Phoenix Natural Gas hosted a round table discussion with key stakeholders in the energy sector about Northern Ireland’s energy transition and the role of the natural gas network.
What are the key enablers of economic growth associated with the energy transition?
The energy transition is about recognising that we currently consume 80 per cent of all of our energy needs from fossil fuels. That must change by 2050 and what we need, as a key enabler, is a roadmap in the form of policy. We need to know how the government intends to bring us from where we are today to where we want to be in 2050. Visibility of that agreed policy landscape will enable movement on things like job creation, provision of goods and services and exportation. Energy efficiency in buildings is a major enabler given that 80 per cent of 2050’s buildings already exist but the bulk of our further renewable energy will come from offshore wind, and we will need to be able to store that energy in the form of electricity and also hydrogen gas. Additionally, if we want to continue with our current way of living, we will have to change our attitudes and our patterns of energy use.
I consider the energy transition itself as a key enabler of a wider circular economy. If we want a return of maximum benefit for regional economic growth, then the transition must be considered as part of an overall picture. A circular economy, driven by net-zero carbon ambitions, opens up a huge number of options for regional growth. I also think we need to demonstrate how we can utilise the abundance of energy sources we have here, and, for different reasons, we are not tapping into. That additional generation could see us switch from an importer to an exporter of energy, which again opens up a range of economic opportunities.
I view the forthcoming Energy Strategy as being the first enabling step in our energy transition because it provides a basis for the planning of a just and fair transition that not only tackles decarbonisation but also improves the quality of public health and also security of supply. I see the Strategy delivering on five things: indigenous energy production and its promotion; tackling behavioural change; updating regulatory regimes; more inclusive affordability and financial support; and stronger leadership and governance within the public sector.
“There are still significant short-term carbon saving benefits of maintaining this momentum and connecting people to the gas grid; in doing so we are facilitating a natural way to decarbonise homes into the future.”
Michael McKinstry, Phoenix Natural Gas
The existing network infrastructure of natural gas and electricity are key enablers. A significant investment has gone into developing these assets and moving forward, it is important that we consider how best to capitalise on such investment in the delivery of net-zero targets. The key focus therefore should be how do we repurpose these assets to deliver fully renewable solutions in the future. We also need to bear in mind that Northern Ireland is still in a transition from oil to gas. Whilst between 60 and 70 per cent of homes in greater Belfast are already using gas, across Northern Ireland as a whole, close to 60 to 70 per cent of households remain on oil. While we are rightly focused on the longer term, there are still significant short-term carbon saving benefits of maintaining this momentum and connecting people to the gas grid; in doing so we are facilitating a natural way to decarbonise homes into the future, whenever natural gas is replaced by renewable gas solutions. To that end, we need to develop the vehicles to facilitate the injection of renewable gas and we are working with the regulator to make sure the regime is in place to support that. That is not something that is a 2030 project, it is something that needs to be done in the next two to three years. The longer we take to make these things happen, the less momentum we have and the more we will need to play catch up relative to neighbouring regions.
I think the Climate Change Commission’s clear target for Northern Ireland is welcome. The next stage is that clear policy from the Department for the Economy and wider government on what the Energy Strategy looks like going forward. In setting a vision from 2021 to 2050, there has to be some pragmatism and we need to build honesty and trust into the system because there is no silver bullet in achieving the 2050 targets. The Strategy is just a point in time, it cannot be the final answer, it is a developing document, as we understand and recognise the weaknesses and the strengths we have in our current energy system. Currently in Northern Ireland, we have some natural benefits in terms of our size, our communication, and our modern gas system and as we progress out to 2050, we have to ensure that energy is affordable for business and domestic customers, while maintaining security of supply.
“Two decades of focus on technology and economic modelling will amount to nothing if there is no social plausibility.”
David Surplus, B9 Energy
What funding mechanisms are needed to best support low carbon technology, whilst ensuring affordability remains a primary focus?
