May2022OIESPaper:EL48EnergyNetworksintheEnergyTransitionEraRahmatallahPoudineh,SeniorResearchFellow,OIESiThecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsmembers.Copyright©2022OxfordInstituteforEnergyStudies(RegisteredCharity,No.286084)Thispublicationmaybereproducedinpartforeducationalornon-profitpurposeswithoutspecialpermissionfromthecopyrightholder,providedacknowledgmentofthesourceismade.NouseofthispublicationmaybemadeforresaleorforanyothercommercialpurposewhatsoeverwithoutpriorpermissioninwritingfromtheOxfordInstituteforEnergyStudies.ISBN978-1-78467-199-0iiAbstractAsinfrastructuresthatconnecttheenergysourcewiththeenergyuse,energynetworksconstituteacrucialelementofnationalandglobalenergysystems.Theyalsoplayakeyroleinhelpingwithbalancingsupplyanddemand,thusensuringthatenergyisnotonlyavailableintherightplacesbutalsoattherighttime.Energytransitionwillhavesignificantimpacts,thoughnotnecessarilyinthesameway,onexistingenergynetworks,forexample,electricityandnaturalgasgrids,andmightleadtothegrowthofnewenergycarriersystems,suchasdistrictheatingandcoolingandthedeploymentofnewinfrastructurestosupporttheuseofhydrogen.Understandingtheimplicationsofenergytransitionforenergynetworks,andthewaysinwhichtheseinfrastructuresshouldadapttothechallengesofdecarbonization,isimportanttoachievenet-zerocarbonobjectives.Thispaperexploressomeofthekeyissuesfacedbyelectricitytransmissionanddistributionnetworks;naturalgasnetworks;andfuturehydrogen,heating,andcoolingnetworksinthetransitionofenergysystems.Also,asfuturedecarbonizedenergysystemsarelikelytoexhibitsignificantlymoreinteractionbetweendifferentpartsofthesystem,thispaperexplorespossibleapproachestoutilizingthesynergiesbetweenenergynetworksandbenefitingfromtheirintegratedoperationtolowerthecostsandchallengesofdecarbonization.iiiContentsAbstract...................................................................................................................................................iiFigures...................................................................................................................................................iiiTables.....................................................................................................................................................iii1.Introduction.........................................................................................................................................12.Energynetworks.................................................................................................................................22.1Electricitytransmissionnetworks..................................................................................................22.1.1Theeffectofmarketdesign....................................................................................................52.1.2Electricitydistributionnetworks...............................................................................................52.2Naturalgasnetworks....................................................................................................................82.3Hydrogennetwork.......................................................................................................................112.4Heatingandcoolingnetworks.....................................................................................................123.Integratedenergynetworks...............................................................................................................164.Summaryandconclusions................................................................................................................19References............................................................................................................................................22FiguresFigure1:Naturalgasinprimaryenergyinglobalwholeenergysystemscenariosthatmeeta1.5°Cwarmingtarget........................................................................................................................................9Figure2:YearlyheatdemandintheUKacrosssectors(2019).................................................................13Figure3:Globalenergyconsumptionforspacecoolinginbuildings..........................................................15