Oral evidence: 2020 Heat and Transport Renewable Targets, HC 173
Oral evidence, 28 June 2016.
Witnesses
Stewart Reid, Head of Asset Management and Innovation, SSE, and David Manning, Director of Stakeholder Relations, SGN, gave evidence.
Chair
Thank you, panel, for attending our session this morning on the 2020 renewable heat and transport targets. Please, as ever, can you first state your names and organisations for the record?
Stewart Reid
Yes. I am Stewart Reid. I am the Head of Asset Management and Innovation for Scottish and Southern Energy Power Distribution.
David Manning
My name is David Manning. I am Director of Stakeholder Relations for SGN. We are a gas distribution network, the second largest in the UK and we operate the network in Scotland and in the south of England.
Chair
Thank you very much both of you. This is a question you might have heard before. The UK’s 2020 renewables target is 15% with a sub-target of 10% for transport. The Government aims to reach 30% in electricity and 12% in heat. Do you think these targets will be met?
Stewart Reid
From an electricity network’s perspective, our position is we need to be ready for it being met and ready for it not being met. There is a lot of uncertainty in the world. There always has been, and it is our job to be ready for these different scenarios. You will hear later on about some of the things we are doing to be ready for that position.
David Manning
I would say that we have the capability and the competency to achieve the targets. What we are lacking at the moment are robust market signals and incentives that are going to ensure that they can be achieved and, as we look at the timeline to 2020, time is getting very tight at this stage.
Chair
You have mentioned uncertainty, which of course leads us seamlessly to the decision to leave the European Union and the implications for the United Kingdom in improving their energy policy. Is there any message that you would like to send the Government around this period of uncertainty, given the targets and interlinking we have had with the European Union on many of these developments in this area over the years?
Stewart Reid
On the electrical vehicle front, from our perspective there has always been uncertainty in terms of electric vehicles in terms of uptake and acceptance. From that perspective it doesn’t change much and behind the scenes we have a robust business model to allow for that uncertainty. We are relatively comfortable that we can survive that uncertainty for a period of time. The thing that we need to be sure of is that we make sure that things move on and become stable sooner rather than later so that we can have the dialogue with all the appropriate organisations and particularly the suppliers and vendors that will be suffering uncertainty themselves in these times.
David Manning
I think we are fortunate here in the UK in the energy sector in that we have a very robust Act that gives us a very clear target that we want to achieve by 2050. Certainly our 2020 targets are more related to EU-based interim targets, but what we do today lays the foundation for us to be able to achieve 2050, so I don’t think we can afford to take our foot off the gas based on what might or might not have happened last week.
Antoinette Sandbach
In terms of heat electrification, heat pumps seem to be the primary focus of the Government’s strategy. Is this a fair assessment and what contribution will the Government’s heat electrification strategy make to 2020 renewable targets?
Stewart Reid
Heat electrification is a key part of it. Our role is to be ready for the different scenarios and understand how they are going to impact. One of the things we are looking for is there is not necessarily a focus on just one solution, whether it be in the transport or fuel sector, but that there is a fit-for-purpose blend of solutions that can be applied across the country to help us to meet the targets.
David Manning
When we look at energy demand, at peak energy demand in a given day, 80% of heat load is met by gas and in that environment we need to be thinking very clearly about how we can utilise this very valuable asset we have in the ground—the gas distribution network—to continue to meet that. There are parts that are not connected to that gas network, because they are very remote for example, and that is really where electrification will come into its own and the value of heat pumps really starts to kick in. Electrification is also going to be quite important in very densely populated areas where maybe it is not suitable to put gas, say into high-rise buildings.
Antoinette Sandbach
David, SGN’s evidence and in fact your evidence just now, has been that the most appropriate way to decarbonise the heat network may be through electrification—particularly in rural areas, because they are all off-grid—but I do not know if you heard the evidence from the previous panel around AD plants. Do you think that there may be a role for more localised AD in those rural areas?
