Scottish Energy Networks Strategic Leadership Group minutes: September 2020

Attendees and apologies

Attending (full attendance):

• Paul Wheelhouse - Minister for Energy, Connectivity and the Islands (co-chair)
• Professor Keith Bell, Strathclyde University (co-chair)
• Scott Mathieson, Director, Scottish Power Energy Networks
• Angus McIntosh, Director of Energy Futures, Scottish Gas Networks
• Phil Sheppard, Director, National Grid Gas Transmission
• Frances Warburton, Director of Energy System Transition, Ofgem
• Steve McMahon, Deputy Director, Ofgem
• Trisha McAuley, independent energy consumer expert
• Julian Leslie, Head of Network Capability Electricity, National Grid ESO
• Christianna Logan, Director of Customers and Stakeholders, SSEN

Scottish Government (SG) officials:

• Neal Rafferty
• Simon Gill
• Anastasia Charalampidou
• Lewis Todd
• Stephen Mckellar

Items and actions

Actions:

• a working group from the SLG will meet in early October to discuss (a) the role of the energy networks sector in supporting devolved, regional and local policy and (b) whole system scenarios - SG - due by 9th October (Post meeting note: organised for 7th October)
• ensure that SG and Ofgem engage closely during November and December so that the RIIO-2 Final Determinations and ED2 Sector Specific Methodology Decision can appropriately reflect the most up-to-date position on the Climate Change Plan and Heat Decarbonisation Policy Statement - SG / Ofgem - ngoing to December 2020
• members to provide initial feedback, specifically on principles highlighted on the Devolved And Local Energy Policies paper - all members - due by 30th September
• organise next Networks SLG meeting for late November 2020 - SG/Lewis Todd - October 2020

Decisions/agreement: 

• members accepted the minutes/actions of previous meeting (June 2020)
• members agreed to revisit Consumers Group Engagement and Skills Paper conversation at future meetings
• it was agreed that the next meeting should be scheduled for late November 2020

Agenda

Ministerial introduction to the session 

The Minister provided an update on progress with the Climate Change Plan Update, Heat Decarbonisation Policy Statement, and commitment to update the Energy Strategy during 2020.

He also welcomed the good relationships and partnership-working going on between SG, network companies and Ofgem. 

He raised the question of Ofgem’s remit, which SG has now raised with the UK Government, and spoke of the need for a careful balance between consumer savings and investment to support net zero as part of the RIIO decision making process. 

He then introduced the key areas for discussion at this meeting, as recorded in the following sections.

RIIO 2 price controls: Ofgem’s draft determinations

ESO

Ofgem recognised that ESO’s business plan was stakeholder-led and ambitious.

JL highlighted the need for ESO to have the right funding for IT infrastructure, commensurate with its status, independent of other parts of national grid. 

The ESO is relatively positive about Ofgem’s Draft Determination.

SSEN 

SSEN is disappointed by the size of the cuts in Ofgem’s Draft Determination relative to SSEn’s submitted business plan and the risks they create for delivering net zero. 

SSEN feels that its business plan was stakeholder-led, balancing the risks with the need to achieve decarbonisation. 

SSEN has been working closely with Ofgem and plans to provide further evidence, with 100 documents published on its website offering further justification.

Funding for some major pre-construction projects must be reinstated as these will be critical for net zero. 

Highlighted concerns raised across the sector about the degree to which Draft Determinations reflect stakeholders’ views.

SSEN is taking a positive approach to its engagement with Ofgem and will maintain this through the autumn up to Final Determinations.  

SPEN

SPEN proposal was 6% less than T1, with Ofgem then cutting an additional 30%. SPEN believes the £15 million business plan penalty does not reflect the quality of the business plan submitted. 

SPEN provided examples of net zero energy projects with a high degree of certainty, but the Draft Determination didn’t include associated network requirements in baseline.

These include wind farms between firth of Tay and firth of Forth, and some rail electrification projects which appear highly certain given SG policy. 

The SPEN Transmission User Group felt that its views hadn’t been listened to. 

Expected returns to be cut; however, Ofgem should consider effects of cuts on investment and net zero – especially given global competition and higher rates of return in other parts of the world.  

Need to remember these are draft determinations, and hopeful that some revisions can be agreed before final determinations stage. Engaging constructively with Ofgem to achieve this.

On uncertainty mechanisms, the balance between baseline and uncertainty absolutely has to be right.

SGN

Proposed cuts to SGN business plan are substantial – working closely with Ofgem. Highlighted 40% reduction in energy system transition allowances. 

Also highlighted plans for decarbonisation of industrial clusters, in particular the development of the Acorn field for Carbon Capture and SMR based Hydrogen production off of Aberdeen. It is important that gas network development can support these projects.

SGN disappointed to see NIA funding reduced as it can cover activities like scoping, optioneering, and, demonstration of individual ideas. 

