Scotland's Draft Energy Strategy Response on Behalf of Centrica
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Scotland’s Draft Energy Strategy Response on behalf of Centrica plc Centrica welcomes publication of the Scottish Government’s draft Energy Strategy at a time of change and challenge for the energy sector. We recognise the strategic value of aligning the strategy to the Scottish Government’s ambitious Climate Change Plan and acknowledge the value of pursuing a sector by sector approach. This whole system approach is to be welcomed but it is not without challenges. We recognise from the draft strategy that energy efficiency remains, rightly, a priority. But there are entrenched issues around hard to treat homes, rural off grid properties and how to stimulate the able to pay market. We also recognise that the decarbonisation of heat remains an issue and consider this in detail within this submission. We hope that our expertise in these areas and others can make a valuable contribution to the development of the strategy going forward. Underpinning our response is the question of cost effectiveness and consumer fairness which must lie at the heart of future energy use and provision. The Scottish Government’s consultation represents an opportunity to develop a new partnership between businesses and Government. This should be a partnership where the Government focuses on creating the conditions for businesses of all sizes to grow and flourish; and where businesses invest in the infrastructure, jobs, skills and technology that can upgrade our economy for a post-Brexit world. We also believe smart energy will play a transformative role in helping customers to reduce their energy bills and businesses to lower their production costs and increase their productivity. We are leading the UK’s smart meter rollout and investing in new technology through our Connected Home and Distributed Energy & Power businesses. To ensure businesses, large and small, are able to play their part and deliver the growth and prosperity that Scotland needs, we believe the Scottish Government must ensure this strategy is a true partnership with industry by recognising the importance of long term policy certainty and competitive markets. About Centrica Centrica is a FTSE 50 energy and services company, headquartered in the UK, employing around 36,500 full- time employees worldwide including 4,200 employees across five sites in Scotland. Our business is focused on satisfying the changing needs of our customers across a number of international markets. We are concentrating our growth efforts in five key areas - Energy Supply, Services, the Connected Home, Distributed Energy & Power and Energy Marketing & Trading. We supply energy and services to around 28 million customer accounts mainly in the UK, Ireland and North America through strong brands such as 1 Scottish Gas, British Gas, Direct Energy and Bord Gáis, supported by around 12,000 engineers and technicians. Scottish Gas, Centrica’s energy and home services brand in Scotland, serves over 1.5 customers accounts - more than half the homes in Scotland. We are focused on delivering high levels of customer service, and improving customer engagement and rewarding loyalty. We are developing innovative products, offers and solutions, underpinned by investment in technology. We are using new technology and innovation to meet the changing needs of customers. We are leading the smart meter roll-out in the UK, with around 4 million smart meters installed in homes and businesses so far, and we plan to invest £1.2bn in our Connected Home and Distributed Energy & Power businesses between 2015 and 2020. These investments will allow us to continue to roll out new products, offers and services to customers. We have over 500,000 Hive hub customers and more than 360,000 Hive Active Heating customers in the UK. We continue to develop solutions for business customers, including our Panoramic Power devices, which provide detailed insight into energy consumption, helping businesses manage their energy usage and save money. We have also recently announced a new £100m venture ‘Centrica Innovations’ that will identify, incubate and accelerate new technologies and innovations. In addition to our customer facing business we remain one of the largest producers in the North Sea and as well as operating a number of central power generation assets in the UK we have a 20% stake in the existing nuclear fleet. Our interest in the draft energy strategy is therefore clear. We are happy to provide our insight in key areas, though we have confined ourselves to those questions were we consider we have a particular locus or perspective. Section One: Meeting Scotland’s Energy Supply Needs Question 1 – Overview: What are your views on the actions for Scottish Government set out in chapter 3 regarding energy supply over the coming decades? Centrica welcomes the Scottish Government’s consultation at a time of fundamental change in the energy sector and supports its ambition to develop a whole system approach in delivering a low carbon future. We note that there has been a continuing rise in the proportion of installed renewable generating capacity over the last decade. By the end of 2016 there was some 35GW of installed renewable capacity connected to the grid, 14% higher than in 2015.1 In addition, of the 16GW of new generation built over the past 5 years, 80% has been renewable generation.2 Looking ahead, we note that the proportion of renewable generation connected to the grid is set to continue to increase with Scotland well placed to continue to benefit from further wind and solar development. Rising volumes of intermittent generation place a growing need on reserve capacity, reliable baseload generation and flexibility services, such as demand side response. 1 BEIS, DUKES, May 2017 2 Carbon Brief, 2016 2 We therefore believe it is right that the Scottish Government seeks to focus on all of these areas as it considers the future of the energy supply in Scotland. We have set out below some further detail around each of the core areas. 1. The Increasing Role of Distributed Energy and Flexibility Providing large energy users with control over their energy consumption not only allows them to reduce costs, but also allows for the delivery of flexibility services to provide for the better management of grid demand. We believe this new “distributed energy” model is an important growth area and has an important role to play in delivering demand side response services for the grid, so helping manage challenges associated with peak demand and intermittency. We are currently investing £700m in our new distributed energy and power business to 2020. Our distributed energy proposition is based around three key pillars: . Energy insight: brings customers visibility of real-time electricity use so they can understand how they’re using energy and help them to identify opportunities to harness the flexibility of their assets through demand side response and/or install new technologies. Asset optimisation: aims to help customers to unlock new revenue streams through demand side response, using the data and aggregation services provided by our NEAS business. Energy solutions: offers a range of solutions such as energy storage and onsite generation such as combined heat and power (CHP) and renewable technologies, alongside energy efficiency measures. To widen our portfolio of flexible generation assets we have committed to a £180m investment programme in four new flexible power generation and storage facilities. We are also investing in a 49MW battery storage facility in Cumbria, which will be one of the world’s largest and most sophisticated sites of its kind, capable of responding to fluctuations in demand in less than a second and holding enough power to meet the needs of around 50,000 homes. Construction started in March of this year and we expect the facility to be operational next year. As the Scottish Government considers the longer term future of energy supply we believe it is important that the growing role of distributed energy and demand side response is understood and steps are taken to help raise awareness of the opportunities, especially within the larger business community. 2. Oil, Gas & Nuclear Plant Power Generation We also believe cost effective investment to maximise the productive lifetime of existing generation assets is important. The two existing nuclear generation plants in Scotland, Hunterston B and Torness collectively provide electricity supplies to up to 3.7m homes. Centrica has a 20% equity holding in both power plants and we consider each has an important and continuing role to play in delivering secure, low carbon baseload generation. We consider the opportunities for plant life extension of both plants, where appropriate, will also provide an important opportunity for continuing, cost effective power generation into the future. We also the actions setting out the Scottish Government’s commitment to working with the OGA, UK Government and industry to support the oil and gas sector. 3 Centrica remains one of the largest gas producers in the UK North Sea and in December 2016 we announced that the Cygnus gas field had come on-stream and is on course to be the largest producing gas field in the UK in 2017 – producing enough gas to heat around 1.5m homes. We are also looking at some further potential new developments, such as the Pegasus field, in the Southern North Sea .Earlier this month we announced plans to invest £35 million in our Chestnut field – extending the life of the field and trebling production. Similar to all operators working on the UK Continental Shelf in the current climate, we are more focused than ever on making sure we have a competitive cost base to ensure our activities in the North Sea remain cost effective into the future. We therefore continue to look at new ways of approaching projects and developments in the North Sea.