David Manning
What I would refer you to on is a look at the Scottish Independent Undertakings, which are off-gas-grid areas that operate independently of the main network. If you have areas where you have anaerobic digestion being produced and you have the scale and the capacity—the number of customers basically—where you can build a network cost effectively and feed anaerobic digestion, producing biomethane, into that, then that seems reasonably logical. It would once again have to come back to the economics of it. What you want to try to deliver is the most cost-effective solution for the customers. One of the things that we will always try—and I know Stewart will as well from his side—is to always concentrate on what is in the best interest of the consumer. So you want to deliver something that is going to decarbonise but is going to decarbonise in the most cost-effective way for that person. So we just want to be fairly certain of the options. If you look at what we are doing at the moment we have had this very successful growth of anaerobic digestion, a fledgling industry, but we have gone from no plants in 2012 to 65 producing biomethane. We are starting to see that taper off a little bit now and the reason for that is because of RHI, and the degressions that we have changed. I would like to remain optimistic that we will continue to grow our industry, but in order to do that we need to be quite careful to make sure that the incentives are adequate and we can keep delivering that.
Antoinette Sandbach
For those off-grid areas, what about air-source combined with gas boilers because of storage constraints?
Stewart Reid
It does not address the gas boiler part of your question, but we have been running a project on Shetland called the NINES project for a number of years now and what we have there is 1.5 megawatts worth of domestic electric heating using storage heaters, but advanced storage heaters. That 1.5 megawatts matches itself with the local renewables and we have been able to increase the local renewables on that island by over 10 megawatts by matching the electrical heating to the renewables, and that gives a community benefit with community-owned renewables. It is a really great synergy, if you like, in that it drives down the cost of running that location and reduces the carbon content. The key thing there is if you are going to be using heat and electricity then it needs to be controlled, so you need to have your demand-side management or response in there as well. That is the secret ingredient. One of the issues with heat pumps is they are not quite as flexible, unless you design them with that in mind from day one, so you integrate thermal mass with them, so you have that control. If you have that control it becomes part of the solution rather than part of the problem, and that is what we have been doing on Shetland and in other places.
Antoinette Sandbach
In terms of the impact of heat and transport electrification on the grid, SPEN has told us that electricity demand in the UK will be flat until about 2023 from when it will rise by 1% to 2% annually due to electrification. Does it follow that the increasing electrification of heat and transport is unlikely to have impacts on the grid up until 2020?
Stewart Reid
There are a lot of variables in that. It links into the uncertainty we were talking about before. One of the things worth pointing out on the transport side of things is that it might not be Government policy that drives the uptake in electric vehicles. It could be, believe it or not, consumer choice. So this is what I was getting back to earlier on, about the uptake of electric vehicles; there are a lot of variables in there and our position is to be ready for that, even if it is just about consumer choice because electric cars become the better thing to have than a diesel or a petrol car. So there could be a disconnect between Government policy and what happens in reality. That could in theory apply to heat as well, depending what happens in the bigger environment.
David Manning
I think what you will find as well is that 20% of emissions in the transport sector is associated with heavy goods vehicles, even though they are only 3% of road usage. So when we talk about electrification you are talking a lot about the domestic electrification of cars, whereas the movement of goods requires a different solution. If we look at what the possible options are, compressed natural gas, which would substantially reduce the emissions in that sector, is starting to look like a real option. One of the questions the Committee has asked is this piece around holistic approach. You can envisage a world where you have a refuelling stop that is a combination of your electric charging, maybe a little bit of traditional petroleum-based products, but then also this CNG-type of product that the gas industry can then provide in that area. It is going to be a portfolio of solutions. You cannot just say it is one thing that is going to solve everything. It is going to take a little bit of everything.
James Heappey
How do the impacts of the heat and transport electrification programme break down between the transmission network and the distribution network?
Stewart Reid
I don’t have a breakdown per se of that available but we can have a look to see if we can provide some figures along that line. What I can tell you is the My Electric Avenue project is a project that we initiated in 2011, when we realised that electric vehicles were going to provide us with a challenge at the domestic-charging end of the equation. We went to Ofgem along with the ETL and a number of other organisations, including Nissan, and we proposed a project to roll out electric vehicles in clusters. One of the issues we have—this is why the question you asked is so difficult to answer—is the clustering effect, by which I mean if you drive through a town now you will see areas where there are lots of solar panels and you will see areas where there are no solar panels. They cluster, and it is sometimes behavioural, sometimes economic. There are different reasons as to why they cluster, and that clustering creates little points of stress on the electrical network. In the project we want to understand what things trigger these clusters and how we can predict where these clusters are going to appear so that we can respond in advance. You could get a scenario where a relatively low uptake of electric vehicles results in a lot of intense clusters, each of which requires investment.
