carbon generation have been addressed as part of the Energy Security Strategy, a demand site strategy is also required. This should ensure that more flexibility is incentivised to 1) avoid significant volumes of renewable generation being curtailed and 2) ensure capacity adequacy – something prevalent in today’s climate.