On the supply side, innovation is critical to develop carbon reduction solutions and, in my view, low-cost and no-cost options have to be prioritised for approval. We also need to give consideration to the introduction of innovation funds such as Ofgem’s Network Innovation Allowance, to prioritise the energy transition and in particular, vulnerable customers, because that will facilitate technical, commercial and operational projects within industry and reduce the risk to consumers. On the demand side, consumers need significant support because we are asking people to make sacrifices, both behavioural and financial. These could include low interest to no interest loans, retrofit funding, green mortgages, or bill financing. What I would say is that where private finance solutions are applied, we need to ensure the appropriate consumer protections are in place and the consumers are assisted in selecting the most cost-effective and efficient means of financing. To do this, I think we need to move away from siloed regulation and regulatory regimes because a large breadth of financing is required to ensure we get to energy transition.
Funding innovation is very useful because there are a lot of technologies out there that we can nuance to the benefit of the regional economy. The Kinnegar Wastewater Treatment Works, producing hydrogen, but also generating oxygen to be used on site, is a good example of not only innovation in fundamental sciences but actually connecting those innovations. We need to look at clustering industries together and financially supporting those clusters to maximise the benefit. Additionally, something we have been looking at is not necessarily Contracts for Difference (CfD) but Contracts for Benefit. How do we measure and create an overall benefit to support and sustain industry through a funding mechanism that returns the maximum value to the regional economy?
We need to facilitate the injection of biomethane into the gas network. It is technically available and commercially operable elsewhere, with the policy and frameworks in place to support it. It is now about assessing how Northern Ireland can do the same. In the first instance it is important that we fund and invest in demonstration and trial initiatives locally that seek to utilise existing supplies of biomethane and hydrogen as it becomes available locally, through injection into the gas network. To some degree, Northern Ireland has sat back in the past because we assume bigger industries elsewhere will provide the solutions but the solutions that are coming forward, such as SGN’s H100 project at Fife, are scalable and could be deployed locally in Northern Ireland. We need to be innovative in the way we use our natural advantages to develop technological solutions, thereby enabling Northern Ireland to be a leader rather than a follower.
Funding mechanisms need to adhere to the polluter pays principle. In terms of hydrogen production, the Renewable Transport Fuel Obligation, administered by London, is the only existing support structure and it has been very successful. However, transport is only one area of our carbon emissions and for heat, by far the biggest emitting sector, we need to decarbonise the gas network. To incentivise hydrogen generation, we need the Contracts for Difference (CfD) scheme, which is responsible for today’s low wind prices. However, we need clarity on whether Northern Ireland will have its own scheme or be part of the UK-wide scheme. Traditionally, we fail to be competitive on a UK-wide basis because we do not have the economies of scale and so, we need to assess what we can do to support our bids into the CfD. One option is our success so far of utilising the oxygen generated in that hydrogen production and selling that so that we don’t burden the levelised cost of hydrogen in the bid process.
I think we have to look at the necessary funding mechanisms through the affordability lens. We have a disparate population in Northern Ireland when it comes to income with roughly 30 per cent of households really struggling. We are predicted to be entering a period of serious increases in wholesale prices and while we need to move towards those 2030 and 2050 targets, we also need to ensure that energy bills in Northern Ireland remain affordable, both for business and domestic customers.
I think there needs to be an honest discussion about this within the energy policy, of what tax measures will be needed to support these zero-carbon pathways and what consumers will be asked to support directly through their energy bills.
“Consumers mostly care about affordability, accessibility and ease of adoption and it is incumbent on us all to develop common toolkits, language sets and a common ambition.”
Noyona Chundur, Consumer Council
How can Northern Ireland’s potential as a leader in hydrogen production be maximised and how can this resource be used most effectively?
The demand for hydrogen is growing globally and is a clear signal to the marketplace that there is need to ramp up production. Creating the environment to support that locally is crucial. NUI Galway’s report on the hydrogen opportunities in Northern Ireland highlighted advantages in the form of our abundance of onshore/offshore wind potential, our modern gas and electricity networks, interconnection between both Ireland and Great Britain, the availability of salt cavern storage and our internationally recognised track record for engineering and manufacturing innovation. Those are our opportunities, but it doesn’t mean it automatically happens. We have to corral those opportunities and fund them. It is welcome that the Department for the Economy has been vocal about the opportunities for hydrogen as a key economic driver for investment in Northern Ireland, but we need those ambitions to come to fruition and projects to get off the ground.
