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The challenge of
meeting Net Zero: What National Grid’s FES tells us

Our viewpoint

The publication of National Grid’s Future Energy Scenarios (FES) is a key annual event for the power industry.  The Electricity System Operator provides four scenarios for the development of the sector over the coming decades, based on the progress made over the past year and changes in the direction of UK policy. As a result of the UK Government’s commitment to meeting its Net Zero targets by 2050, this year’s FES has seen a step change in their decarbonisation pathways.

With three of the four FES scenarios now achieving the Net Zero target – and doing so within the power sector in the next 10 to 15 years – there are significant challenges to overcome if these pathways are going to materialise. LCP explores some of the key areas of the FES and what this means for the power system.

FES shows the power sector switching to net negative emissions

In order for the UK to reach its Net Zero targets, the scenarios show the power sector going beyond Net Zero to help decarbonise other sectors. All of National Grid’s Net Zero FES scenarios become net negative between 2030-2035 by using Bioenergy with Carbon Capture and Storage (BECCS) which removes carbon from the atmosphere by burning renewable biomass for power generation and capturing and storing the CO2 to create negative emissions. Using the power system to remove carbon represents a big shift and allows other sectors to move slower to decarbonise their own Green House Gas (GHG) emissions.

-150-100-500501001502002019202420292034203920442049CO2 Intensity of electricity generation (gCO2 e/kWh)Power sector carbon intensityConsumer TransformationSystem TransformationLeading the WaySteady Progression

FES relies heavily on nascent technologies

There’s no doubt that achieving negative emissions in the power sector will require new technologies and approaches to decarbonise. Two of the most significant areas National Grid ESO is relying on are hydrogen and BECCS. Neither technology has been proven at scale and the supporting infrastructure to allow them to meaningfully contribute to decarbonisation of the power sector is still in its infancy.

0100200300400500600700CTSTLWSPHydrogen Supply (TWh)2050 Hydrogen supplyMethane reformation with CCUSNetworked electroysisImportsNon-networked electrolysisBECCS

The scale of investment in new assets is significant

One feature of the FES this year is that the investment challenge is more significant than ever. With Net Zero now being the focus for three of the four scenarios, our estimated level of investment on new generation assets in these ranges between £360bn and £400bn through to 2050. To reach 2030 net negative emissions, this would require a spend of between £10bn and £15bn a year with similar levels of investment needing to be maintained out to 2050. On top of this investment in power generation assets, there will also need to be sizeable investment in electricity networks and upgrades to gas pipelines to support hydrogen.

0501001502002503003504004502019202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046204720482049Generation investment (£bn)Consumer TransformationSystem TransformationLeading the WaySteady ProgressionRequired investment in power generation capacity - FES 2020

Using National Grid’s Net Zero scenarios is more difficult.

The large transformational shift represented in the three Net Zero scenarios makes the FES more difficult for investors to use when forecasting future power markets. Although these scenarios are credible ways to decarbonise the energy sector, they represent a world where policy and legislation creates the framework to decarbonise at speed. This leaves a gap in which there is no scenario that reaches Net Zero in the electricity sector but not elsewhere (what some might be inclined to call a more realistic scenario), or one that achieves Net Zero between 2035 and 2050. A key example of this is CCGT capacity dropping by nearly 10GW in 5 years’ time in one scenario, which is unlikely considering that the majority of these assets have already secured CM agreements through to 2024.

010203040506020152020202520302035204020452050Capacity (GW)Installed capacity of dispatchable thermal generation - Leading the wayGas capacityHydrogen capacityBiomass capacityBECCS capacity

There is a lot of low hanging fruit

The role of smart systems in the future which allow everything from smart appliances to Electric Vehicles (EVs) to be used to reduce peak demand will be crucial to managing the cost of the system. Smart charging and Vehicle to Grid (V2G) for EVs could provide over 30GW of flexibility alone compared to not having these systems in place. Any measure that reduces the peak or even export back onto the grid can have a significant impact on the amount of new generation that needs to be built as well as addressing a significant amount of intraday balancing needs.

-15-10-5051015202520152020202520302035204020452050Demand (GW)Electric vehicle charging behaviour during winter peak demand (Consumer transformation scenario) Unconstrained EV charging demandEV demand with smart chargingNet EV demand after smart charging and V2G

Conclusion

The challenge of meeting our Net Zero targets is significant and the FES illustrates just how much change is needed in the energy sector alone. Many of the tools for delivering Net Zero are in place today with Electricity Market Reform (EMR) incentivising renewable deployment and procuring enough capacity for security of supply. However, there need to be new tools and innovation if technologies such as hydrolysis, CCUS and BECCS are to play a significant role in meeting this challenge.

For more information on LCP’s long-term power market forecasts please contact Kyle Martin by clicking here.

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