18 April 2023

Stephanie Ward, Chief Executive Officer at Xoserve

Stephanie highlights the inconvenient truths facing the energy sector, and the industry goals needed to meet our Net Zero targets. 

As we head back to work after the Easter break, with our focus firmly on the new financial year, it’s only natural to think about goals.

As a non-profit organisation funded, governed and owned by Britain’s gas industry, Xoserve’s goal is to ensure that Britain’s gas market operates as effectively and successfully as possible. That’s it! There’s no ulterior motive. We just want to do the right thing for both the industry and hard-pressed consumers. So we’re thinking a lot about what needs to change in the coming years.

The energy trilemma continues to challenge. As the last 18 months have shown, managing the competing demands of energy security, sustainability and affordability is not simple. Which is why I, and all the energy sector folks I’ve spoken with recently, welcome the recent restructure of the Department for Business, Energy and Industrial Strategy to create a standalone department focussing on energy. The new Department for Energy Security and Net Zero is tasked with ‘bringing down bills and halving inflation’. Surely no coincidence that all three dimensions of the trilemma are covered in this simple sentence.

The ambition to deliver a sustainable future is becoming more and more pressing. I’m optimistic that this new Department’s focus will help accelerate transformation and action. But a new focus from Government, in itself, is not enough. I believe there are three key goals that we, in the energy industry, should be focussing on. Firstly, how do we make decisions faster? Secondly, how do those of us at the heart of the industry prepare for an unknown future? And thirdly, how do we make the governance process more cost-effective?

On that note, I’d like to propose two common industry goals for this year and beyond: the need to ask difficult questions and the need to face inconvenient truths.


Difficult questions, no easy answers

We all know we need to move to alternative energy sources. But how are we going to create enough power generation and transmission capacity to electrify the transport and heating sectors? There’s talk of local networks and generation, locality pricing and nuclear reactors, but is this realistic and practical?

Currently, 85% of homes are heated by natural gas. Gas undoubtedly has an important long-term role to play in Britain’s energy future, with hydrogen being one alternative to natural gas. As many of you will know, we’re collaborating with stakeholders all across the industry to support the uptake of hydrogen blend into the gas network.

Yet there are difficult questions that need to be asked here too. First of all, how do you persuade consumers that they need to move to an alternative form of energy supply? Next, how comfortable are consumers with hydrogen as a heating technology? And if they don’t feel confident with hydrogen, then how do they feel about the alternative: electricity – especially if their property isn’t suited to heat pumps?

Furthermore, without a policy decision on hydrogen for heating until 2026, how readily will households embrace hydrogen for testing and trialling in UK homes right now?

Whatever route is ultimately taken to support decarbonising heat, something has to replace the 738 Twh of energy that gas produces on an annual basis, whether that’s hydrogen, renewable electricity, nuclear generation or - more likely - a mix of all.

You can quickly see how posing one or two difficult questions suddenly prompts several more. For instance, if the UK moves away from natural gas, how do you decommission the existing network? This infrastructure would need to be in place until the very last person is moved off gas - how is this transition best managed?

There are no easy answers to these questions. But it’s critical that we start asking them.


Inconvenient truths

Right now, the availability of sufficient energy is the UK’s biggest challenge, with much work still to be done around energy security and the origin of our electricity generation. But affordability is, understandably, on everyone’s minds, with the impact of the cost of living even playing out in our TV soap operas.

The Fuel Bank Foundation recently published its 2023 Fuel Crisis Report, stating around 4.5 million UK homes have a prepayment meter installed. This is increasing by around 10,000 a month, as the cost-of-living crisis deepens and suppliers take this step to mitigate any debt risk. This begs the question of how vulnerable consumers can be better supported, but even this reveals some inconvenient truths that must be faced.

Consider, for example, some of the conversations currently being had around the Priority Services Register, a free support service that makes sure extra help is available to those in vulnerable situations. This requires access to personal data through meter reference numbers, so vulnerable customers can be identified. Yet to meet GDPR requirements, we would need an individual’s permission to use the data for this purpose. How, then, do we share information with other organisations at pace to ensure vulnerable customers can be identified and helped, while also respecting people’s right to privacy?

Another inconvenient truth to bear in mind is that gas plays a vital part in the electricity market. At a recent Utility Week event, a presentation delivered by Dr Grant Wilson, a Lecturer at the University of Birmingham and Fellow of the Alan Turing Institute, really shone a spotlight on this. He highlighted how significant gas is across the generation market, illustrating through data and analytics how much it’s used to support heating. In the past year alone, 41% of electricity has been generated by fossil fuels.

This leads to another one of those difficult questions: how do you replace natural gas at this scale? Energy storage was underlined as one of the solutions but, here too, there’s a difficult question. If hydrogen is being generated and supplied at a local rather than national level, where will it be stored & how?

More and more difficult questions that we can’t turn away from! And it’s only by answering them that we will be able to define a realistic, deliverable way to Net Zero.


Finding solutions

I firmly believe that the Department for Energy Security and Net Zero can help drive forward change across the industry, with the Energy Bill, introduced to Parliament last year, containing provisions to drive next steps. Meanwhile, Ofgem is starting to think about what the future market might look like and its recent Call for Input on the next stage of Energy Code Governance Reform has provided the energy industry with a chance to share its views on how the governance of the industry could best be simplified to facilitate change.

I was delighted to be able to share Xoserve’s point of view as part of this consultation process and you can find our response here.

I’m excited that we can be part of this vital conversation and am very much looking forward to working with policy makers, Ofgem and those in the energy industry (particularly gas) to move this forward over time.


In conclusion…

There’s no question in my mind that 2023 will bring its own set of unique challenges. However, I believe that Britain’s energy industry will rise admirably to those demands. No one person or organisation has all the answers. But I believe passionately that we can work together to start to create some exciting and creative solutions to what may become the most difficult question of our lifetime: how can we get to Net Zero by 2050?

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