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Sustainability

Energy spotlight: Centrica

Our Energy Transition Report highlights how meeting the net zero target could open significant opportunities for businesses in the UK’s energy system.

At a glance

  • The demand for electricity in the UK is expected to grow 20-25% by 2035 as the energy system decarbonises and there’s an increase in electrification. 
  • There is a growing need to decarbonise heating, which will involve the use of a range of new and existing technologies.
  • You cannot predict the pace of the transition, or which technologies will win. It’s important to have a balance of portfolio options, to be able to go fast, go slow, and help customers and society.
  • The transition requires well informed conversations, debate, and a clear regulatory framework.
  • Traditional partnerships within the energy ecosystem are changing quite dramatically, which makes it an exciting time for business.

 

Download our report to read more about the opportunities from the path to net zero.

How is Centrica adapting operations and strategy to meet net zero targets?

“We’re committed to being a net zero business by 2045 or sooner and to help our customers be net zero by 2050. As the leading supplier of residential gas and power in the UK, it’s key we are actively involved no matter what the pace of the transition is. With an increase in demand for intermittent and distributed technologies such as solar, wind alongside centralised base-load generation such as nuclear in the UK, the energy system is going to get more complex, and it will become more demanding for companies like Centrica to make sure we can provide secure, affordable, and green sources of electricity.

As a uniquely integrated energy company we have a significant role to play on behalf of society. But it also provides business opportunities, too. We’re adapting our strategy and approach to investment right across the range of opportunities to transition.”

How is Centrica supporting UK businesses and communities with the net zero transition?

“Because of the complexities of the transition pace, it’s important for us to have a balance of portfolio options across the customer and generation side. We’re making sure we can help customers in the short-, medium- and long-term with solutions to help decarbonise their home or business and manage their energy demand.

Whether it’s Smart Meter Asset provision or heat pumps; or businesses using their real estate to optimise their own low-carbon generation, we have a flexible range of technologies to support the shift to a lower carbon future.

We also want to invest in the generation of new clean electricity, and that will be from conventional renewable sources such as solar and wind, but also when the sun doesn’t shine and the wind doesn’t blow, very fast-response gas-fired power generation technologies that can be switched on in a matter of minutes to ensure security of supply.

To decarbonise further, we’re looking at hydrogen-ready backup generation and carbon capture and storage [which involves taking CO2 emissions, transporting them to a site – usually an old oil and gas field – and burying them].”

How is Centrica coordinating within the UK energy ecosystem to transition to net zero?

“Nobody has all the answers, and it’s only through discussion and collaboration that we’ll make the best choices and solutions. Centrica probably has a leading position in the UK with a presence across the whole energy ecosystem from generation to customer supply and we are playing an active role in the transition to net zero across all these elements of our business.

Within our portfolio we have the opportunity to invest in a number of large scale projects, which could make a material difference to the speed of the UK’s net zero transition but to do so will require a multi-party approach and a clear regulatory framework that supports investment.

For example, through our interest in the Spirit Energy joint venture, where we own 69%, we have committed to decarbonise the portfolio by not exploring for any new oil & gas fields and have some significant conversion options such as carbon capture and storage, most notably at the Morecambe reservoir in the Irish Sea, which has the potential to be one of the largest reservoirs of carbon capture in the country, if not in Europe.

We also have access to the UK’s largest natural gas store at Rough, off the east coast of the UK. With investment, this could be reconfigured into a hydrogen store and, again, one of the world’s largest if we secure the appropriate support from government. This could be transformational for industry in terms of how you potentially supply hydrogen into the transmission system and strengthen the UK’s energy security.

We’re excited this transition could create new relationships and partnerships - ones that we may not traditionally have.” 

What else could accelerate the shift to low-carbon energy solutions?

“It’s about how we strike the balance. No one player in the market can dictate how that will work. It also depends a lot on international markets and international energy systems, too. Being well informed is critical because the system is complex.

The UK has an exciting portfolio – it’s got a real advantage in terms of its sources of renewable energy. Whether that is wind or solar; our topography; the large system of depleted oil & gas reservoirs in the North Sea. We have the skills, we have the engineering capability to respond to some of these challenges, which makes us well placed for things like carbon capture. We shouldn’t underplay that; transitioning our workforce with green skills is super important, too.”

What are some of the barriers?

“We would all like the transition to net zero to go quicker if we could. But the practicalities are challenging and complex. You only need look at the events of the last few years to recognise the importance of the security of supply as well as affordability and sustainability. Getting that balance right requires well-informed conversations and debate.

Policy clarity and a clear regulatory framework are important, so the energy sector can invest at scale into things like carbon capture or hydrogen, or electrified heating and mobility.

The significance and benefits of these technologies extends far beyond Centrica. Morecambe could hold three years’ worth of the UK’s CO2 emissions in that one resevoir alone. And there are many of these options around the country. It’s proven technology, it’s not that complex. It just needs a price mechanism to incentivise it.

There’s a huge pipeline of renewable projects waiting to connect to the grid. But our timelines are well behind some of our European peers, and it needs to speed up.

The finance community has an important role to play in terms of making sure the money follows the intent of activity.

Look at what’s happened with interest rates over the last couple of years. A lot of renewable projects, which would have looked very attractive to developers five or six years ago when interest rates were very low, are now looking to refinance their debt and suddenly it looks very expensive. There are a lot of market forces that you must respond and react to.”

What else could help deliver a decarbonised and resilient energy system?

“We have options here in the UK to really make a difference. In the near to mid-term, things like nuclear have a role to play in the transition and we’re supportive of increasing nuclear production alongside renewables. We’ll look at that in the context of a material and a reliable source of long-term energy production for the country. If you think about secure, affordable, and green, it ticks a lot of boxes.

The transition needs to happen at both the demand or customer end and at the supply or generation end, and we have to be involved given the scale of what we do. There’ll be no effective transition without Centrica in the UK and we recognise that’s our responsibility and our opportunity.

We’re building momentum, we’re in a position where the company has performed well over the last few years, we have a strong balance sheet, a new strategy, Paris-aligned net zero targets and a commitment to investing in green energy assets.

We feel well placed that we can respond no matter where the market takes us.”

 

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