James Heappey
It has been suggested to me by some people that are working in R&D on exactly this sort of thing that the answer is that you embrace the clusters; you embed storage not in the premises, not at network level, but at substation level, so that you can buy out those peaks in generation. Is there any serious thinking being given to this?
Stewart Reid
We are doing that now; what we have is a range of interventions you can take on. The first intervention is the one we have done with My Electric Avenue. All networks are designed for only a certain number of appliances being on them at any one time but there is a lot of time with spare capacity in the network. The problem with electric vehicles is that you plug them in and they are on for several hours, so the chances of them all being on in one street are high. What we have done with My Electric Avenue is develop a device that goes into a substation, monitors the total impact on the network, and shares the charging-out through the night in such a way that when customers come out in the morning all their vehicles are charged but at no time have they all been on and overloading the network. That is an intervention that requires electronics, a bit of comms and a bit of demand-side management. The next level of energy we are starting to talk about is integrating energy storage. We have street batteries in the Thames Valley area—we are trying at the moment to understand how they free up capacity—and the idea is that we are in a position where we have relatively low-cost interventions that we can put in place that free up additional capacity in our local distribution network. It is £2.2 billion if we don’t do that, if we were trying to respond to—
James Heappey
That dynamism is very encouraging and I agree it is the only way to make it really work, but to what degree can that dynamism be achieved if we don’t achieve a full or significant rollout of smart meters and therefore the digitisation of the system?
Stewart Reid
That particular solution, the sharing of charging, does not use smart metering, as it stands. Smart metering is designed more for large geographical groups of areas being managed, whereas this is a specific problem on a specific street, on a specific cable. It is a small number of customers so you just put a plan of intervention to that group of customers, and that leaves smart meters to do the overall balance.
James Heappey
So if you extrapolate that cellular vision of managing peaks in demand and peaks in generation that come from distributed generation and the electrification of systems, and take that cellular model forward, does it mean that smart meters are yesterday’s solution to yesterday’s problem, and this is the way to be going now?
Stewart Reid
I would say no to that. I think the clustering—I don’t have a percentage in terms of what percentage of the country will be covered with clusters—but it will not be everywhere, especially in the early days. The clusters are starting to accumulate and the rest of the network will not be benefiting from any balancing service. That local management of demand is to manage the low voltage, the local network, in your street. You also have a problem on the high voltage network, which is all of these small networks joined up. Smart meters can play a role in helping to balance that, and that is an important contribution, a different layer of control.
James Heappey
How much does it cost you to be able to install that device and substation that allows you to manage that?
Stewart Reid
We have a strategy in place now first to get a standard established for this technology that has been developed so that we can procure it, rather than being tied in with one vendor, and part of the Low Carbon Networks Fund ensures that the IP is available and all the rest of it. So our estimate would be below £1,000 to install a substation and £100 or so per home to put the intervention in.
James Heappey
Say that again. That is £1,000 per substation to do it or—
Stewart Reid
Where you have a cluster, the expectation is about £1,000 to do the substation work, and a few hundred pounds to do the work on the individual homes.
James Heappey
How do you envisage that cost being borne? Do you see that as a cost for the person installing the generation capacity, or do you see that as a cost that is divided among all households?
Stewart Reid
When it comes to normal, domestic electric vehicle charging points being connected, any impact on the network is socialised, so the individual purchasing that electric vehicle would not be carrying the cost of that. It would be socialised, and what we are trying to do is avoid the next worst scenario, if you like, which is digging up the street, overlaying cables and replacing transformers and the like, which as you can imagine is very disruptive.
James Heappey
This is exactly the great problem. Here is progress, it is what we must do, electrifying heat and transport makes sense as much as it decarbonises, but there is potentially quite a big cost in achieving the infrastructure to do it and how that is borne has to be a pretty serious consideration.
David Manning
Yes, and I think we need to be a little bit careful about it. A lot of the narrative over the past five years has been very driven around the electrification of X. The reality is that we have this very valuable infrastructure asset in the ground, which is the gas pipes, which has been invested in and renewed over the past 10 years, to the point that our network that we operate in Scotland and in the south of England is now more than 70% polyethylene. What that gives you is something that the customer has already paid for and that can flow any composition of gases through it. At the moment we put natural gas through that system, but that is not to say that over the next 20 to 30 years we can’t migrate that gas into a portfolio of different things, which includes biomethane, it can include bio-SNG, moving rapidly towards hydrogen as we get towards 2050 and the decarbonisation of that. The reason that is a sensible option is because if 80% of energy demand at peak times is currently met by gas—which is four times more than the capability of electricity—you would have to make a hugely substantive investment into electricity, both on the network side and on generation capacity, in order to bridge that gap. That is going to cost the customer an awful lot of money, whereas you already have an invested-in asset that you can utilise and diversify.
