Scotland's electricity and gas networks: vision to 2030

Chapter 1: Supporting Our Energy System

Our Vision: By 2030… Scotland's energy system will have changed dramatically in order to deliver Scotland's Energy Strategy targets for renewable energy and energy productivity. We will be close to delivering the targets we have set for 2032 for energy efficiency, low carbon heat and transport. Our electricity and gas networks will be fundamental to this progress across Scotland and there will be new ways of designing, operating and regulating them to ensure that they are used efficiently.

The policy context

Scotland's Energy Strategy sets out a vision for the energy system in Scotland until 2050 - targeting a sustainable and low carbon energy system that works for all consumers.

Our electricity and gas networks form the backbone of Scotland's energy system. They provide us all, from individual households to energy intensive industries, with an essential service - the means to receive the reliable and affordable energy which is a prerequisite for any modern society and economy.

The Energy Strategy is built on three principles. These are designed to ensure that the energy system in Scotland supports our ambitions to decarbonise our economy while delivering economic growth and ensuring that everyone is able to benefit:

• a whole system view
• an inclusive transition
• smarter local energy models.

These principles will guide energy policy in Scotland over the coming years, shaping our decisions across the whole energy system - in areas such as heat and energy efficiency provision, and decarbonising transport.

The "whole system" principle is reflected in our target to meet 50% of energy demand across heat, transport and electricity from renewable sources in 2030. It will allow us to respond flexibly to new evidence about the best ways to decarbonise the energy system.

The energy transition must also be inclusive - all parts of society should be able to benefit. The options we identify must make sense no matter what pathways to decarbonisation might emerge as the best. Improving the efficiency of our building stock is one example of these "low regret" actions, and is something that we have made a national priority.

We also need to identify the quite distinct challenges in different areas of the country, and the different ways of solving them. For instance, developing the electricity networks in remote areas and connecting our island groups will need different thinking and approaches to the coordination of electricity and gas in densely populated urban areas.

Finally, the Scottish Government has been supporting community and local energy for over a decade and will continue to do so. Balancing supply and demand locally can ensure that networks are used efficiently, and can provide important benefits for everyone in a community. Our targets to ensure that there are 1 GW of community owned renewables by 2020, and 2 GW by 2030 reflect our desire to support smarter local energy systems.

However, the way the gas and electricity networks are regulated and funded today means that it is difficult for communities to benefit from the value that they can provide to the wider system. This is a barrier that we want to see removed, providing opportunities for innovation and local benefit to emerge across the country.

Living up to these principles will depend upon several significant changes to the ways in which electricity and gas networks are planned, operated and regulated. This is a challenge facing the UK as a whole, and indeed all modern economies.

Many of the policy levers in these areas are reserved - meaning that our historical and close collaboration with the UK Government and Ofgem, the independent regulator, on future options and changes will remain vitally important. Our aim is for Scotland to continue to play a pivotal role in supporting, influencing and enabling decarbonisation across the UK.

But our distinct circumstances, geography and priorities mean that there will be uniquely Scottish solutions and approaches, with these likely to vary across Scotland. This means that our networks will need an approach which is flexible and able to recognise and adapt to those variations.

Above everything, the interests and needs of all consumers must be at the heart of any possible developments and changes. Our networks must embody and enable a system that consumers want, and which allows them to engage and make informed choices about when and how much energy they use.

Table 1 highlights the principles and priorities that we laid out in the Energy Strategy in 2017, and summarised the importance of the gas and electricity networks in supporting each.

Supporting wider Scottish Government policies

The Scottish Climate Change Plan, published in February 2018, influences policies across government. The need to decarbonise, and our ambition to do so in a way that supports the whole of Scotland that shaped our Energy Strategy, shapes this networks vision.

Our Climate Change Bill, introduced to the Scottish Parliament in May 2018, proposes a 90% reduction in all greenhouse gas emissions by 2050. This will mean achieving net-zero emissions of carbon dioxide by the same date. In other words, Scotland will be carbon-neutral.

The Bill also requires that the earliest credible date for a net-zero target for all greenhouse gases is kept under review. As soon as a target date can be credibly and responsibly put in legislation, that will be done.

