Grid Networks and the Energy Transition

Russell Reynolds Associates recently hosted the tenth instalment of the Energy Matters, People & Money networking series. The event brought together a community of industrialists and investors from across the energy transition ecosystem to discuss challenges and opportunities across the grid.

Keynote Speaker  

Cordi O'Hara
President, UK Electricity Distribution & Executive Committee Member, National Grid PLC

Today’s grid is not fit for tomorrow’s purpose

Electricity consumption in Europe is set to increase by 60% between now and 2030, with an additional 50 to 60 million heat pumps, 65 to 70 million electric vehicles (EVs) and over 600 GW of additional renewable capacity. Roughly 70% of this expected capacity will be directly connected to distribution grids, as foreseen by REPowerEU.

According to the EU Commission, more than €550 billion in capital spending is needed across the grid value chain to sufficiently supporting the rapid uptake of new energy demand. Under the new ED2 regulatory deal, National Grid has committed to a £7 billion investment program to support the transformation of the network, development of local decentralised systems, and investment ramp-up of non-traditional assets. They are also the largest flexible purchaser of distributed system operators, which allows them to shift load and accelerate connections. In 2024, National Grid registered 55,000 vehicles and 40,000 heat pumps in one week alone. More should be done to publicise these positive milestones in the transition to a low-carbon future.

Networks are currently facing several challenges related to the management of grids, including permitting, congestion and access to capital

Grid lock: investment demand far outpaces speed and build capacity. As such, delayed grid connections are now one of the main bottlenecks to expansion. A large and growing queue of approximately 550GW of renewable projects are waiting to be connected to the grid, both onshore and offshore. Lengthy grid permits often contribute to delays in project deployment, which further exacerbates queue and connection congestion.

Fundamental distribution, transmission, and system operator changes are needed to improve the pipeline for new grid connections at every level. New contracting structures must also be brought forward to accelerate connections for shovel ready projects, rather than waiting in line behind proposals that have stalled due to finance or planning.

Zombies out! Developers need to be held to account on their project progression, with strict milestones included in connection agreements and terminations for those who do not meet them. In the UK, the grid is a 65GW system with 55GW peak demand. To meet 2050 goals, future energy scenarios—with various technologies and connections mixes—require between 120 and 150 GW, meaning the current system is more than 3X oversubscribed.

Enabling direct contracting rights and enforcing powers at the transmission level is increasingly complicated, as electricity system operators (ESOs) contract on behalf of transmission owners. ESOs must be granted greater rights and access to mobilise, and milestone manage projects on behalf of the transmissions.

Boasting the world’s largest interconnected grid, Europe has a leading position in interconnectors. While the Inflation Reduction Act (IRA) is attracting significant capital flows to the US, complex contractual environments and stringent local conditionalities complicate investment opportunities. The challenge, for the UK and Europe, is to work on addressing bureaucracy in project timelines and connections to maintain a competitive edge. This requires major changes to grid regulation.

While expanding grid infrastructure capacity, existing grids can be better optimised, digitalized, and made more flexible to manage and spread load

Modelling latent existing capacity. Available capacity utilization needs fundamental reforms. In the UK, transmissions, operators, and distributors have begun collaborating to trial smarter ways to use latent capacity. At the national level, this has released 50GW. At the distribution level, they identified 10GW of additional connections capacity and accelerated 10GW of battery storage, which allowed for discussions with 200 customers about accelerating their grid connections by up to five years.

Heat pumps offer promising efficiencies regarding load shifting and smart heating, given their latent flexible capacity. Battery storage, when modelled correctly, can also help to bring forward connections onto the main grid. In collaboration with energy supplier Octopus Energy, National Grid has expedited the installation of low-carbon technologies, which will reduce installation times for heat pumps by up to five weeks and up to 10 weeks for home solar, batteries, and EV charging. In 2023/4, compared to 2022/3, Octopus saw the number of winter-installed heat pumps double—a promising trend.

Digitization: key to a decarbonized future. Digital innovations like AI underpin the solutions for grid operators who are reimagining how they enable efficient upgrades.Digitization is also key for improving the connections journey for high volume, low voltage customers. For example, digitized tools have helped National Grid bring forward new self-serve connection products to the residential market, including one which has enabled 60% of customer EV connections to be approved in two seconds, rather than two days.

Leadership implications

1. Communication and transparency of policy, decision-making and activities are key to building trust with stakeholders and customers. Companies must effectively communicate the benefits of sustainable development and the associated challenges.
   
   
2. All collaborative energy transition action is underpinned by the need for leaders to adopt a ‘Sustainable Mindset’ and should be embedded into the core of all leadership teams.
   
   
3. Companies who carve out sufficient space for innovation and fail fast environments, outside of the core regulated sector, will have a competitive edge. Partnerships and collaboration are also key for digitized innovation and are underpinned by the need for leaders to have multi-level systems thinking.

Authors

Chris Nicholson; a member of the firm’s Global Industrial & Natural Resource Practice, covering the energy markets.

Abigail Skerrett; a member of the firm’s Global Industrial & Natural Resource Practice, covering the energy markets and co-lead of the Global Energy Transition Practice.

Shola Brown; a member of the firm’s Global Industrial & Natural Resource Practice.

Please get in touch if you would like to discuss these themes in more detail, and/or attend the next event in the Energy Matters series on Wednesday, 13 March.

We will hear from Brian Davis (Chief Executive Officer, C2X) and Yves Vercammen (Chief Corporate Officer, TES-H2), who will share their views on scaling companies to support the decarbonisation of hard to abate sectors.