James Heappey
Thank you very much indeed. My final question: I have met with car companies who think that electric vehicles are brilliant, but despair of those of us who are in energy policy making and energy lobbying when we talk about electric vehicles as being the storage solution for the grid. They are not quite so sure that the cars they are building are meant to be batteries from which power is taken. To what degree is the vision you are building assuming that electric vehicles are going to play that role?
Stewart Reid
We are taking quite a pragmatic approach to this. The challenge here is that we suddenly have to face a very large number of electric vehicle clusters on our network and we have to spend a lot of money, so we are trying to find ways of minimising that and being ready for it. Vehicle to grid stuff, as far as we are concerned, comes after that. It is not going to make things worse, that is one thing we are pretty confident about, and there are a couple of DNO projects being started as we speak, looking at that sort of technology.
Dr Poulter
Coming on to a few questions about green gases, and biomethane injections into the gas grid, how effective do you think the policy is in encouraging that in working towards the 2020 renewable heat target?
David Manning
I will answer that in two ways. If we look at the potential, the capability, at the moment you have about 3.5 terawatt hours of biomethane being injected into the system. At the back end of last year DECC published its own report that indicated at least 6 terawatt hours; the capacity and the capability was there to deliver that. There is a very substantial opportunity for biomethane to make ever-increasing contributions to meet the 2020 target. If I revert back to what I started with, if you look at 2012, 2013, 2014, 2015, you had this quite substantial uptick in interest by investors to look at biomethane and invest in that capacity. Then we as a company, SGN, have been a very strong advocate and facilitator of getting that biomethane injected into the system. So by the end of this year there will be 65 biomethane production plants in the UK, of which 22 of them, one-third of them, will be injected into the SGN network. We were one of the first companies to support this on a commercial scale at Poundbury back in 2012. What we have seen, though—this year in particular as degressions have kicked in and we are now going into our third degression at the moment in coming back off the tariff—there is a very significant fall-off in interest. So we are at 3.5 at the moment, and we have the potential to get to six by 2020, making a very substantial contribution to the renewable heat target. The market signal is diminishing rapidly, and what we would want to see from the RHI consultation that is out there at the moment is a resetting of the tariffs back to January 2016 levels. The reason I am picking that out is that DECC themselves have said, “If we see a fall-off in interest in developing biomethane then we will raise the tariffs back up”, but the problem with that is that creates a huge amount of uncertainty. It is almost as though there is recognition built in—“We might have pushed this too far and we are probably going to have to go back to where we were”—so would it not make more sense to ensure that investor confidence is maintained, to deliver tariff levels at January 2016 levels and see that biomethane production being invested in and delivered?
Stewart Reid
One of the things I will say is we have done a project up in Aberdeen that was using an electrolyser to take excess renewables from the network in that area and produce hydrogen, with the specific purpose of injecting, so it is really important to understand there is a link between the two energy sectors, that vector. It does not come out of a lot of international studies. The seasonality of the weather in the UK is an absolutely critical part of this and the whole point being made about the mix between gas and electricity is absolutely key. If you live in a Mediterranean area, you have the same weather every single day, the sun is up, and you can charge your electric vehicle 365 days a year. The issue that we have in the UK is that does not unfortunately happen every day. So, as you mention, gas gives you that potential for storage as well, and it gives you that additional flexibility. One of the things we would be asking for is not to back one horse when it comes to transport and to think about that seasonality and how you can store that energy rather than require everyone to have it instantaneously. That is when you would strain the network and these assets that we have, the gas and electric network, one or other of them would not be getting fully utilised.
Dr Poulter
In terms of projects in the pipeline, looking at the 2020 target, do you feel strong support from Government for these gas projects and is it your understanding that there are a number of other projects in the pipeline at the moment?
David Manning
On the biomethane side?
Dr Poulter
Yes.
David Manning
I think that DECC absolutely has to be commended on the quality of the RHI and what it has succeeded in delivering in the short term, in the past few years, but certainly in the work that we are doing and from the developers that we are talking to there is an ever-creeping uncertainty into whether projects can go ahead at this stage, based on their financial viability and capability with the degressions that have been seen in RHI.
Dr Poulter
Okay, so you have concerns going forward about future projects?
David Manning
Our piece in this is we operate the network; we flow natural gas in the network. What we want to do is to diversify the energy source that is flowing through, and today biomethane is a very reasonable, very high-quality product that we can put into that network that is going to green the gas. So we would like to see developers having that sort of certainty for themselves so that they can continue to develop plants that can then in turn get injected into the network.
Dr Poulter
On the hydrogen side, the hydrogen injection into the gas grid is a longer-term project. What would need to change in terms of the UK’s gas pipelines and other related infrastructure in order to facilitate that hydrogen injection?
David Manning
As you said, just to emphasise the point, if we think about ourselves on a trajectory to 2050 and the greening of gas, biomethane and SNG are the near-term solutions, then hydrogen is the slightly longer play. Hydrogen in its own right is not new. Sometimes we think these ideas are the new fancy toy, but town gas of the 1960s was 49%, 50% made up of hydrogen. Effectively what we are looking at is going back to a previous composition of what gas was made of. Because we have been going through this process of renewing the network over the last number of years we have this very resilient polyethylene-based distribution network. What that means is it is relatively, bar a little bit of modification, fit-for-purpose to put hydrogen through that pipe. In partnership with SSE we did a project last year called HyHouse where we looked at whether the network could be operated safely with increasing proportions of hydrogen in it and the answer back from the question was yes, it could, with that increasing amount of hydrogen. From a policy and Government standpoint, a lot of the focus will need to be on the upstream side: the supply of hydrogen; the production of it.
Antoinette Sandbach
I am sorry to interrupt you mid-flow, but when you said that the existing network will work effectively with that change in hydrogen, does that also mean that the end products using it—boilers, cookers—will need adaptations, if you are putting that in, as opposed to the main infrastructure?
David Manning
No, so what I referred to there was the main infrastructure. In terms of the boiler and appliances within the home there would be certain changes or standard changes that would need to be made to them, and the reason for that is the burning of the flame. Basically, the flame does not quite burn as strong and so you would need a slightly different injector capability. But if you think about the time horizon that we are talking about you could introduce CE standards now that would mean that appliances that would be going into the home over the next few decades will start to become increasingly hydrogen-ready. It is a little bit like when TV went from analogue to digital; you can start to bring that in. That is in the consumers’ home and there is a natural churn of appliances within the home as they come to end-of-life and you put in a new appliance. Going back to the point on the upstream side, Government and policy need to think about how they are going to work with the upstream industry to start to deliver the production of hydrogen, and there are a couple of different ways of doing that. It is thinking about how we can develop that out further—if Ecotricity were here I would think one of the things they would say is, “We have this very robust network of wind farms. We use excess power from wind farms on a windy day to split water, which gives you hydrogen and oxygen”—and about how we develop that technology and how that will work for the long-term.
Stewart Reid
That is exactly what we are doing in Aberdeen. The hydrogen from Aberdeen is going into buses. There is a small fleet of buses being run there, and it is working very effectively from an energy balance perspective. What you will find is if you drive past a conventional power station today on a warm summer’s day a lot of them will be switched off. In just the same way, a lot of the time renewables could be turning, they are not turning. Using that marginal cost, grabbing that energy and utilising that to produce hydrogen and putting it into the transport sector is something that could be done sooner rather than later as well. That again is dragging as much value from the renewable assets as possible and accelerating decarbonisation.
Dr Poulter
The Gas Safety (Management) Regulations, among other things, are designed to ensure safe gas flow through the network. There is some thought that we have seen as a Committee that these regulations have become outdated. I think you have a project in Oban at the moment. Is that a fair view? Maybe take us through that project as well.
