Scottish Energy Networks Strategic Leadership Group minutes: December 2021

Attendees and apologies

• Michael Matheson - Cabinet Secretary for Net Zero, Energy and Transport (co-chair)
• Professor Keith Bell, Strathclyde University (co-chair)
• Angus McIntosh, Director of Energy Futures, Scottish Gas Networks (SGN)
• Steven McMahon, Deputy Director of Electricity Distribution and Cross Sector Policy, Ofgem 
• Jon Butterworth, President UK Gas Transmission, National Grid Gas Transmission
• Isabelle Haigh, Head of National Control, National Grid ESO (NGESO)
• Rob McDonald, Managing Director, SSE Networks (SSEN)
• Scott Mathieson, Director, Scottish Power Energy Networks (SPEN)

Items and actions

• SG to follow up with SGN and formulate a proposal for the Group on how the options will be developed around domestic decarbonisation (heat pumps, hydrogen) - SG - due by January 2022
• organise next meeting for late February/early March 2022 - SG - due by January 2022                                        

Agenda

Introductions  

• the Cab Sec reiterated that the networks SLG has an important role to play in supporting SG to meet its ambitious plans to decarbonise the economy and grow the share of renewable generation across GB 
• he is keen on making sure that the Group proves to be used as profusely as possible to achieve specific outcomes. The ‘network principles’ agreed by this group were an important step forward in recognising that the legally binding climate targets for Scotland should be taken into account when making investment decisions for our energy networks
• the Cab Sec is looking ahead for this Group to reach a number of important decisions and  bring forward collaborative, innovative network options as well as incorporate the just transition principles in any conversation
• the policy package of SG’s updated Climate Change Plan provides a detailed, clear and credible pathway to meeting emissions targets over the period to 2032
• SG has also committed to publishing a draft Energy Strategy and Just Transition Plan (ES&JTP) in Spring 2022. This will refresh the 2017 Energy Strategy, and deliver Scotland’s first Just Transition Plan
• as we go forward in developing our strategy, we need to make sure that the options we choose from a government’s perspective do not just deliver the energy transition but also the economic benefits of becoming a net zero nation
• Prof Bell highlighted that the net zero target deadlines are not far away and immediate action should be taken now 
• National Grid Electricity System Operator (NGESO) clarified that by 2025 they will be able to operate a net zero system without this meaning that the system as a whole will reach net zero by the same date 

Security of supply 

SG

• a SG official asked the Members to comment on the key challenges we need to focus on and what SG can do to help achieve a resilient and operable network 
• a SG official put some focus on the planning challenges- Network Options Assessment (NOA) and the Major Energy Project Group (MEPG) as starting places to prioritise which connections need to be taken forward

Steven McMahon (Ofgem)

• a main challenge for Ofgem, the Regulator, is the speed of decision making and ensuring that the right decision is being made - trying to find the balance between two 
• Ofgem is planning to get back to SSE in due time on the reopeners and system stability issues
• Ofgem do not feel constrained at the moment by the current remit but they are willing to gain a better understanding on what the current regulatory regime/remit would have to change in order not to hinder the decarbonisation targets specific to Scotland
• two main dynamics are flexibility and coordination with government in order to ensure that we deliver the most with the least cost to the consumers

Angus McIntosh (SGN)

• stated that there are some great projects ongoing in the power sector (i.e. pumped hydro) and that storage will be an essential component for the decarbonisation pathway 
• he also highlighted that there are different requirements on gas and power. SGN is conducting a strategic study with gas networks looking at the regulatory conditions, what they mean and how network owners can manage them
• he raised the point that an appropriate regulatory framework is a key area to look at as we are moving forward. Resilience and the work we do collectively is light especially around storage and geopolitical resilience considerations

Rob McDonald (SSEN) 

• 2035 target requires tighter coordination and strategic plan. Especially in transmission, the 2030 network is planned now so the quicker we can have a strategic plan, the more effectively we would be able to deliver these tight targets

Scott Mathieson (SPEN)

• agreed with SSEN’s point
• he has been advised by NGESO that the holistic network plan (part of Offshore Transmission Network Review (OTNR)), an important piece of work, will be delayed in July 
• stated that we need to make sure that the networks are secure, resilient and operable especially since NOA called for further investment
• important for the stability pathfinder to find its feet and that we ensure that we are not only building more infrastructure to deliver renewables but also having an operable network
• Ofgem might need more clear direction from Government on how they could facilitate decarbonisation targets. The green recovery mechanism is a good example of working together effectively (quick design, and deliverable concept)

Isabelle Haigh (NGESO)

• need for a holistic view on what needs to happen 
• the pathfinder is a huge undertaking whilst a holistic network plan is a complex exercise that needs to be looking both at the economic and environmental aspects in order to deliver something robust that can take us to 2030

Professor Keith Bell

• Prof Bell commented that the pathfinder is still a new concept and, as consequence, not always clear. However, lack of clarity means that there might be more submissions to be taken forward – a point that we might have to reflect on
• he highlighted the fact that, in networks, although there are different parties facing different challenges, there is a shared responsibility to fix network issues around resilience

