Originally published on Energy Post.
By Karel Beckman
Steve Holliday, CEO of National Grid, the company that operates the gas and power transmission networks in the UK and in the northeastern US, believes the idea of large coal-fired or nuclear power stations to be used for baseload power is “outdated”. “From a consumer’s point of view, the solar on the rooftop is going to be the baseload. Centralised power stations will be increasingly used to provide peak demand”, he says, in an exclusive interview for World Energy Focus, a publication of the World Energy Council produced by Energy Post. The chief of National Grid also notes that energy markets “are clearly moving towards much more distributed production and towards microgrids”.
“This industry is going through a tremendous transformation. We used to have a pretty good idea of what future needs would be. We would build assets that would last decades and that would be sure to cover those needs. That world has ended. Our strategy is now centred around agility and flexibility, based on our inability to predict or prescribe what our customers are going to want.”
As CEO, since 2007, of a company active on two continents, and being responsible for both gas and electricity transmission and distribution, Steve Holiday finds himself smack at the centre of the whirlwind developments in the energy sector. And since National Grid is a regulated (albeit publicly listed) company, he can speak from a reasonably independent position. Which makes it fascinating to talk to him.
“What is crucial”, says Holliday, “is what consumers will want. In the past all consumers got the same. One size fits all. Now one size will not fit all. People will want to interact with energy in many different ways.” This is why he warns against people who think they can predict the future. “Some people think they have the answer, whatever it may be. But I believe there will be different answers for different places, rural and cities, and for different customers. That’s why flexibility and agility are key.”
Taken by surprise
Nevertheless certain trends that are currently taking place are unmistakable, says Holliday. “The world is clearly moving towards much more distributed electricity production and towards microgrids. The pace of that development is uncertain. That depends on political decisions, regulatory incentives, consumer preferences, technological developments. But the direction is clear.”
“The amount of solar being added to the system is incredible. 1500 MW in the first three months of this year”
For the UK National Grid works with four Future Energy Scenarios, which are available on the internet and updated every year. According to these scenarios, it is likely that by 2020 small-scale, distributed generation will represent a third of total capacity in the UK. Holliday: “This is a quadrupling in just a few years. It represents a massive increase from the old days of centrally dispatched generation.” Recent government measures in the UK to limit subsidies for renewable energy may affect the timing of this development, says Holliday, but not the trend.
He notes that the speed at which the energy system is changing has taken many people by surprise, including himself. “The amount of solar being added to the system is incredible. 1500 MW in the first three months of this year. That’s the capacity of two power stations. I made a comment to the Energy Minister four years ago that there was little probability we would have 20,000 MW of solar in the UK. Now three of our scenarios have more than 20,000 MW of solar by 2035.”
That’s not to say that there will be no need for big networks in the future, Holliday adds. “We need big systems that are able to take power that is spilling over. And you are unlikely to economically balance energy needs without some centrally dispatched generation, whether that’s offshore wind, nuclear power or gas. In this sense we see ourselves as a stable long-term business around which new business models are emerging.”
What is the future of baseload generation in such a system? “That’s asking the wrong question”, says Holliday. “The idea of baseload power is already outdated. I think you should look at this the other way around. From a consumer’s point of view, baseload is what I am producing myself. The solar on my rooftop, my heat pump – that’s the baseload. Those are the electrons that are free at the margin. The point is: this is an industry that was based on meeting demand. An extraordinary amount of capital was tied up for an unusual set of circumstances: to ensure supply at any moment. This is now turned on its head. The future will be much more driven by availability of supply: by demand side response and management which will enable the market to balance price of supply and of demand. It’s how we balance these things that will determine the future shape of our business.”
“If you have nuclear power in the mix, you will have to think about the size of these plants. Today they are enormous”
So nuclear power stations will be used to meet peak demand? “If you have nuclear power in the mix, you will have to think about the size of these plants. Today they are enormous. You will need to find a way to get smaller, potentially modular nuclear power plants. I suspect they are going to be associated with fixed demand for businesses rather than household consumers in future, for demand that’s locked in. For small consumers you need flexibility.”
How much of a problem is the integration of intermittent renewables in Holliday’s view? “It’s simplistic to only look at storage. We will have the intelligence available in the system to ensure power is consumed when it’s there and not when it’s not there.” This is what software companies are working on at the moment, says Holliday. “We have a partnership with New York University where we support a programme for startups. Of the 30 startups we are supporting, 25 are software companies. And this is called an energy incubator!”
These companies, says Holliday, “are building the apps that will transform the energy world, aggregating data, marrying supply and demand. It is a really exciting space to be in.” As an example he notes that “there will be massive amounts of data available from vehicle charging stations in the future. Intelligence is going to decide how this will be used.”
Does this mean network operators are currently overinvesting? For example, do we really need to build big new power lines to transport electricity from offshore wind power farms, as some people are saying? Holliday: “It depends. If you look at Germany, they will have huge offshore capacity in the north and a lot of the consumption in the south. How else can you match that than with transmission lines? But in the UK and Northeastern US, the challenge is to ensure we are smart and limit the building more capacity and sweat our assets.”
In the UK total electricity demand is expected to stay flat until the mid-2020s. Then it will take off again as “enormous amounts of heat and transport are likely to be electrified”. He is convinced “cars will go electric”. So will a major portion of heat. “As the World Energy Council’s Jazz and Symphony Scenarios show, for the moment you can’t square the Energy Trilemma without fossil fuels. But in the future what you really need is electricity.” So could the likes of Shell, BP and Total move into electricity? “If you want to be an energy company ten years from now, it’s hard not to think about that.”
“In a competitive retail market as an energy supplier where volume drives profits it is difficult to incentivise using less energy”
Interestingly, the UK and Northeastern US have very different market designs. The UK retail market is competitive and fragmented. “In the Northeastern US”, says Holliday, “95% of our customers want us to procure their power and gas and simply charge them the wholesale costs.” The advantage of the US structure is that “it allows us to really focus on reducing our customers’ demand without implications for our profit. In a competitive retail market as an energy supplier where volume drives profits it is difficult to incentivise using less energy.” Yet in both markets, new entrants will emerge that will transform the business, says Holliday. “They will ask consumers what they will really value. 100% reliability? A low price? And they will find or design a product that is suitable.”
Reprinted with permission.