David Manning
I am going to jump to the Hippocratic oath and go, “First do no harm”. In terms of a business that does what we do; we absolutely want to ensure the safety of our customers, so that is number one. There are gas safety regulations that underpin that. The standard of gas that is used is based on North Sea gas, so that particular chemical composition of North Sea gas, and what we looked at in Oban was saying, okay, within that band, within that specification was there the capacity to broaden it a little bit to allow other types of gas into the network without having a negative consequence for the customers’ appliances in the home? Oban is a Scottish Independent Undertaking; we met with all of the community and we visited each of their homes. We went in and audited all of their appliances. Where an appliance was absolutely at the end of its life, beyond redemption, we replaced the appliance for the customer. Where it was found to be in any way faulty we repaired it. That gave us our base sample. Then we started to introduce different compositions of gas into the network at different times and monitored what impact it had on the customers’ appliances. What we were pleased to see was that it had no negative consequence, so that has two benefits to it. The first one is if we look now at the North Sea gas specification it is different from the European gas specification and we import that into the UK and then we treat it to bring it up to the UK gas specification. That costs around £325 million per annum. What this project has proven is that you can broaden the specification without having to do that £325 million investment in up-spec-ing the gas. So that is a potential annual saving to the customer. The second thing that it showed is that you can bring in higher penetrations of green gas into the network to a certain threshold, but similarly not having a negative consequence on the customers’ appliances at the back end as well. That is what the Oban project has proven, and at the moment we are speaking with the relevant authorities to ask them to look at the evidence that we produce at Oban and ask them to consider broadening the index as it sits at the moment, with the commensurate savings for customers at the back end of it. We were very pleased last year to have been awarded by Ofgem under their innovation fund, NIC, for a project that is called Real Time Networks that we are delivering in the Medway towns. What we are doing is we are putting very sophisticated sensors into the pipe network so that we know at any particular point in time in that network what the pressure flow is, what the composition of the gas is, and so on. What that allows us to do is on a minute-by-minute basis manage the flow and quality of the gas in that network. That means that we can manage it much more efficiently to the cost-benefit of the customer, but what we can also do is at any point in time know if there are any problems with the network before the customer ever knows that there is a problem, and we can get in there early, make an intervention and get the problem fixed before it ever has a negative impact for our customers.
Chair
Thank you. I was just going to say I think Oban was the first part of the UK mainland—or the Scottish mainland, whatever you want to call it—that I saw when I was six years old when I left the Hebrides. I think I was pretty sick and pretty glad to see Oban when we got there. Moving on to the matter at hand, Scottish Gas Networks told us there is currently an opportunity for some joined-up thinking on how the different elements of the energy system can be brought together. What would taking that opportunity entail?
David Manning
This comes back to this whole systems approach and hopefully what you will have received from what Stewart and I have said is that there is a lot of interlinkage here. The first thing is, we do talk an awful lot about electrification, and that absolutely has a substantial role to play, but it is electrification plus how we can utilise the value of the gas network; it is how the two of them can complement each other that will deliver in the best interests of the consumer. That is at one level. At the next level you can look at the area of transport—I have spoken already about this combination of electric vehicles—but also then for heavy goods vehicles you can look at how compressed natural gas can be used as an option. Then if we break down into the even more local area we can talk about things like district heating. A district heating source is more than likely going to be a combination of a CHP unit—a combined heat and power unit installed in a new development with the heat network attached to it for the benefit of customers—but as a CHP unit it will also be producing a huge amount of electricity that can then be exported on to Stewart’s network, which can also be used for charging electric vehicles or whatever the case may be. We made reference in our submission to how at the moment we tend to think a little bit in boxes; a little bit in silos. The indication of what we were trying to signal in that language was there are opportunities where policy can link each piece of this and say, “Okay, well, that and that add together, so let us see how we can drive the two of those forward”. I have given you a couple of examples of what that looks like.
Chair
Sometimes when there is the thought of policy changing there can be a feeling I can imagine from people like yourselves that policy can be too slow in reacting. Do you ever find that frustrating, particularly in this area?
David Manning
I think if we look at where we want to get to by 2050—
Chair
Specifically I could ask what changes you would like to see coming from Government. What policy and legislative changes would you like to see?
David Manning
From a policy standpoint I am going to ask for two things. The RHI has seen quite a lot of degression, a lot of value taken out of it. Biomethane is a genuine solution that can deliver for renewable heat by 2020. Let us not force it into a market where investors just are not interested in investing in it anymore. That is the first thing. The second thing comes out when I compare our Scottish network to our southern network. Under Ofgem’s rules I look to help fuel-poor customers, and I do that by providing them with a fully subsidised gas connection. So when someone has been proven fuel-poor, I give them a gas connection. In Scotland then the same fuel-poor customers can look to the Government and say, “Okay, can I get some support to put in a central heating system or to change out the boiler?” and there is a support mechanism there, whereas in the south, it is not that there isn’t one, but the degree of support is much less. Taking that point and extending it, there are 9 million boilers still left that are old, not condensing heat boilers, so there is a real opportunity to turn around and say, “Okay, let’s bring in a boiler scrappage scheme that is going to replace those old 9 million boilers with new, high efficiency condensing heat boilers”.
