Given the green light: gas

Both of the network innovation competition submissions for gas made the cut in the latest round of innovation funding. Network runs through the projects and Ofgem's pointers for next year.

Given the green light: gas

While attention has been focused on the review of the innovation mechanism, network companies have continued quietly to vie for the funds up for grabs every year. In early December, Ofgem revealed the six successful projects from this year’s Network innovation Competition (NIC). Projects that will shape the future of the sector. It also identified projects that were found wanting.

Compared with projects previously funded through the NIC, this year’s successful entries have a strong focus on issues of the here and now, particularly the transition to distribution system operator, new sources for ancillary services and distributed generation – or simply exploring the practical implications of adopting technologies of the future of today’s network.

The two projects submitted to the gas NIC will consider the implications of adopting new kinds of gas using practical tests, and the impact this will have on administrative mechanisms such as billing.

Although both projects that were submitted were approved, the expert panel that helps Ofgem access the quality of the projects expressed some concerns, namely disappointment about the small number of gas projects submitted, and a recurring theme of the opportunity for third parties to benefit significantly from customers’ money. In future it would like to see more transparency around the profits likely to be made by such companies. With plans afoot to allow third parties to access funds directly, Ofgem may have to define more stringent rules to ensure this does not result in profiteering.

With this round over and the future secure, networks will soon likely to be considering next year’s entries. Ofgem has expressed a desire for clearer evidence that there is an appetite among other network operators to adopt the chosen solution, and more transparency about the likely profits and contributions of third parties.

HyDeploy

£6.8m

Other funding – £0.8m

National Grid Gas Distribution

HyDeploy will demonstrate, on Keele University’s private gas network, that natural gas containing levels of hydrogen (10-20%) beyond those permitted by current safety standards (0.1%) can be distributed and utilised safely and efficiently. The project will provide evidence to make the case for increased use of hydrogen on the network.

Ofgem’s assessment

This project will be the first practical deployment of hydrogen onto a live gas network since the 1970s following the move to North Sea gas. It is unlikely to be undertaken as part of business as usual, and there is little direct financial benefit to networks doing so.

It will contribute to the important debate about the future role of hydrogen in decarbonising heat, and generate knowledge that will be important for both Ofgem and networks companies looking to the next price control.

Carbon emissions can be reduced by lowering the carbon content of gas through blending with hydrogen. If successful, permitting hydrogen on the network at the levels proposed has the potential to facilitate between 15 and 29TWh a year of decarbonised heat in Great Britain. The continued use of the existing gas network and household appliances offers substantial benefits to consumers.

Keele University’s large private gas network is of an appropriate scale and the project has strong support from stakeholders. NGGD has also made a commitment that the equipment used to produce hydrogen will either be reused for a future successful NIC project or the supplier will buy it back and return the proceeds to customers.

The project has a clear plan of future trials that would be necessary to facilitate rollout, with the next step envisaged to be a trial on a public network. Realising the benefits outlined above is also dependent on the supply side of hydrogen developing on an industrial scale, including low-carbon production of hydrogen.

The project requires direct interaction with consumers, so Ofgem expects NGGD to conduct a robust consumer-engagement programme to ensure the interests of consumers are fully protected.

Future Billing Methodology 

£4.8m

Other funding – £0.5m 

National Grid Gas Distribution

Great Britain has relied predominantly on North Sea gas since the 1970s – with regulations and the billing regime designed to accommodate this stable and reliable source of fuel.

However, the supply market is changing, with gases of differing qualities, such as liquefied natural gas and biomethane, being injected into the network.

The current billing methodology isn’t optimised to cater for gases of significantly different quality and this project will develop options for new gas billing methodologies.

Ofgem’s assessment

Ofgem has funded this project but imposed a stage gate after the initial stakeholder-engagement phase in the first year to ensure that the proposed evidence gathering in the later stages of the project is required before committing customers’ money to complete the project.

The expert panel had some reservations about the value for money of the project and the methodology, stemming from uncertainty about the extent of the fieldwork required for the project to justify changes to the billing methodology.

At the stage gate, NGGD will need to demonstrate more clearly that there is demand for change, and justify its approach for developing its new billing options by using evidence from industry engagement.

Next year

  • The Expert Panel was disappointed by the small number of bids to the Gas NIC and it would be keen for the network companies to suggest ways to improve the NIC to attract more submissions.
  • It was disappointed that neither of this year’s projects is receiving any direct external funding, despite having strong project partnerships.
  • It would also have liked more evidence within the full submissions that project partner costs have been robustly market-tested to guarantee customers are getting value for money.
  • Both bids could have been improved by having more detailed information on their customer engagement plans in the full submissions

Until this stage is passed, only £0.8m of the funding will be spent, ensuring value for customers. This extra criterion has the potential to delay the project relative to NGGD’s proposed timings, but Ofgem will work with NGGD to reflect the new requirements.

The area of charging has thus far received only limited attention from stakeholders, and will require that they work closely together.

A key benefit of the project to customers is to help to open the gas network to more low-carbon gas sources by reducing the need for the expensive and carbon-intensive processing that is currently needed.

The project has reasonable financial and environmental benefits, but these will be refined during the project, with a key deliverable being a detailed cost-benefit analysis of the options for potential future implementation.

Network rounds-up the winners of the electricity NIC here.


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