We expect the network companies to continue to take the effects of the Scottish Government policy into account and to reflect our wider ambitions for Scotland in their forecasts and plans; likewise, we will continue to work with them and with other stakeholders to ensure that we take network availability and issues into account when developing and delivering our policies.

The regulatory system also needs to be sufficiently flexible to accommodate regional and local energy ambitions. This will enable local authorities and regional development agencies across Scotland and the rest of Britain to develop energy systems appropriate to their needs.

The boundaries between different parts of the energy system will continue to blur over the next decade as the regulated networks deliver an ever larger fraction of the energy we consume. The development of electric and hydrogen based vehicles, for example, will increase the need for network policy to interact with transport policy. The growth of new heat networks and the regulatory framework that we expect to see develop will also offer new opportunities for coordinating the delivery of low carbon heat.

There are some vital areas of the Scottish Government policy which need to be carefully considered by network companies and the regulator over the next decade:

• Energy Efficient Scotland. We published our Route Map in May 2018. It aims to ensure that, by 2040, our buildings are warmer, more energy efficient, and use less carbon. It will also be essential to meeting our fuel poverty targets. Energy efficiency measures can reduce the peak demand on our electricity and gas networks, and the number of network upgrades and investments that might otherwise be needed - factors that the network companies and Ofgem should consider as they discuss the price controls for these networks.
• Local Heat & Energy Efficiency Strategies (LHEES). We will give Scotland's local authorities a leading role in developing energy efficiency and heat decarbonisation strategies - tailored to the resources, geography and demography of each area of Scotland. Local authorities will need to engage strategically with electricity and gas network companies as they develop these LHEES - taking existing network capacity into account, and how best to use this to support decarbonisation of the whole energy system. The network companies should treat LHEES as a material consideration within their business plans - with Ofgem recognising them as such. We also expect local authorities to identify areas suitable for district heating, and to consider the opportunities that gas and electricity networks provide for generating heat. They should also ensure that the implications which district heating will have on the enduring demand for gas and electricity networks are reflected in those networks' forward planning.
• Ultra Low Emission Vehicles (ULEVs). Meeting our commitment to phase out the need for petrol and diesel cars and vans by 2032 will need electricity distribution and transmission networks capable of supplying low carbon electricity for electric vehicles. We will work closely with the electricity network companies to explore the balance between new investment, smart technology and innovations in charging and pricing. We will also help develop evidence which shows how best to use the gas network to deliver low carbon energy (such as hydrogen) for buses, ferries and trains.
• Energy Consumer Vision and Action Plan. This plan, being developed over the coming year, will largely focus on domestic retail consumers. It will set out the steps that Scottish Government, working with partners, will take to ensure the benefits of the low carbon energy transition are universal and socially inclusive, regardless of individual circumstance. We are committed to working with partners to engage and empower people as far as possible, and to protect those who are unable to engage.
• Innovation. Support for innovation remains a vital part of accelerating decarbonisation. We announced our intention in 2017 to spend £60 million supporting innovative, low carbon energy infrastructure solutions across Scotland - including battery storage, sustainable heating systems and low emissions transport. Our goal remains to help develop relevant technologies which can support the operation and decarbonisation of Scotland's network infrastructure.
• National Planning Framework (NPF): Through the third NPF (2014), we have laid out how we expect our economic strategy to be delivered across Scotland and how infrastructure development can support its delivery. NPF 3 highlights the need for enhanced electricity transmission and distribution networks to support the development of Scotland as a 'low carbon place'. It also highlights the potential to develop Carbon Capture and Storage across the East Coast, and the need to ensure that gas networks are developed to support this.

Box 1: Ultra Low Emission Vehicles (ULEVs)

Our 2017 Programme for Government committed us to phasing out the need for new petrol and diesel cars and vans in Scotland by 2032. This creates opportunities to power cars and vans using electricity and hydrogen produced by renewable energy technologies, such as wind and solar generation. Our work to harness such opportunities is focused on delivering the following outcomes:

• Scotland is at the forefront of growth in international and regional markets for ultra-low emission vehicles.
• Growth of the market for ultra-low emission vehicles is supported by a fair distribution of investment costs, benefiting the full cross-section of consumers.
• Scotland's business community and workforce benefit from the widest possible range of economic opportunities that new markets and technologies create.

