The 2024 progress report from the Climate Change Committee (CCC) makes uncomfortable reading. We are only on track to make roughly a third of the emissions cuts needed to meet our 2030 target. One of the few success stories comes from the electricity supply sector, which has “driven the bulk of emissions reduction so far” through ongoing decarbonisation of its sourcing.
The CCC has long been advising that we need to replace fossil-fuelled activities with electrified ones where we can. In the run-up to our net zero target becoming law, it advised government that we need to speed up the electrification of heat and transport specifically. (There’s no point having the greenest electricity on earth if we’re still burning gas in our boilers and petrol in our cars.)
Now the newly-published CCC report makes it clear that a 2023 drop in emissions is mainly thanks to a 10.5% fall in total gas demand. Gas has long been the biggest single source of fuel for UK electricity generation and this was still the case in 2023, but it did drop from 38.5% to 32%. This is the lowest level of gas as a generation source since 2015.
Slowing progress on gas consumption
This looks promising – but will our gas consumption keep falling fast enough for us to meet climate targets? The July 2024 Future Energy Scenarios report from ESO, the UK’s electricity system operator, raises doubts.
ESO sets out four possible scenarios for 2030: three pathways to net zero and one scenario where the UK is not on track for its 2050 net zero target. The forecast gas demand under the four scenarios is as follows.
- Holistic Transition pathway: 642TWh
- Electric Engagement pathway: 649TWh
- Hydrogen Evolution: 724TWh
- Counterfactual (not on track for the net zero target): 790TWh
Gas consumption in 2023 was 872 TWh, so all four scenarios represent a significant drop. But they all show the fall happening more slowly than was predicted in the July 2023 edition of the ESO report.
The Telegraph has covered the story. It quotes energy expert Kathryn Porter as attributing this to two changes: the closure of nuclear power plants and Ofgem’s decision not to go ahead with developing more electricity interconnectors with Europe. (The 2023 ESO report makes it clear that importing electricity via interconnectors is an important tool for managing times of low renewable output in the UK.)
The depreciation problem
Meanwhile, Ofgem has published a report on price controls that complicates the picture further. The RIIO framework (Revenue + Incentives + Innovation + Outputs) is the regulator’s system for rewarding utilities for achieving desired outcomes in the fairest way possible. The RIIO-3 methodology decision report, published in July 2024, wrestles with the problem of declining gas consumption.
This fall in consumption is planned and desirable, but still a problem in the context of RIIO. The regulator needs to repay the companies who have invested in gas network infrastructure by passing the costs on to consumers. But as gas consumption falls, these costs will fall on a smaller number of consumers and Ofgem deems this unfair. (The term used in the report is “intergenerational unfairness”.) Ofgem’s suggested solution is to balance the costs more fairly across generations by getting consumers to pay more in the near future.
Nothing is yet set in stone. Ofgem promises a flexible approach to reflect changing government policy and many uncertainties around the net zero transition.
Where does hydrogen fit in?
It is also not yet clear how hydrogen fits into all this. The previous government was exploring the possibility of replacing hydrogen with natural gas in our home heating and announced a raft of hydrogen policy measures in December 2023.
The idea of repurposing gas assets for hydrogen is attractive, but the evidence so far suggests it is not so simple. The government’s Science and Technology Committee found in 2022 that using hydrogen for home heating would require replacing a lot of infrastructure, rather than reusing what is already built. Since then, two of the gas networks involved in the flagship “hydrogen village” trials have had their projects scrapped and may soon have to return funding.
The Ofgem report certainly seems to be concentrating more on the managed depreciation of gas assets than on repurposing them for hydrogen. It specifically says that there is uncertainty around any possible hydrogen transition.
Ongoing uncertainty in the gas landscape
We can expect UK gas consumption to fall in the next five years, and we can expect prices to rise. But there is uncertainty over most other elements of the natural gas phase-out, whether for heating, electricity generation or industrial processes. The Energy Advice Hub will bring you any new developments as they happen.