New reopeners provide cover for some major shifts, but still a funding gap for important activities such as detailed FEED (Front End Engineering Design) studies. 

Noted the importance of Green Recovery Taskforce with ENA and its potential use in preparing gas and electricity networks for net zero while supporting economic growth over the coming years.

Ofgem needs to ensure sufficient funding to cope with the changing climate, e.g. potential future effects of changes in river flow / spate. 

NGG

NGG doesn’t agree that network companies are as low risk as water companies. Disappointed that Draft Determinations use water companies as a comparable sector when setting rates of return. 

NGG estimates a 24% increase in risk for its transmission network due to reduced maintenance funding – not good news for the company or its investors. 

The availability of and access to innovation funding remains key for NGG. 

Noted the potential difficulty in administering the 21 potential reopeners.

Similar to other network companies, NGG noted that its user group doesn't feel engaged or listened to.

Also stressed that useful discussions have taken place with Ofgem over the last 10 weeks.

Ofgem 

Ofgem aims to ensure that networks can deliver net zero with lowest cost to consumers. 

Happy to receive high level of feedback in the consultation; currently working with networks to check errors, methodological issues, and review new evidence. 

Noted that some feedback from consumer bodies stated that Ofgem didn’t go far enough on some aspects of the draft determinations.

On uncertainty mechanisms, acknowledged concerns and agreed that timely funding is important – believes that this can be built effectively into RIIO2.  

The pathway to net zero is highly uncertain. Ofgem needs to be able to respond to changing environment, policy etc. 

Noted that government policy is uncertain, and there are a wide range of ways to get to net zero which have different network impacts.  

Paul Wheelhouse

Welcomed the positive engagement between SG, Ofgem and the network companies. 

Highlighted that SG policy is clearer than UK policy and will become more certain over the coming months (e.g. through the Climate Change Plan Update, Heat Decarbonisation Policy Statement etc).  

SG also published a Rail Decarbonisation paper over the summer.

SG and Ofgem will need to maintain continuous engagement over the next few months (see Action Point 002). 

Devolved And local energy policies

Simon Gill (SGi) presented the slides on Devolved and Local Energy Policies. 

Prof Bell highlighted three main points to be considered;  

• confidence in delivery of Government policy - how is this captured and included in decision making? 
• cost of delays - how are they incorporated? Treasury is updating the Green Book, for example in terms of advice on how to value carbon saving. Is there an opportunity to look at this? 
• who do Ofgem engage with, what stakeholder views are pulled into this process? 
• Ofgem noted that there is the need to make some methodological decisions about whether to set baselines low and flex up or vice versa
• Ofgem is aware of the Treasury work, and that sensitivities around the cost of carbon have been included in the updated Impact Assessment Guidance –FW suggested that members may want to look at this
• Ofgem is also planning to publish its own EV strategy over the coming months
• members welcomed and supported the SG slides and content in principle, with further feedback to be provided over coming weeks (see Actions 001 and 003)

Short updates 

Consumer group engagement

Prof Bell and Tricia McAuley met with Lewis Shand Smith, chair of the Energy Consumers Commission to discuss the draft determination and explore the impact of network decisions on energy consumers. 

Prof Bell and TM keen to continue that conversation, suggesting that we should engage with the ECC directly in developing principles for how the network sector supports SG.

Plans are being developed to get the Chairs from all SLGs together on a recurring basis. 

Whole system scenarios 

SGi provided short updated thanking the Members for the initial bilateral engagement. A more detailed discussion with reps from each of the organisations on the SLG will be held in early October (see Action 001)

Skills paper 

It was agreed that this item will be considered more fully at the next meeting (including evidence from the network companies on recruitment and other related issues). 

SG will recirculate an updated version of the paper ahead of the next meeting. 

AOB

Covid 19 updates

ESO: Electricity demand still running 5% lower than normal. Overall electricity energy demand is likely to be higher this winter as offices and homes are kept warm, but peak demand unlikely to be higher. 

Gas peak demand should be less of an issue than electricity due to the flexibility of the system. One possible issue is the availability of gas for electricity generation, due to increased heating demand, but ESO believes that this is an unlikely scenario.  

NGG: initially saw 8% reduction in demand following lockdown. NGG hasn’t identified any major issues for this winter but is preparing for a full lockdown as the worst-case-scenario. Important that gas network engineers continue to get ‘keyworker’ status. 

SGN: Safety and resilience are in in good shape with detailed plans in place.  

SPEN: SG support has been excellent. Staff availability and testing will be key to responding to winter storms. 

SSEN: Agree with all above and added that ensuring control room shifts are isolated is key. 

Closing remarks 

Mr Wheelhouse thanked the Members for an interesting and constructive discussion. 

He noted in particular the RIIO discussion and the Green book updates as well as the winter Covid 19 updates (to be reported back to the First Minister).

Members agreed that we should meet again in late November.