An existing route exists via the gas network to utilise this hydrogen. By the end of 2022, there will be c.550,000 customers that could be connected to the gas grid, who could be using hydrogen, blended in the short term, but ultimately through the replacement of natural gas with hydrogen. This will enable a natural progression towards a cost-effective decarbonisation solution for consumers. Undoubtedly, however decarbonisation will also require a change in consumer behaviours and therefore, the promotion of energy efficiency needs to become a collective requirement for the regulated sector. I believe that responsibility for education and awareness should be devolved to those regulated companies to enable them to support customers in the education of consumers to reduce their consumption.
In 2020, 14.8 per cent of the energy that could have been delivered from wind farms wasn’t because there wasn’t sufficient load to allow the turbines to run. Those levels of curtailment are undermining wind farm investor confidence at a time when the ambition is for another 1,600MW by 2030. Battery technology and demand-side management are options, but the scale is such that we need something larger. Electrolysis to produce green hydrogen, which is then linked to the gas network, which can collect, carry, and deliver to the end users, is the perfect solution. Currently, this is a Northern Ireland problem, but it is one that will come to Great Britain with a planned 100GW of offshore wind in the North Sea. We have the opportunity to develop the technologies, algorithms, expertise and services locally, which we can then export to others.
Northern Ireland’s leadership is probably going to come in the green hydrogen space, but the challenge will be staying competitive with blue hydrogen from other parts of the UK, which is going to track natural gas prices. Blue hydrogen can be produced at scale now, using existing technology, so we need to move quickly to ensure there is a distinction and to maximise the benefit. Our agility is that we can disperse hydrogen through electrolysis around Northern Ireland very quickly. That we have the capability to utilise the offtakes from electrolysis in heat and oxygen is a strength we can tap into. We also have potentially the largest energy storage system in Northern Ireland, in the form of the gas grid, which will be a big advantage.
From a Northern Ireland Plc. perspective, being a leader in hydrogen production is a real selling point for the region and a strategic opportunity in terms of research, innovation, and job creation but it requires government prioritisation of policy, strategy and connected interventions. However, there is a need for some control of hydrogen development and production because it cannot create undue costs for consumers. We have to be mindful that we run the risk of hydrogen innovation being passed on to consumer bills or the consumer being locked into using natural gas, if we fail to develop alternative renewable fuel sources and hydrogen proves to be significantly more costly in the long-term.
“I’m encouraged about hydrogen development, but we do need to ensure that our ambition is built on strong foundations and that as we move forward we are not overstepping what the technology can actually deliver.” John French, Utility Regulator
I think we are in a good place with hydrogen in that we have had the successful trial at Kinnegar and there is a real policy desire for green hydrogen to work for Northern Ireland. We have the benefit of a new natural gas network and also, that NI Water is a government-owned company, with sites to utilise throughout Northern Ireland. So, I’m encouraged about hydrogen development, but we do need to ensure that our ambition is built on strong foundations and that as we move forward we are not overstepping what the technology can actually deliver.
What are the levers available now and what needs to be enabled for quick progress in the energy transition?
The existing regulatory structures have served Northern Ireland reasonably well in that we have rolled out the natural gas network, we have bypassed the 40 per cent renewable electricity target and we have developed an all-island electricity market. However, the statutes and legislations are now old and are unlikely to provide the right levers to get us to our 2050 targets. We need to introduce flexibility into the system whereby policymakers, regulatory authorities, and consumer bodies have a role around sustainability and affordability, while supporting industry, consumers, and government to reach 2050 ambitions.
Keeping a focus on getting customers to convert to gas needs to be a priority. A lot of small steps can be taken now to ensure we progress towards the 2050 end goal. We can’t rely on these things to happen automatically and lose sight of those intermediate steps, particularly in relation to conversion from oil to gas. For a large percentage of households in Northern Ireland there is no real obvious ways to decarbonise their homes but connection to the natural gas grid presents an opportunity for them to significantly reduce their carbon emissions, embrace high efficiency technology and, not to be understated, link into a network that is focused on further enhancing its environmental credentials by embracing renewable alternatives and in turn, avoid some of the costs and complications of decarbonisation in some other form. Biomethane injection is another available lever. Agriculture is facing major challenges in respect to decarbonising therefore we need to provide the right vehicle to support biomethane injection into the gas grid.
