Blog: Building a future energy system for Britain

The UK’s journey towards a decarbonised energy system is a complex undertaking that will impact every industry. Academics, commercial and industrial sectors, policymakers and energy leaders must all collaborate to overcome the challenges ahead.

The transition to a decarbonised energy system with minimal reliance on natural gas for heat is one of the most complex yet critical challenges of our time. In an episode of our Decarb Discussions podcast, we spoke to Professor Russell Thomas about the UK’s intricate network built over decades of harnessing natural gas for heat and power generation. Changing our legacy energy system to maximise renewables and minimise fossil fuels and successfully meet net zero demands careful and strategic solutions.

While this blog post alone can't chart the course for Britain's energy future, we can explore some of the key aspects of a future energy system through the insights of Xoserve's decarbonisation experts. This second instalment in our series will delve into:

1. The critical components and infrastructure of an energy system.
2. The major hurdles to overcome in achieving a decarbonised system.
3. Why it’s imperative for a collaborative, cross-industry approach.

Creating an energy system that meets future demand, adapts to emerging technologies, drives economic growth, and ensures everyone has access to affordable fuel while reaching the UK’s emission targets requires a resilient and flexible strategy.

The previous article, in the series, talked about the current role of gas in Britain’s energy system and what would happen if the gas supply was immediately withdrawn. If you’ve not read it yet, here is a brief summary:

• The UK's reliance on natural gas must be reduced to achieve net zero emissions, but it will remain important in the energy system for some time.
• Gas plays a key role in electricity generation, system stability, energy security, and domestic and industrial heat.
• Renewable energy sources like wind and solar power face challenges in terms of grid connection delays and intermittency.
• Battery energy storage is crucial for system stability, but current capacity is insufficient.
• Heat pumps are a potential solution for domestic heating but face obstacles such as high installation costs and the need for well-insulated homes.
• Decarbonising industrial heat is challenging, especially for high-grade heat processes where electrification technology is lacking.
• A whole-system approach to decarbonisation, with collaboration across industries, is recommended by the ESO.

Go back to the first instalment, if you would like more information.

The critical components and infrastructure of an energy system

How Britain’s energy market is structured

As previously noted, Britain’s current energy system is a complex network of gas and electricity companies, operating in parts independently and in conjunction. At its core, the energy market's structure can be broadly categorised into:

• Generation: Where energy is produced, including renewables and fossil fuels.
• Transmission and distribution: The infrastructure for delivering energy from generation sites to end users.
• Storage: Facilities to store energy and used to meet seasonal demand.
• Retail: Where energy suppliers purchase electricity and gas from the wholesale market and sell it to businesses and domestic consumers.

Within this supply chain, various key players operate:

• Upstream oil and gas producers: Companies involved in the exploration, extraction, and production of fossil fuels.
• Electricity generators: They generate electricity from various sources, such as gas or coal-powered plants and renewable energy farms.
• System operators: Where organisations like Xoserve sit to ensure the industry remains fair and competitive for all customers.
• Transporters: Entities managing the transportation of energy through the network of pipes.
• Suppliers: Businesses selling energy directly to end users.

Some companies occupy a single role within the energy landscape, while others function across multiple categories, such as producers who also act as suppliers. Understanding this intricate ecosystem is fundamental for navigating the complexities of Britain’s energy transition

You can get an in-depth understanding of how Britain’s gas network operates from the dedicated Our role and customers webpage.

Our role and customers

Evolving beyond the current energy ecosystem

The energy infrastructure in the UK, developed over the past 70 years, is nearing its operational limits in its current state. While it has successfully adapted to meet rising demand in the past, the system now faces challenges integrating the backlog of renewable energy projects waiting to come onto the grid. This bottleneck not only delays progress towards net zero emissions but will linger the nation's reliance on fossil fuels.

Achieving net zero means a significant reduction in natural gas consumption, particularly for heat. However, this transition will be gradual, with natural gas retaining a crucial role in the energy mix for the foreseeable future to meet demand. Consequently, the energy sector's key player’s roles will likely evolve gradually in line with the shift in consumer demand from natural gas towards an alternative low-carbon fuel.

The core functions of the energy market – generation, transmission and distribution, storage and retail – will remain crucial in any future energy scenario. This will remain true whether a new energy system is created from the ground up or the current ecosystem is evolved. The UK possesses a well-established energy network. Therefore, industry leaders and policymakers must decide how to leverage existing infrastructure and accumulated industry knowledge to navigate the transition to a sustainable, decarbonised energy future.

Hurdles to overcome for achieving a decarbonised energy system

1. Ensuring sufficient energy supply

Ensuring there is ample fuel to meet demand is rooted in several key areas. Firstly, the energy transition will require substantial investment in infrastructure to accommodate emerging low-carbon energy projects. In the most recent Future Energy Scenarios (FES), a mix of low-carbon gas and electricity from renewable sources will play a vital role in all successful scenarios. Yet without sufficient incentives for production, alongside funding for distribution, and storage, creating a reliable energy supply while phasing out fossil fuels becomes increasingly challenging.