Electric Vehicles

Growth in electric vehicles (EVs) poses challenges for planning and operating our electricity networks, but also opportunities. Managed charging of EVs will be critical to efficient and timely investment in electricity networks. The ability to coordinate EV charging within the networks' limits, in order to maintain security and reliability, will help ensure that network costs remain affordable.

Responding to these challenges will require a coordinated approach between policy makers and network companies - as well as enough generation to meet the higher demand. The 2018 UK Automated and Electric Vehicle Act allows for new charging infrastructure to be capable of managed charging, which can support efficient and reliable networks.

Our 'ChargePlace Scotland' initiative, comprising over 800 publicly available charge points, is coordinating investment in charging infrastructure (destination, journey and hub) across Scotland. The Scottish Government has taken a deliberate decision to invest in this infrastructure ahead of need, to help build market confidence.

But much more investment will be needed over the next decade. The Scottish Government will work closely with commercial and public sector partners to make sure that this investment - in both the electricity networks and the charging infrastructure connected to them - is based on a well-developed and informed understanding of the likely growth in uptake of EVs. We are setting up an EV Forum, which will bring vehicle manufacturers, charge point providers, network companies and customer representatives together. We will use this Forum to remain focused on the implications for networks of our commitment to decarbonise transport.

We will also continue to champion the interests of vulnerable consumers and those in fuel poverty, and ensure that their needs are considered and protected when decisions are made on how to pay the additional network costs that EV charging will create.

Hydrogen Vehicles

We are also supporting ways to meet low carbon transport using the gas network. Hydrogen could potentially power many of our larger vehicles - buses, lorries and ferries. Trials have shown positive results; for example, the extensive trial of hydrogen powered buses in Aberdeen shows the potential benefits of low carbon and reduced air pollution from public transport. As we improve our understanding of gas networks' role in delivering hydrogen, we will need to consider their role in delivering low carbon energy for transport.

Box 2: Networks and local energy

The vibrant local energy economy described in our Energy Strategy will mean people in different areas and communities having the opportunity to take control of their own energy needs and low carbon goals.

The electricity and gas networks will have a big part to play in this process - linking community and local renewable generators or local low carbon gas projects to participating consumers, for instance, and in ways that make the best and most efficient use of the energy and infrastructure.

Our networks vision includes an ambition to coordinate local supply and demand for low carbon electricity and gas, supporting efficient network use. Examples exist today on electricity networks where new renewable generators can't get connected. Local priorities, perspectives and approaches can help resolve these problems, with similar benefits likely to arise in future from small scale production of low carbon gas.

Today's regulatory and policy environment has been developed over decades in conjunction with national energy markets, and it can present substantial barriers to local energy. For example, small generators connected to the lower voltage tiers of the distribution network are assumed to be completely independent of local demand. There is little opportunity for local and community projects to benefit from balancing the energy they produce against local demand even where this would save costs. This can drive the wrong outcome such as local energy schemes considering 'private wires' between generator and consumers, even when the existing public distribution networks have sufficient capacity. We believe that local energy opportunities and ambitions must be a key consideration when deciding how to develop the networks, and the regulations under which they operate.

We made a smarter model for local energy a principle of our Energy Strategy because we understand that this can bring a diverse range of benefits, both financial and non-financial, to communities across Scotland. We need to be able to use the gas and electricity networks in ways that encourage these models to develop.

Some changes are already happening - for example, in the way that electricity networks are planning to reward flexibility on a local basis. We are also starting to see small scale low carbon gas producers connecting to the gas networks and opening up the potential for local gas production and supply. However, we think there are opportunities to make local energy a greater priority.

Realising our local energy goals will need regulations and policies which encourage and reward projects which use the networks efficiently - including through changes and improvements in how customers access the networks and are charged for using them. We believe that local energy projects should be rewarded where they reduce investment costs or help keep open a wider range of future options.