Figure4:Shareofheating/coolingdemandmetthroughdistrictenergysystemsinselectedcountries....15Figure5:Threelayersofanintegratedapproachtonetworkplanningandoperation................................17Figure6:IllustrativepossibleinteractionsbetweendifferentenergynetworksintheUK...........................18TablesTable1:Transformationoftheelectricitysystemanditsimplications..........................................................3Table2:Anexampleofatransmissionconstraintandtherangeofpossiblesolutions................................41Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.1.IntroductionEnergynetworksareinfrastructuresthatconnecttheenergysourcewiththeenergyuseandthusconstituteacrucialelementofnationalandglobalenergysystems.Overthelasthundredyears,thenetworks(especiallyelectricityandgas)haveevolvedfromlocalsimplegridsintocomplexinfrastructuresthattransferenergynotonlywithinnationalboundariesbutalsoacrossbordersinareliableandefficientmanner.Thenet-zerocarbontargetwillresultinasignificantchangeinenergysystemswithsignificantimplicationsforexistingenergynetworks.Itmayalsoleadtothegrowthofnewenergycarriersystems,suchasdistrictheatingandcooling,andpotentiallygiverisetonewinfrastructuretosupportthedeliveryanduseofhydrogen.Theelectricitynetworks,inparticular,arefacingsignificantchangesasaresultofthetransformationcurrentlyunderwayintheenergysystem.Electricityisthefastestgrowingconsumerenergybecauseoftherolethatitisexpectedtoplayinthedecarbonizationofthetransport,buildingandindustrialsectors.Traditionally,electricitywasgeneratedinlargecentralizedthermalorhydropowerplants,whichfeedintoatransmissiongridthatconnectsindustrialloadsandsuppliessmallerconsumersthroughdistributiongrids(IEA,2021).Thedesignoftransmissiongridswassuchthatpowerflowsbetweenpowerplantsandmainconsumptioncentreswithinaspecificregionwereeasilyaccommodatedwithoutstructuralcongestion.However,renewableenergyresourcessuchasonshorewindfarms,utility-scalesolarfacilities,andoffshorewindfarmsareoftenlocatedfarfromloadcentres,whilethermalgenerationplantsareeitherbeingphasedoutorforcedoutofthemarketbycheaprenewables.Atthesametime,thereisahugegrowthinsmallerdistributedenergyresources(DERs)onthedistributiongrid.Thesedevelopmentswillchangetheflowpatternwithintheelectricitynetworksandmaycreatenewconstraints,andthusnecessitatemoreefficientutilizationofexistinggridassets,newgridinvestments,andinsomecasesevennewoverallgridandelectricitymarketdesigns.TheriseofDERs,andthedecentralizationparadigminparticularisupendingthebalancebetweentheelectricitytransmissionanddistributionsectors.Distributiongrids,whichhavehistoricallybeenpassiveandaddressedgridconstraintsthroughoverengineering,arenowbecomingmoreactive.Alongwiththeneedfornewrules,thisalsomeansnewrolesfordistributionsystemoperators(DSOs)tofacilitateefficientintegrationofDERswhileachievingahigherlevelofcoordinationwiththetransmissionsystemoperator(TSO).ThisistoimprovevisibilityandcontroloverDERsandavoidpotentialconflictbetweenDSOsandtheTSO.Apartfromelectricity,naturalgasisanothermajorenergynetworkinmanycountries.However,thefutureofthenaturalgasgridisuncertain,especiallyatthelow-pressuredistributionlevel.Itpartlydependsonfutureenergyservicescenariosinwhichnaturalgasisprimarilyused,forexample,forheating,andpartlyonthetechnologicalprogressmadetolowerthecostsofcarboncaptureandstorage.Theuseofnaturalgasnetworksmustchangeifthesenetworksaretoplayaroleunderthenet-zerocarbonobjective.Low-carbonalternativessuchashydrogenareapotentialreplacementfornaturalgasbutarangeofchallengesexists.Forexample,astheshareofnaturalgasdeclines,availablevolumesofhydrogenmaynotbesufficienttojustifyadjustingtheexistingnaturalgasinfrastructures.Also,hydrogencanbetransportednotonlyviaarepurposedgasnetwork(ornewpipeline),butalsoviaavailablepowerandtransportationnetworks,suchasbyrail,road,andonwaterways.Thismeansthat,despitetheefficiencyofpipelines,repurposingthegasnetworkmightnotalwaysbetheoptimalsolution.Thereareotherenergynetworksemergingtoaddressthechallengesofdecarbonizingtheheatingandcoolingsectors.Heatnetworkscurrentlyhavelittleenergydemandmarketsharegloballybut,giventheiradvantageoverindividualheatingsystemsandalsothegrowingurgencyofdecarbonizingheatinginthebuildingsector,theirshareisexpectedtoincrease.IntheUK,forexample,theenergydemand2Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.forheatingaccountsformorethan40percentofallenergyuseandcontributestoaroundone-thirdofcarbonemissions.Underfavourableregulatoryandpolicyconditions,districtheatingcouldbecomethemainmethodofprovidingheattobuildingsinhigh-densitybuiltenvironments,suchascitycentresandcampuses,aswellassomeruraloff-gasgridcommunitiesinthiscountry.Coolingnetworksarelesscommoncomparedwithdistrictheating,butwiththeriseindemandforspacecoolingintheGlobalSouththesenetworksmayalsogainmoreimportance.IntheUnitedArabEmirates,districtcoolingcurrentlyprovidesmorethanone-fifthofthecoolingload(IRENA,2017b).Theeconomiesofscaleandincreasedefficiencyofprovidingcentralizedspacecooling,comparedwithindividualair-conditioningsystems,canreducetheircostssignificantly.Similartodistrictheating,districtcoolingalsorequiresappropriatepoliciesandregulationstofacilitateitsdeploymentinplaceswithhigh-loaddensity.Asenergysystemsbecomemorecomplexduetodecarbonization,decentralizationanddigitalizationtrends,theimportanceofenergynetworksascriticalinfrastructuresthatexploitandfacilitatetemporalandspatialdiversityinenergyproductionandconsumptionincreases.Itisthusnecessarytounderstandhowbesttodesign,regulate,integrateandoperateexistingandemergingenergynetworksinordertobenefittheentireenergysystem.Currently,energynetworks,whethertheybeelectricity,gas,heatingorcooling,arecommonlyplannedandoperatedindependently,whichresultsinalossofsynergiesandefficiency(Hosseini,2020).Theseseparateinfrastructuresarenowincreasinglybecominginterconnectedthroughnetworkcouplingtechnologies,suchascombinedcyclegasturbines(CCGT);combinedheatandpowerunits(CHP);andpower-to-Xtechnologies,suchashydrogen,ammonia,heating,cooling,andheatpumps.Anintegratedapproachtotheplanningandoperationofthesenetworkscanlowertheuseofprimaryenergy,provideflexibilitytointegratevariablerenewableenergyresourcesandlowerthecostofachievinganet-zerotarget.Thishoweverentailsaddressingarangeofoperational,regulatory,andgovernanceissues.1Theoutlineofthispaperisasfollows:Section2discussesissueswhichindividualenergynetworksarefacingduringtheenergytransition,startingwithelectricitytransmissionanddistributiongridsthengoingontonaturalgasandhydrogengridsandfinishingwithheatingandcoolingnetworks.Section3discussestheideaofanintegratedenergynetwork.Finally,Section4providesasummaryandconclusions.2.EnergynetworksEnergynetworksareinfrastructuresthattransferenergyfromtheproductionsourcetotheconsumers’premises.Theyconstitutevariousformsoftechnologiesrangingfromestablishednetworks,suchaselectricityandnaturalgas,toemerginggrids,suchashydrogen,heating,andcooling.Inthissection,webrieflyrevieweachofthesenetworksandhighlightthechallengesandopportunitiestheyfaceasaresultoftheenergytransition.2.1ElectricitytransmissionnetworksAswemovetowardsanet-zerocarboneconomy,theelectricitysectorisexperiencingaprofoundtransformation(BEIS,2021a).Onthesupplyside,theriseofrenewableenergyresourceshasledtopowergenerationbecomingincreasinglyvariableanduncertainwhilethepenetrationofDERsimpliesashiftofvaluefromtransmissiontothedistributionlevelduetodecentralization.Onthedemandside,electricitydemandisnotonlyexpectedtorise,duetotheincreasedelectrificationofactivitiesandprocesses,butmayalsobecomemoreuncertainbecauseofthenatureofnewlyelectrifiedactivities1Theseincludeeconomicissues,suchascoordinationinthepresenceoffragmentedinstitutionalandmarketstructuresofdifferentenergysystems,aswelltechnicalchallenges,suchaspreventingcascadingfailures,loweringvulnerability,andimprovingtheresilienceofintegratedenergynetworks(Tayloretal.,2022).3Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.