2. Managing a fair transition

Under The Warm Homes Plan, the new Government aims to encourage home improvements such as solar panels, batteries and low-carbon heating to cut bills. As more incentives emerge to encourage households and businesses to adopt renewable energy sources for heating and operations, there will likely be a shift in balance between fossil fuels and renewables in the coming years. As this transition progresses, those who remain on natural gas the longest may face a disproportionate share of the costs associated with maintaining the gas network.

To ensure a just energy transition, policymakers and industry leaders must consider strategies to effectively and fairly transition consumers away from natural gas and other fossil fuels. This must be achieved without imposing financial burdens on those who are unable to switch or lack the flexibility to choose their transition timeline.

3. Adapting billing for a multi-gas future

The FES anticipates a diversified energy mix to facilitate the transition to net zero, including multiple low-carbon gases. We agree that this approach is necessary to meet demand and ensure energy storage to address seasonal fluctuations. However, the introduction of various low-carbon gases such as hydrogen, blended hydrogen, natural gas, and biomethane over the next 25 years presents a challenge for the current billing methodology, not designed to accommodate such variation.

To ensure a fair and equitable energy transition, billing mechanisms for gas must evolve. If unchanged, the varying calorific values of different gases will impact customer billing under the current system. For example, a household primarily using hydrogen for heating and cooking would pay disproportionately more for the same energy output compared to a household using 100% biomethane.

Xoserve is supporting SGN in the Real Time Settlement Methodology project. This initiative explores how to establish a fair, convenient, and equitable settlement methodology within a multi-energy system. By adapting billing processes to account for a multi-gas energy mix, we can facilitate a fair transition for consumers.

4. Evolving regulatory frameworks

As the energy system transitions towards a decarbonised future, maintaining a robust regulatory framework will be crucial. Just as in the current system, regulations and codes will be necessary to safeguard consumer interests, ensure fair market practices, and promote the efficient operation of the evolving energy landscape.

The existing industry codes and administrators that underpin the electricity and gas wholesale and retail markets will remain integral to any new energy system. However, these codes must be adapted to accommodate the introduction of new energy sources and technologies.

Furthermore, as the future energy system continues to evolve, particularly in its early stages, these codes will require flexibility to respond to changes. The digitalisation of codes could present an opportunity for modernising current practices and empowering future administrators to implement necessary modifications more efficiently, thereby fostering the growth of renewable energy markets.

The importance of a collaborative, cross-industry approach

The energy transition is a topic of widespread discussion within the energy sector. While it is true that the energy industry will experience the most direct impact from decisions made about the future of energy, other industries will also feel the effects and have an impact on those driving net zero decisions. This interdependence emphasises the need for a collaborative, cross-industry approach.

Some of the other industries impacting the future of energy include:

1. Academics and universities

Academics and universities will have a crucial role in researching and developing new energy technologies. Universities will educate and train the next generation of engineers, scientists, and policymakers who will lead the energy transition. Furthermore, academic institutions and think tanks provide valuable insights and evidence-based policy recommendations based on their in-depth analysis of market trends and emerging technologies that will contribute to policy decisions.

2. End consumers and their communities

All three successful FES highlight the critical role of consumer engagement in achieving net zero. Whether through adopting electric vehicles, hydrogen boilers, or heat pumps, consumer choices will significantly influence the pace and direction of change.

While end-users may not directly shape high-level energy policy, effective communication and engagement will be vital for facilitating the widespread adoption of new technologies. Collaborating with communities and their representatives will be instrumental in disseminating information and generating support. Community groups and non-profit organisations will also be crucial in assisting vulnerable households and those at risk of falling into fuel crisis. A cross-industry approach will provide essential information and guidance to these organisations contributing to a just transition.

3. Commercial and industrial sectors

The construction sector will lead the development of energy-efficient buildings and retrofitting the existing housing stock to meet new standards. The manufacturing industry will be essential in producing materials and components to build the infrastructure for future energy generation, storage, and distribution. Both sectors will also need to actively pursue their decarbonisation journeys to align with national net zero targets. Furthermore, commercial and industrial sectors may be crucial investors and partners in building and scaling the future energy system.

4. Policymakers and Government departments

Policymakers and government departments, such as the Department for Energy Security and Net Zero (DESNZ), are critical actors outside the energy industry driving the transition. The decisions they make have a profound impact on the way our industry functions. Therefore, fostering open and transparent dialogue about the complexities of Britain's energy system and collaborating effectively will be mutually beneficial for all stakeholders.

Forging a collaborative path towards Britain’s energy future

The journey towards a decarbonised future energy system requires input from a diverse range of stakeholders. No single sector possesses all the solutions. Although a collaborative approach is needed from within the energy sector to overcome the obstacles, it needs to extend beyond our industry. As we've explored, academics, commercial and industrial sectors, as well as Government bodies, each play a role in influencing decisions.

Therefore, a cross-industry approach, leveraging the unique strengths of each sector, is essential for building a sustainable, secure, and affordable energy future for all.

In our next blog, we will look at what would happen if we end fossil fuels imminently and what a phase-down-and-out timeline realistically looks like.

Get in touch

To learn more about how Xoserve supports the decarbonisation of gas, take a look at our decarbonisation knowledge centre.

If you have any feedback, questions or suggestions for our Decarbonisation Team, please email us.

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