UK Government ‘not properly discussing’ wind-down of gas networks as heat goes electric

Pictured: A home fitted with an air-source heat pump. Image: OVO Energy

The Regulatory Assistance Project (RAP) has published a new paper stating that there is currently a “dearth of public consideration and discussion” over what will happen if the nation’s gas distribution networks need to be shrunk or shut down.

At present, some 23 million of the UK’s 25 million homes use gas boilers for heating and hot water. These will need to be replaced with alternatives as the nation works towards net-zero emissions by 2050.

The Government is yet to take a strategic decision on whether hydrogen will have a major role to play in replacing gas in home heating. It is set to make that choice in 2026, following a series of local trials of increasing size.

Gas networks are pushing hydrogen blending as a key option. Other organisations including MPs’ committees and think-tanks argue that electrifying heating would be appropriate for most homes, and that hydrogen should be used in harder-to-abate sectors like heavy industry to maximise carbon savings and cost-effectiveness.

Energy and Net-Zero Secretary Grant Shapps has told the media that hydrogen is “unlikely” to be a major source of home heating and has shelved plans to bill taxpayers for scaling hydrogen production. Aside from the climate and cost considerations, there is much to be done on communicating safety to households. Trials of hydrogen heating and cooking in Whitby were axed last month due to strong local opposition.

The RAP’s report argues that Shapps and his peers will need to start seriously planning for an orderly wind-down of gas networks if they choose a technology pathway that primarily relies on electrifying heat.

“There are few examples of governments needing to actively wind down assets, particularly heavily regulated ones in such a short space of time,” the report reads. “Some creativity and openness is, therefore, needed to tackle this challenge.”

Who pays?

A spokesperson for the Department for Energy Security and Net-Zero (DESNZ) told edie that Ministers are already working with Ofgem and National Gas Transmission to review options for the future. All options would consider cost, energy security and resilience, the spokesperson said.

The RAP is urging the Government to properly understand the costs of decommissioning gas networks in a range of scenarios, through this work with Ofgem and other parties. These organisations should then set out options for paying the costs without overburdening consumers.

“The combination of stranded asset risk and a lack of consideration of decommissioning costs places a significant financial liability onto UK citizens,” the paper states. “Continuing capital investment into the gas grid exacerbates these risks.”

Three options for winding down networks while limiting costs are proposed by the RAP. The first is accelerating the depreciation rates for gas distribution assets, which typically have working lives of 45 years.

Utility Week, edie’s sister title, has already been told by Ofgem that it will consider this option in a consultation before the end of 2023.

The RAP notes that this model could push up costs significantly on customers unable to switch away from gas. Many of these customers will be low-income, raising concerns about social impacts.

The RAP also sets out a “regulatory evolution” model, whereby the Government mandates gas distribution networks to evolve into electric heat providers. This is how Denmark was able to transition its oil and gas firm to offshore wind (Orsted).

This is described as a “more collegiate approach”, but questions around legacy debts remain.

Nationalising gas networks and having the Government oversee the wind-down is the third and final option proposed by the RAP. This would allow the heat transition to be “treated more as a national project but would move all risk faced by shareholders onto UK taxpayers”.

The RAP believes this would be the most rapid of the three options, whereas the other two come with risks of incrementalism and social equality.

In any scenario, there are also considerations around the employability of former gas network employees. The UK Government has not produced a comprehensive update to its skills strategy since legislating for net-zero in 2019.

It has, however, launched a series of siloed projects to test ways of reskilling, upskilling and improving education for the low-carbon transition. For example, in March, a £5m grant was launched with the aim of supporting 10,000 low-carbon heating installers over the next two years.

Nesta estimates that around 3,000 people are currently trained as heat pump engineers in the UK. It forecasts a need for at least 27,000 skilled staff in this profession by 2028 to meet Government installation targets.