Chair
You are talking about the south here?
David Manning
Yes, but the 9 million is UK-wide. The 9 million is not just specific to the south, so I am just linking the two points that say we can look at Scotland and see how successful that is in replacing old boilers and helping out fuel-poor customers, whereas here in the south you can see why it is not as successful here, and then in addition to that point to hit your heat targets for 2020, if you can swap out those 9 million really inefficient boilers you are going to do two things—you are going to help customers because a far more efficient boiler is going to be cheaper for them to run, and secondly you are going to substantially reduce your carbon emissions associated with the older boiler. What I would like to see is some form of boiler scrappage scheme that is going to help those customers. They would be my two big policy pieces today; the RHI and how we help those customers swap out their boilers.
Chair
Thank you. That is very specific. Stewart, SSE argued in its written evidence that action to meet short-term targets must not undermine or take priority over long-term considerations to sustainably decarbonise the UK’s heat sector. Why is there a trade-off, do you think, between the short and long terms?
Stewart Reid
I think probably it is unintended consequence. If in trying to stimulate a change in an uptake too rapidly you create an impact that you then have to start to backpedal from; that is probably the piece there. It comes back to this piece I was talking about earlier; making sure we have that balance and that portfolio of solutions, with transport, for example, with electric vehicles or hydrogen or other forms of green transport. We need to make sure that we are pushing all the buttons at the same time rather than waiting for them to come all at once.
Chair
Do you have any specific examples on the earlier point there of the short term and the longer term in conflict with each other?
Stewart Reid
Looking backwards you could almost say that the uptake in Feed-in Tariffs, for example, and the very high levels of uptake in some areas, missed the opportunity to put some of these other things in, like increase in demand in parallel with the uptake of Feed-in Tariffs. There were some cases in the past where for all the right reasons the market has been pushed, but it has been pushed and left the other half of that solution behind. There is a danger that we do similar things, if that makes sense.
Chair
If there is anything else that occurs to you please can you send it in, in writing, afterwards?
Stewart Reid
We will do.
Chair
Thank you. The final question: will both heat and transport need to be fully electrified by 2050, or is there a role for gas in the long-term? It is a long way out and I think I have a feeling what the answer might be given what you said about polyethylene pipes, but I am asking the question anyway.
Stewart Reid
From my perspective it will be much more difficult for the electrical network to deal with the challenges if the gas network is not being fully utilised at the same time. So it makes an immense amount of sense to try to work with the two together. One of the things we are seeing more and more is that these are complex systems we are now creating—with a lot of factors—so the DSO, the distribution system operator role, is going to be fundamental. What is happening in practice is it is starting to appear on the system anyway. I mentioned Orkney—we have an active management system on Orkney—and we are sending out signals to bring renewables off when the network cannot use it, but these signals are now also going to inform people about when they charge their electric vehicles, and it is also going into some projects where it is going to be initiating heating systems, thermal stores and the likes, to be charged. That is a DSO function and if you introduce gas into that as well in the future there should be areas where we are actively trying to encourage customers to take a gas solution as opposed to an electric solution, or an electric as opposed to gas, to get the maximum out of the assets that the country has invested in, let’s face it, over the years.
David Manning
Everything Stewart said, and just to add to it, if I look at it from a customer perspective I am very accustomed to the convenience of my gas coming into my home, and 85% of customers in the UK are connected to it. I also have a distribution system that is paid for, so there is no incremental or additional cost associated with that in terms of other solutions. What I would hope today is that I was able to articulate to you a vision of what can move through that pipe over a trajectory between now and 2050; so you have a good chunk of biomethane, you are looking at bio-SNG and then hydrogen is a thing from the past for the future. So you have a vision of where you can get to, to decarbonise heat by 2050, combined then with the piece that Stewart talked about on electrification.
Chair
Thank you very much and I think you reflected in your answer there on the convenience of gas. I live in an area where there is no mains gas but I have a bottle of Calor Gas at the gable end providing that gas for cooking at least. Thank you both very much for coming in this morning—it is much appreciated—and thank you for your time. Oral evidence: 2020 Heat and Transport Renewable Targets, HC 173 28