The polyethylene makeup of our gas distribution system means that very little, if any, modification is needed to accommodate a 20 per cent blend, as a first stepping stone. It also means home appliances will not have to change. The 20 per cent is volume blended and it represents only 6 per cent of the energy content within the pipes. Therefore, gas bills would remain 94 per cent methane and bills will only increase marginally. What it does for the industry is it allows us to deploy hundreds of megawatts of electrolysers, bringing the price points down for these machines. Once we go beyond 20 per cent and towards 100 per cent hydrogen, there will be a much lower cost base. I would love to see Northern Ireland start early because we could increase the allowable impurity of hydrogen in the gas network from 0.1 per cent to 1 or 2 per cent and that would allow us to do some projects in advance of primary legislation coming through. That initial focus would get us out of the starting blocks.
The ROCs scheme for Northern Ireland was extremely effective in supporting the growth of wind energy. The RHI scheme has meant that we are probably ultraconservative, but we are going to need the instruments to back up biogas injection. It is a lever that needs pulled but it is also one that crosses many departments, and we need a collective understanding and collective support.
Domestic switching rates from oil to gas are less than 3.5 per cent at the moment and have been for the past two years, so increasing the number of natural gas connections is critical as it would further reduce carbon emissions. Facilitating biomethane injection is another important lever, when considering the size of our large agriculture sector and the opportunities that presents. I think a lever that is often overlooked is the improvement of domestic energy efficiency. Increased efficiency means reduced demand, but it will require consistent messaging and the entire ecosystem coalescing around the same goal.
What is the one most important element of ensuring that consumers understand, are empowered, and are supported throughout the journey to net zero?
Consumer protection is fundamental. It builds confidence, it builds education, and it empowers consumers. We need a level playing field when it comes to energy transition and to achieve this, we need to learn from consumer protection failures and address the regulatory gaps that exist. Similarly, we will not win hearts and minds with the language we are currently using. Our discussions with consumers cannot be technology led but we are still defaulting to regulation and policy when we talk about the energy transition. Consumers mostly care about affordability, accessibility and ease of adoption and it is incumbent on us all to develop common toolkits, language sets and a common ambition.
Regulated organisations need to have responsibility to support education and help consumers understand the information that they are being provided by government and other statutory bodies. More than that, such organisations need to translate that information to have a tangible meaning for the consumer. To empower consumers, they need to be properly informed and there are parties like ourselves, through our experience in converting customers from oil to gas, who can provide a route to that consumer market and should be properly utilised. Alongside a clear Energy Strategy we must ensure the proper education tools are rolled out across the right platforms to inform current and future decision makers and for me, that should include education from an early age through the school curriculum.
“Blue hydrogen can be produced at scale now, using existing technology, so we need to move quickly to ensure there is a distinction and to maximise the benefit.”
David Rooney, Queen’s University Belfast
We fully support the idea within the Department for the Economy Energy Strategy of a one-stop-shop to give consumers trusted advice on how they can make tangible differences to carbon consumption and measure how they are making an impact on the journey to net zero. That consumer trust in the market means they are getting what they pay for, and it is about building on that and empowering consumers to make the right decisions, within that trusted environment.
Two decades of focus on technology and economic modelling will amount to nothing if there is no social plausibility. How we change hearts and minds is fast becoming the single most important thing in terms of action. Prior to the pandemic young people moved en masse to show their displeasure at our custodianship of the environment and the energy transition. We need to have an open mind to what they are saying and work closely with them for future solutions.
The simplification of choices and ensuring that people know this is the right thing to do. It is a similar concept to the fair-trade movement or farm-assured brands in relation to agriculture. We need transparency so that people are empowered and can see that they are making the right choices. A regional return is key in this regard.