Cab Sec Michael Matheson 

• Cab Sec highlighted the need for the regulatory process to align with key policy objectives 
• developers need to see a faster planning process but also change in the processes
• clarity is needed on which parts of regulatory process and what type of change people are looking at. Need for clarity is important and the Cab Sec is determined to make sure that the Group follows a solution-focused approach as we move forward

Hydrogen action plan (HAP)

Professor Keith Bell

• Prof Bell provided a short introduction on the HAP. He also pointed out the interconnection across the energy system and the economy
• he reiterated that networks are enablers of production and delivery of energy, so if there is a lack of network capacity, we need to identify the barrier and come up with solutions 
• there is still uncertainty on demand for low carbon hydrogen. Production needs to match the demand side and then have the capacity to transport. However, the mechanisms that can incentivise demand are reserved to the UK Gov

Cab Sec Michael Matheson 

• the Cab Sec mentioned that through engagement he had during COP26, he has noticed that there is an increased appetite from other EU countries to form partnerships with other hydrogen producer countries 
• he also stated that there is a wider economic opportunity here and we need to think how we can develop our supply chain to serve both domestic and international markets. However, investors can still be unsure due to the uncertainty still existing around the future role of hydrogen in the decarbonisation market
• he highlighted the difference between green and blue hydrogen and the lobbying between these two options. He expressed his support of blue hydrogen, especially for industrial use, as it will help decarbonising facilities, like Grangemouth, faster, quicker and easier
• the Cab Sec stated that hydrogen can also contribute to the network’s greater resilience so he would be keen to see hydrogen being part of the energy mix. Hydrogen has the potential to play a big part in this mix but there is still a lack of clarity on exactly what this would look like

Jon Butterworth (National Grid Gas Transmission)

• the transition of the system towards decarbonisation is not a project but an endeavour to change the energy world and we need to forge a strategy and move together 
• security of supply is a key issue especially for the gas transmission system 
• helpful to potentially widen the discussion with additional stakeholders 
• for some households that want to be part of net zero, hydrogen might be the only solution. Further coordination between Ofgem and government is needed especially around pace when it comes to the hydrogen pathway

Angus McIntosh (SGN)

• highlighted that although there is a huge amount of interest in hydrogen, the market is still missing
• he introduced to the group the Fife project that focuses on hydrogen supply to domestic homes while raised the same point as the Cab Sec that COP26 showed an international interest in hydrogen 
• an independent report on hydrogen along with SG on conversion options- are attractive options but not without challenges, like hydrogen storage
• welcomed Cab Sec’s comments on blue hydrogen and he mentioned the existing debate around efficiency stating that we need to ensure that networks can deliver, either if it's heat pumps or hydrogen 

Steven McMahon (Ofgem)

• work is required to be done in RIIO (Revenue = Incentives + Innovation + Outputs) as at the moment the framework is not working for hydrogen. Ofgem is currently working on models that need to be changed in order to allow this to happen

Scott Mathieson (SPEN)

• hydrogen facilities will be critical and it’s important for us to understand now how they are going to scale. Consumers should be central to this and the way they choose to decarbonise their homes 
• considering the challenging decarbonisation targets, both heat pumps and hydrogen should be considered as alternatives as we move towards net zero 

SG

• a SG official stated that we need to bring gas and electricity together on this, potentially on another subgroup 
• we need a clearer picture on what both sources can bring to domestic consumers and how they can contribute to net zero. So, it would be useful to explore the electrification pathway and main comparisons by conducting further analysis
• SGN and SPEN agreed and SG will follow up to formulate a proposal for the Group on how the options will be developed around domestic decarbonisation (see Action 001) 

RIIO price controls 

• Prof Bell asked the Group for views on the importance of uncertainty mechanisms and the pace required in order to meet 2030 targets  
• Ofgem stated that there is still uncertainty in ED2 (Electricity Distribution 2) and there is the need for a more automatic process (like volume drivers) - something that Ofgem is currently looking at 
• SSEN agreed with Ofgem’s point and mentioned that credit should go to Ofgem for the level of stakeholder engagement during the price controls as there was co-creation of business plans with stakeholders

Regulatory reform (Transmission Network Use of System charges (TNUoS) and Electricity Transmission Network Planning Review (ETNPR))

• Ofgem are currently considering the responses to the TNUoS Call for Evidence 
• Ofgem has not yet reached a decision on whether there is a need for a change in the current charging methodology and the scope of a potential review 
• Ofgem would welcome further feedback from the Members on how TNUoS is risking the pathway to net zero for Scotland 
• Ofgem expects to make an announcement around TNUoS and next steps around February 2022 

Any other business

• members agreed that the group should meet again in late February/early March 2022 
• due to limited time left at the end of the meeting, regulatory reforms (in particular TNUoS) will be part of the agenda and explored further on the next SLG meeting 
• no other AOBs were raised