Cross sector common view RIIO challenge group update NGESO Review 26th March 2019 https://nationalgrid.onbrandcloud.com/login/

Method/Approach National Grid ESO has undertaken a review of the cross-sector common view that has been developed by the network companies for the RIIO challenge group. The aim is to compare the cross-sector common view with the 2018 Future Energy Scenarios (FES) range across the key drivers. To provide confirmation that the position is in line with the FES view and provide any insight as appropriate, particularly in light of any significant changes since July 2018 and any insight from the emerging FES19 analysis. This process reviewed whether the appropriate key drivers for investment had been identified and how the proposed ranges for these key drivers compared with those published in the latest FES. Where relevant, we have also provided some indication on how these ranges could change in FES 2019, which is still under development. In addition to these comparisons, we have also carried out some additional checks to review consistency of these ranges as a whole (for example, whether the view of total electricity supply is consistent with electricity peak demand and whether gas and electricity demands are consistent).

Results of review The key drivers, areas of uncertainty and the assumptions broadly aligns with the FES18 and emerging FES19 views. There are a few areas that are either outside the FES view or we think are incorrectly captured which we have highlighted in the following slides. It should be noted that the FES are designed to be used as a set of scenarios to provide a plausible and credible range that could act upon networks. They are used to understand the least worst regret actions to be taken. Whilst individual scenarios are designed to be self consistent, no single scenario is designed to be a standalone view of the future. We would also like to note that care should be taken not to consistently pick values from the top or bottom end of the ranges as this could lead to a result outside of the FES range. The scenarios are developed based on a mix of low, medium and high drivers that combine in a holistic manner to meet security of supply standards. E.g. selecting all generation high cases could lead to levels of security of supply greater than the market needs to deliver or selecting all low cases could lead to a security of supply deficit.

Energy demand summary We believe that the key energy demand drivers for investment on the transmission and distribution networks have been broadly identified. We agree with the areas of greatest uncertainty for heat and transport, with heat in particular affecting not only the total energy usage but the split between gas and electricity networks. The key drivers are broadly consistent with those in FES. Electricity Demand Assumptions of total Electric Vehicles seem appropriate and in line with FES, although the EV peak demand assumption have reduced for FES19. Range in Excel spreadsheet of 2.6-8.1GW now more like 1-4GW for 2030 due to changing assumptions around charging behaviour Heat pumps are within FES range, however we expect more of those to be hybrid in FES19 reducing impact on peak electricity demand. Gas Demand 1 in 20 peak day gas demands for GDN demand are much higher than National Grid’s analysis. We believe this is an error as it appears that the total demand including NTS demand has been allocated to GDNs. Gas demand for transport is within FES range. However, in FES19, stakeholder feedback suggests a move straight from diesel to hydrogen truck may happen and we expect to show this in some scenarios. We agree that regional variations are likely, due to regional initiatives such as hydrogen networks, however hydrogen is not expected at scale by 2030. Also the demand for hydrogen is outside the FES range. The values are given in bcm which is slightly confusing as we usually present hydrogen in energy terms. 22 bcm corresponds to 74 TWh. FES has very little hydrogen in 2030. 74 TWh is reached in 2036.

Electricity Demand Driver ENA Common view FES Comments Smart Appliance & TOUT 1.30 – 1.54 GW 0.52 – 1.54 GW Aligns with 2018 FES view. FES19 range is expected to be lower than FES 18 and outside ENA range. I&C Demand side response 2.0- 2.7GW 1.4 – 2.5GW Slightly higher than FES DSR. Note DSR is not Triad response as Triad includes embedded generation. Is it possible that ENA common view includes Triad? Electric Vehicles 10.1 -10.6 2.68 – 10.63 Aligns to FES view. Heat pumps & district heat 1.2 – 2.4m dwellings 1.18 – 4.71m dwellings Peak demand 60.9 – 62.4GW 62.0 - 63.8GW Lower end FES view. FES19 expected to have wider range which this would be within.

Gas Demand #1 Driver ENA Common view FES Comments District Heat Aligns with FES view Hydrogen (pure) 0-22bcm (74TWh) 2.6TWh Outside of FES range. The top of this range appears to be dependent on large scale pilots approved soon. FES Hydrogen demand does not reach 74TWh until 2036. FES19 high range expected to increase but still below 22bcm/74TWh in 2030. NGV Transport 48k – 104k vehicles 3k – 110k Aligns with FES view. We expect lower NGV in FES19 as relative diesel performance improves leading to straight switch to hydrogen with less CNG in the interim, Hourly peak demand 220 – 230 GW None published This is not a value that is published by National Grid SO or specifically used for planning.

Gas Demand #2 Driver ENA Common view FES Comments 1 in 20 peak demand >5000 GWh Total 3900 - 5083 GWh LDZ high case 3752GWh Outside of FES range. FES figures include NTS and export demand. ENA view presented has been apportioned across GDNs. Which we believe to be an error. NTS/GDN splits are published in GTYS*. Total demand of 5083 GWh, equates to 3752GWh at LDZ level. Combined heat and power 2.1 – 2.2GW 2 – 2.3GW Aligns with FES view Decentralised gas generation 5 - 8.7GW 3.9 – 9.6GW https://www.nationalgridgas.com/document/101771/download

Electricity supply summary We believe that the key electricity supply drivers for investment on the transmission and distribution networks have been broadly identified. In particular, for transmission these are considered to be offshore wind, interconnectors, nuclear and onshore wind (particularly in Scotland). For distribution these are considered to be wind, solar, waste and thermal plant. Storage will be a key driver on both networks – although depending on its location and characteristics, could potentially reduce network reinforcement. Carbon capture utilisation and storage may also drive transmission investment from the early 2030s. The key drivers are broadly consistent with those in FES and also appear to be broadly consistent with peak electricity demand. The range for offshore wind is high but this is supported by the completion of the Sector Deal and FES 2019 may see a slight increase compared to FES 2018 The range for interconnectors is high but this is supported by a strong pipeline of projects supported by cap and floor. However, the 3 GW for SHETL looks high as this would require an additional project beyond NorthConnect. The ranges for distributed wind and solar look reasonable but it may be worth considering the availability of natural resources in the regional allocations (e.g. the south may be more favourable for solar) The range for storage tends to exceed that in FES. While storage technologies have the potential to grow at pace, it may also be worth considering how this capacity would be brought forward (e.g. capacity market de-rating factors have been lowered for batteries to reflect duration) and their route to market. We would also like to note that care should be taken not to consistently pick values from the top or bottom end of the ranges as this could then be inconsistent with electricity peak demand and security of supply. The scenarios are developed based on a mix of low, medium and high drivers that combine in a holistic manner to meet the security of supply standard.

Electricity Supply - Transmission Driver ENA Common view FES Comments Nuclear 4.6GW 1.2GW- 9GW Aligns with FES view Offshore wind 25 – 29.1GW 16.1 – 29.1GW Aligns with FES view. Note FES19 range may be higher reflecting sector deal. Onshore wind 10-11.5GW 9.3 – 12.4GW Aligns with FES view. Expectation that more is in Scotland due to Scottish government support Interconnectors 15 -16.5GW 9.8 – 20GW Aligns with FES view. Other generation 29.7 – 36.7GW 25-45GW Aligns with FES view * (see below) Storage transmission only 4-5.7GW 4-4.8GW Higher than FES range. But we recognise there is great uncertainty in the deployment of storage * Note that these ranges appear to be informed by taking the minimum / maximum values for the different technologies across the four scenarios and combining all the max / min values together. This means that the max / low values for the FES range do not correspond to a specific scenario and care should be taken in how this is then used.

Electricity Supply - Distribution Driver ENA Common view FES Comments Thermal generation 9.5 – 10.4GW 5.6 – 8.2GW Higher than FES range. This needs checking as we think it may include transmission biomass but not diesel recips. Wind 7.9 – 10.4GW 6.95 – 12.35GW Aligns with FES view Solar 19.6 – 23.6GW 16.4 – 32.8GW Storage GB view 9.7 – 12.9GW 5.9 – 9.0GW Higher than FES range. But we recognise there is great uncertainty in the deployment of storage

Gas supply summary We believe that the key gas supply drivers for investment on the transmission and distribution networks have been broadly identified. Shale gas, hydrogen and low carbon gases. It is not obvious why Norwegian gas is included in the list of key drivers. The delivery of Norwegian gas is not expected to rise above current levels. No new infrastructure is needed. There may be expenditure needed on compressors for bringing gas south from St Fergus The key drivers are broadly consistent with those in FES The top end of the range given for Norwegian supply is higher than in FES 2018 (or FES 2017) The range for low carbon gases is similar to FES though the FES range is slightly wider, both higher and lower. There is an assumption that all low carbon gas feeds into the distribution network. In FES we assume some will feed into the NTS. There is an assumption that shale gas will be included in all scenarios. The top end of the shale assumption is consistent with FES, but there is a minimum of 5 bcm. FES has two scenarios with no shale as it is highly uncertain. We also expect some to be transmission connected. SGN include shale gas in Scotland. There has been interest in developing shale in Scotland but the Scottish government has imposed a band on the technology. WWU also include shale gas. The Welsh Government opposes shale development and a ban is in place, but this could be in the SW part of their territory? Hydrogen is discussed under the energy demand section.

Gas Supply Driver ENA Common view FES Comments Shale 5 -15bcm Total aligns with FES view. However 2 FES scenarios have no shale, plus we do not expect shale in Scotland or Wales, due to government views, and expect some to be transmission connected. Therefore regional split does not align with FES. Low carbon gases 0.8 – 1.8bcm 0.32 – 2.2bcm Aligns with FES view. Norwegian gas 17- 32bcm 17-29bcm Similar to FES view, but above FES high case.