(forexample,electricvehiclescanpotentiallychargeatanytimeandatanylocationonthenetwork).Inaddition,networkusersarebecomingmoreactiveasdigitalizationandautomationlowerthetransactioncostsofinteractingwiththeelectricitysystem.Theseallhaveimplicationsfortheentireelectricitysystem,includingthenetworkinfrastructure(seeTable1).Table1:TransformationoftheelectricitysystemanditsimplicationsTransformationofthepowersystemGenerationVariableanduncertainrenewablegenerationDistributedenergyresourcesEnergystorageElectricitydemandTheriseofelectricityconsumption(e.g.datacentres,electricvehicles,heatpumps,air-conditioning)IncreaseinuncertaintyofdemandNetworkusersActivenetworkusers(e.g.prosumers,energycommunities)CommunicationandcontrolDigitalizationandautomationImplicationsforthepowersystemInitialfocusPresentfocusPlanningRenewablegenerationCapacitygrowthSysteminteraction,integrationcostsNetworkinfrastructureSufficientcapacitytoaccommodateallusersMarket-basedanddifferentiatedgridaccessregime,competition,costallocation,coordinationwithgenerationOperationReliabilityandoperationalsecurityThroughenergy-onlymarketSearchfornewparadigmFlexibilityFromconventionalpowerplantsNewsolutions(e.g.DERs,demandresponse,energystorage)andnewincentivesandframeworksforflexibleservicesSource:authorIndeed,adifferentelectricitynetworkisneededcomparedtowhatwehadinthepast.Electricitynetworksrequirehighercapacityandinterconnectionsaswellasmoreefficientapproachestocaterfortheriseintheelectricitydemandandtheincreasedcomplexityandchallengeinasystembalancingsupplyanddemand.Althoughdecentralizationimpliesthatanincreasinglyhigherproportionofgenerationfacilitiesarelocatedonthedistributionside,significantinvestmentinthetransmissionnetworksisstillrequiredduetothediversegeographicallocationofnewmajorresources,suchasonshoreandoffshorewindfarms,aswellastheincreasedneedforinterconnectivitybetweenelectricitymarkets.Therearetwoimportantpointswhenitcomestoexpandingthetransmissiongrid.First,thedesignandconstructionofnewtransmissionassetsisacomplexandcostlyprocesswithalongleadtime.Second,thereisstilluncertaintyaboutthetimingandpaceofdecarbonizationofheatingandtransportaswellastheextenttowhichelectrificationcanoutcompetealternativeoptionsinallapplicationsoftheseservices.Thissuggeststhatfuturenetworkinvestmentsneedtoberobustinthefaceofarangeofpossibletransitionpathwayoutcomesforthesetwosectors.Akeyconcernassociatedwithtraditionalnetworkinvestmentmodelsisrelatedtoeconomicefficiencyandtheirnarrowfocusonasset-basedsolutions,withoutconsideringthefactthatwhilegridexpansioniscrucial,lowercostsandtimelysolutionsmustbeaddressedfirst.Asanexample,consideraregion4Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.inwhichthereisanexcesssupplyofwindgenerationbutlowdemandduetolowerpopulationdensity,whichresultsinatransmissionconstraint.Thestandardsolutiontothischallengeinthepasthasbeentoaddanewwirethatconnectstheareawherethereisovergenerationtothenearesthighdemandcentre.AsseeninTable2,thedeploymentofanewtransmissionlineisoneoffivepossiblesolutionsforthisproblem.Indeed,thisproblemcanbesolvedbyabattery;anaggregator;avoltageserviceprovider;orasinglelargeindustrialdemand,suchasanelectrolyser,whichcanabsorbtheovergeneration.Table1:AnexampleofatransmissionconstraintandtherangeofpossiblesolutionsTransmissionconstraintexample:thereisahighlevelofwindpowergenerationinanareawithlowerdemandSolution1:addingawiretoconnectthehighsupplyareatoanareaofhighdemandSolution2:deployingabatterythatstoresenergywhensupplyishighandreleasesitbacktothegridwhendemandishighSolution3:anaggregatorwhichcanaggregatedemandwiththeabilitytoturnitupordownwhenneededtomatchthesupplySolution4:avoltageserviceproviderthatcanrespondtotheparticularchallengeofasurgeinelectricitysupplyasresultofasuddenincreaseinwindgenerationSolution5:asinglelargeindustrialdemand,suchaselectrolysers,whichcanreacttowindpowergenerationsurgesSource:adaptedfromBEIS(2021a)Theproblemisthatwhennetworkcompaniesarenotincentivizedtoconsiderwidersolutionstogridconstraints,Solution1isalmostalwaysthepreferredchoiceevenifitiseconomicallyinefficient.Thisisbecausenetworkcompanieshaveabiastowardsasset-basedsolutionsasnoneoftheotherapproachesincreasethenetworkcompany’sregulatoryassetbase,thusallowingittoreceiveareturn.Onthecontrary,implementingothersolutionsmayevenresultinlowerrevenueforthenetworkcompanyifthevolumeofenergytransportedinthegriddeclines.Thisisspecificallythecasewhenthenetworkoperatorandnetworkownerarethesameorganizationandwasoneofthereasonsthat,intheUK,theNationalGridElectricitySystemOperator(NGESO)waslegallyseparatedfromthetransmissionowner,NationalGridElectricityTransmission(NGET),althoughtheybothbelongtothesamegroup—theNationalGrid(NG)Group.Therearenowdiscussionstogoevenfurtherandestablishanindependentenergysystemoperatorwhichhasabsolutelynointerestinregulatedelectricityandgasassets.Therefore,aligningtheincentiveofthenetworkcompaniesiscriticaltoachieveinvestmentefficiency.Althoughthemarketfornon-networksolutionsatthetransmissionlevelmightnotbewell-developedattheoutset,theintroductionofspecificincentivescanencouragethird-partyproviderstoinnovateandgrow,especiallyasthetechnologyadvances.Theincreaseintherangeofsolutionsalsoallowsforthepossibilityofutilizingmarketmechanismsandcompetitioninasupplychainsegmentthathastraditionallybeenconsideredasanaturalmonopoly.However,giventhatthetypeofnetworkconstraintaffectstherangeofsolutionsavailabletofixthem,anauctionfortheprocurementofsolutionscanbearrangedindifferentways.Sometimesanetworkconstraintmayhaveaclearuniquesolutionandothertimestheremightbearangeofpossiblesolutions.Thus,thecompetitiontoprocurenetworkservicesneedstoaccountfortheseidiosyncrasiesinthetypeofnetworkconstraintsandassociatedsolutions.IntheUK,withdiscussionsaboutintroducingcompetitioninonshoretransmissionnetworks,theregulatoristryingtodesignacompetitionframeworkthataccommodatesthesecomplexities.‘Earlycompetition’issuggestedincaseswhereagridconstraintisidentifiedbutthetenderhappenspriortothesurvey,consent,anddetaileddesignoftheassetbeingdevelopedsothewholeprocessofdesigning,constructing,anddeliveringthesolutionis5Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.tenderedfor(BEIS,2021).Thisistoallowforthefactthattheelectricitysystemischangingandmoresolutionsmightbecomeavailablebythetimethetenderhappens.The‘latecompetition’modelisproposedwhenthenetworkproblemisidentifiedandthesolutionisdecidedsothecompetitiontakesplacetobuild,own,andoperatetheagreedsolution.Despitetheappealofacompetitionforatransmissionnetworkinfrastructure,therearesomeimportantissuesthatneedtobeconsideredforthechoiceofsolutionandtheassociatedauction.First,theleadtimeoftransmissionprojectsishigh,whilethechangeinthegenerationanddemandpatternsisveryuncertaingivencurrentdevelopmentsintheelectricitysector.Thissuggeststhattheneedforactualtransmissioninvestmentcanalterbythetimeaprojectisdelivered.Second,thereisahighlevelofuncertaintyinthecostoftransmissionprojectsandtherearemanyfactors,suchasmeetingplanningrequirements,thatcanaffecttheoutturncostbutcannotbefullyaccountedforatthetimeofdecision.Third,theeffectoftheseproceduresonothercompetitionmechanisms,suchasthoserelatedtosystemservices(runbytheelectricitysystemoperator)orflexibilitytenders(runbythedistributionnetworkoperator),needtobecarefullyexamined.Therefore,introducingcompetitionfortheprocurementofnetworkservicesrequirescarefuldesignandimplementation.2.1.1TheeffectofmarketdesignThediscussionaboutnetworkoperationanddevelopmentcannotbedecoupledfromthedebateonthedesignoftheelectricitymarket.Theriseofvariableanduncertaingeneration,andthefactthattherenewableresourcesareoftenlocatedawayfromtheloadcentre,willchangetheexistingpatternsofflowinelectricitynetworksandthusresultinnewconstraints.Thechallengeisthatlocalcongestion,whetherintransmissionordistribution,isnotreflectedinelectricitymarketpricesinmostplacesaroundtheworldduetothesuboptimaldesignoftheelectricitymarket.Europeanelectricitymarkets,forexample,arestructuredaroundbiddingzones,whichmeansintrazonalcongestioncanbecomeapersistentchallenge.Currently,transmissionsystem’sconstraintsaremanagedbycost-basedormarket-basedregulatedredispatchoftheflexibilityresourcesinthezone.However,thiscanattimesbeverycostly.Thekeychoicestoaddresstransmissioncongestion,inthecontextoftheEuropeanelectricitymarketdesign,areeithertoexpandthenetworkortoreconfigurebiddingzonessuchthattheyreflecttheactualstructuralcongestion.Networkexpansionisnotalwaysthemostcost-efficientsolution.Furthermore,thereisnoguaranteethatinthefuturenewstructuralcongestionwouldnotariseafterthenetworkhasbeenexpanded.Animprovedzonalmodelwithadequatedemarcationofbiddingzonescanbeacheapersolutionthannetworkreinforcement.However,apartfromthechallengesofimplementingawell-definedbiddingzone,itisalsosusceptibletoso-calledincrease-decrease(inc-dec)gamingopportunities.Fromamarketdesignperspective,locationalmarginalpricing(LMP),alsocallednodalpricing,istheoptimumapproachtoutilizethegridefficiently.Inthismodel,thepriceateachnodeofthegridrepresentstheactualcostofsupplyingthatparticularnodegiventhenetworkconstraint.Thus,unlikezonalpricing,LMPtakesintoaccountthephysicalcharacteristicsofthegridwhichmeansno‘outofmarket’instrumentsarerequiredtoaddresscongestion,meaningthereisnoneedforredispatchofflexibilityservices.Itisalsolessvulnerableto‘inc-dec’games.Nonetheless,theimplementationofLMPinthecontextoftheEuropeanelectricitymarketisunlikelytobestraightforwardassuchashiftwouldimplymajorchangesformoststakeholdersinthemarket.2.1.2ElectricitydistributionnetworksElectricitydistributionnetworksareexpectedtobearthebruntoffurtherelectrificationoftransportandheatingservices.Theiroperatingenvironmentisalsofast-changingduetotherapidgrowthofDERsandtheriseofprosumers.Asaresult,thesenetworksneedtooperateunderconditionsofincreasedvariableloadandgenerationaswellasmorefrequentcongestion.Therearethreeregulatory6Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.instrumentsthatplayacriticalroleinaddressingthechallengesthatdistributionnetworksfaceduringthetransitionera(Gómezetal.,2020).Thefirstinstrumentisthegridaccessregime.Traditionallygridaccess,forbothconsumersandgenerators,isprovidedonafirmbasis.Thefirmaccessmodelallowsuserstowithdrawand/orinjecttothenetworkuptothemaximumcapacity2oftheinstalledfuseatanytimeorlocation.Despiteitssimplicitygivenlackofneedforreal-timemanagementofinjectionsandwithdrawalbythegridoperator,firmaccessisaninefficientapproach.Thisisbecause,underthisregime,alargepartofthenetworkcapacityisidleasnetworkcomponentsareoftenusedattheirratedvalueonlyforverylimitedtimesoftheyear.Firmaccessalsopreventsnewusersfrombeingconnectedwheneveryuserisgivenagridaccessoptionattheirmaximumratedcapacity.Anon-firmoraflexibleaccessregime,ontheotherhand,isbetteralignedwiththerequirementforfastandefficientgridconnectioninanelectricitysystemwhichisexperiencingrapidgrowthofrenewableanddistributedenergyresources.Aflexibleconnectionprovidesthenetworkoperatorwiththerighttomanagetheuserfeed-inorconsumptioninexchangeforincentivessuchasdirectrenumeration,arebateongridconnectioncosts,fasterconnection,orsimplytherighttoconnectratherthanrefuseacustomer’sconnectionapplication.Inthisway,theneedforfurthernetworkreinforcementdeclinesandmoreuserscanbeaccommodatedatanygivenlevelofcapacitycomparedwithcasesinwhichfirmaccessisoffered.Thesecondregulatoryinstrumentthatcanhelpwithefficientuseofexistingdistributionnetworkassetsisaflexibilitymechanism.Unlikethetransmissionnetwork,whichhastraditionallybeenusingarangeofflexibilityservicesintheredispatchmechanismtoaddressgridconstraints,distributionnetworkshavenothistoricallyutilizedtheseresourcestoreducetheneedfornetworkreinforcement.Indeed,distributionnetworkoperatorsonlyoccasionallysolvethecongestionand,whentheydo,itiseitherthroughloadsheddingorgenerationcurtailment.Flexibilityserviceswhichcanbeprovidedbydistributedgeneration,storage,ordemandresponseareimportantresourcestoaddressdistributiongridissues.Theycanreducetheneedfornetworkreinforcementandultimatelythecoststoendusers.Theimplementationoflocalflexibilitymarketsrequiresaddressingarangeofissues.Oneistoknowwhenandwhereflexibilityisneeded.Inadditiontotheneedforaccurateforecastingandtechnicalanalysisbygridoperators,itrequiresatransparentplatforminwhichdistributionnetworkoperatorsspecifytheservicestheyrequireintheirareasinawaythatisvisibletopotentialserviceproviders.Theplatformcanthenoperateamarketthatfacilitatesthetradeofflexibilityservices.Thismarketcanbeacombinationofvarioussubmarkets,suchasshort-termmarkets,auctionsforlong-termcontracts,bilateralcontractsaswellasregulatedpayment.Toeasethetradabilityofflexibilityresources,theseservicescanbestandardized.Anotherquestionistodeterminewhetherthenetworkissueforwhichtheflexibilityresourceneedstobeprocuredisofalong-termorshort-termnature.Flexibilityserviceproviderscannotmakeinvestmentdecisionsbasedontheshort-termneedsofthedistributiongridifotherlonger-termrevenuestreamsarenotavailable.Thus,ifthepriceofflexibilityservicesisvolatile,andthefutureneedforthemisuncertain,itisdifficulttoexpectnewinvestmententirelybasedonaspotpricesignal.Thisiswhyrevenuestackingiscrucialforprovidersofflexibilityservices.Insomecases—forexample,wherenetworkexpansionisnotpossibleduetoenvironmental,geographicalorpublicoppositionconcerns—therequiredservicesmaybeforthelongterm.Inthesecircumstances,long-termflexibilitycontractscanprovideastronginvestmentincentive.Overall,theuseofflexibilityresourcesasgridresourcesrequiresaregulatorymodelthatencouragesdistributionnetworkcompaniestoengageinsuchactivitieswhenitmakessensetodosofromaneconomicandtechnicalperspective.Theregulatoryframeworksalsoneedtoencouragethese2Insomeinstances,thiscapacitycanvarybasedonthetimeofusetoaccountforvariationsinload/generation.7Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.companiestodevelopcapacitiesingridmonitoring,control,andforecastingaswellascontracting,administration,andthesettlementofflexibilityserviceseitherin-houseorincollaborationwithreliablethirdparties.Thethirdregulatoryinstrumenttoaddressdistributionnetworkissuesisnetworktariffs.Theaimofnetworktariffsisnotjusttorecovertheregulatednetworkcostsbutalsotopromoteefficientbehaviourbynetworkusers,inotherwords,theefficientuseofgridcapacitybothintheshortandlongterm.LMP,whichreflectsthegridcondition(lossesandcongestioncosts),isconsideredthebestapproachtoguidetheshort-termbehaviourofnetworkusers.Inthelongterm,however,themainobjectiveistoreduceincrementalnetworkcostsandallocatethecostofgridreinforcementstotheuserswhocauseit.Anapproachtothisistochargeeachuserbasedontheircontributiontotheoverallpeakdemandinthenetworkorpeak-coincidentcapacitycharge.Theresidualnetworkscosts(afteraccountingforthecostofcongestionandlossesaswellasnetworkreinforcementcosts)donotdependontheusageandcanberecoveredthroughafixedcharge($/customer)inordertopreventdistortioninthegridutilization.Tomakeitmoreequitable,fixedchargescanbe,forexample,bebasedontheconsumers’income.TheapplicationofLMPisalmostestablishedfortransmissionnetworks,buttheyarenon-existentatthelevelofdistributionnetworks.Indeed,ifLMPisdeployedatthedistributionlevel,itprovidesasufficientsignalfortheoperationofDERsandtherewouldbenoneedforfurtherlocalmarketsforflexibilityservicesasdescribedearlier.However,thetechnicalandcomputationalcomplexitiesofimplementingLMPindistributionnetworksaremajorimpedimentstoitsdeployment.Inefficientnetworktariffscanactasabarriertothedecarbonizationofthetransport,heating,andcoolingsectors.Thechallengesassociatedwithintroducingefficientregulatedpricingfordistributionnetworkshaveresultedinadiscussionaboutthepossibilityofhavingadifferentiatedandtradablegridaccessregimeasasubstitute(atleastpartial)forregulatednetworkcharges(BrandstättandPoudineh,2020).Inthisway,accesstothegridcanbedifferentiatedbasedonarangeofdimensionssuchastime,forexample,peakandoff-peak;locationandrange,inotherwords,ifboundtoaspecificlocationatacertainvoltagelevelratherthanaccesstotheentiregrid;directions(injectionandwithdrawal);andutilization,suchasaccessrightswithsomelevelsofcurtailmentoption.Differentiationofthegridaccessismoreinlinewiththediverseuseofthenetworkandthusbetterallowsforefficientutilizationoftheexistingcapacityaswellasthedevelopmentoffuturecapacity.Also,gridaccessdimensionsarenotnecessarilyalwaysfixed,additionaldimensionsmaygainimportanceasthegriduseevolves.Furthermore,differentiationdoesnotneedtobesolelybasedononedimension.Indeed,itmaybeefficienttodifferentiatebasedonmultipledimensionsofnetworkaccess(forexample,controllablepeakwithdrawal/injectionatspecificnodesinthelocalnetwork).Aprofileinthiscontextcorrespondstoabundleofvaryingdegreesofaccessovermultipledimensions.Intermsofallocation,ratherthanafirst-comefirst-servedapproach,amarket-basedmechanismsuchasanauctioncanbeusedwherethecomplexitiesofrunningtheauctiondonotoutweighitsbenefits.Itmightalsobepossibletoarrangethetradingofalreadyassignedrightsamongusersorinatwo-stagebilateralprocesswiththenetworkoperator.Secondarytradingallowsex-postoptimalitytobeachievediftheinitialallocationhasnotbeenefficientoriftheusers’patternofnetworkutilizationhaschangedovertime,andtheirneedforgridaccessoversomedimensionshasconsequentlychanged.Italsohelpswithefficientexpansionofthenetworkbyallowingthegridoperatortobuybackaccessrightswhenitischeaperthannetworkreinforcement.Althoughthedistributiongrid’sissuesdiscussedhereweremainlyinthecontextofdevelopedeconomies,theywillalsobecomerelevanttodevelopingcountrieswhendecarbonizationeffortsinthepowersectorintensify.Atthemoment,inmanydevelopingcountriesaroundtheworld,distributionnetworkcompaniesareyetnotunbundled.Thismeansthesecompaniesaresimultaneouslyrunningnetworkandenergyretailingbusinesses.8Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Thelackofunbundlinghascontributedtosignificantchallengesforelectricitydistributionnetworksinmanydevelopingcountries.Forexample,incountriessuchasIndiaandTanzania,statedistributioncompaniesareinsolventbecauseofarangeoffactors,includingtheinefficientoperationofregulatoryassetsbydistributioncompanies,adelayinreceiptofsubsidiesfromthegovernmentforelectricityprovidedtosubsidizedusers,non-paymentofbillsbysomecustomersandveryhightechnicalandcommerciallosses.Thismeansthatwithoutreformsthatfundamentallychangethewayinwhichthesenetworkcompaniesoperatetoday,theycouldbecomethemainweaknessoftheoveralldecarbonizationandenergytransitioneffortsinthesecountriesand,specifically,deterthedevelopmentofvibrantDERmarkets.2.2NaturalgasnetworksThereisahighdegreeofuncertaintywhenitcomestothefutureofnaturalgas.Itishighlyscenario-dependentandconsequentlypolicy-driven.Thepathtonetzero,andtechnologiesadoptedineachnaturalgas-consumingsector,haveimplicationsfornaturalgasdemandandconsequentlyforutilizationofthegasnetwork(Hickeyetal.,2019).Gasdemandinthepowergenerationsector,forexample,willaffectthegastransmissionnetworkwhereasthegasdemandintheresidentialsectorwillaffectboththetransmissionanddistributiongrids.Overall,thereislittledoubtthattheuseofnaturalgaswilldeclineifclimatetargetsaretakenseriouslybutkeyquestionsarebyhowmuchandoverwhattimeframe.ArecentanalysisbyImperialCollegeLondonshowsthat,excludingextremescenarios,undera1.5degreesCelsiustarget,naturalgasusewilldeclinebyatleast~35percentby2050andby~70percentby2100comparedwiththe2019totalglobaluselevel(Speirsetal.,2021).Comparedwiththe2degreesCelsiustarget,naturalgasastheshareofprimaryenergyconsumptionisexpectedtobe40percentlowerin2050and45percentlowerin2100inhalfoftheIPCC1.5degreesCelsiusscenarios.Under2degreesCelsiustargets,however,scenariosshowtheuseofgasin2050toincreasebyatleast~6percentcomparedwiththe2019level.However,underthesame2degreesCelsiustarget,by2100,naturalgasuseisexpectedtodeclinebyleast~43percentcomparedwith2019(Speirsetal.,2021).Obviously,theseareglobalscenariosandthepicturecanbecompletelydifferentatthelevelofregionsandindividualcountriesduetothedifferentpathwaysfordecarbonizationindifferentcountriesandregions,suchasEurope,China,IndiaandLatinAmerica.Inlargecountries,eventhefinaloutcomeisverylikelytoberegionalratherthannationalduetoahighlevelofidiosyncrasieswithinthesecountries.Thesecondissueisthatpolicyuncertaintiesmakeitdifficulttopredictreliablythefutureutilizationofgasnetworks.InEurope,whichisaregioninwhichnaturalgasconstitutesalargeshareofprimaryenergyconsumption,thethreemainend-usesectorsfornaturalgasaredomestic/commercialheating,industrialprocessload,andpowergeneration(LeFevre,2019).Apartfromthepowergenerationthathasalmostacleardecarbonizationpathway,theothertwosectorshaveawiderangeofdecarbonizationoptions,whichincludetechnologiesandfuelssuchaselectrification;hydrogenfromrenewables;biogas;syntheticgas;carboncapture,utilizationandstorage(CCUS),amongothers.Dependingonthestrategydecidedforthedecarbonizationofdomesticheatandindustrialloadprocesses,theshareofnaturalgaswillvaryintheprimaryenergyconsumption.9Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure1:Naturalgasinprimaryenergyinglobalwholeenergysystemscenariosthatmeeta1.5°Cwarmingtarget.Source:Speirsetal.(2021)Therearealsoarangeofotherimportantuncertaintiesthataffecttheoutcomeofanyscenariobuildingonthefutureofnaturalgas,bothatthelevelofindividualcountriesaswellasglobally.Theseincludeissuessuchasthedegreeofcoaltogasswitching,useofnaturalgasforhydrogenproduction,penetrationofCCUS,abilitytoreducemethaneemission,uptakeofnegativeemissiontechnologiesand,finally,productionofgreenhydrogen(Speirsetal.,2021).Asaresultofpolicyandtechnologyuncertainties,thefutureofthenaturalgasnetworkunderanet-zerocarbontarget,islikelytobeoneofthefollowingscenarios:(a)substantialdecommissioning,b)maintainingitforasmallnumberoflargerindustrialcustomers,and(c)repurposingittocarrydecarbonizedgasessuchashydrogen.Itisalsopossibletohaveamixofthesesolutionsacrossacountrybasedontheneedsandthespecificfeaturesofaregion(EnergySystemCatapult,2022).Theconditionsunderwhicheachofthesescenariosarerealizeddependonanumberofimportantfactors.Interpretationoftheshape10Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Substantialdecommissioning,thoughunlikely,canbetheoutcomeofascenarioinwhichthereisnoCCUStechnologyavailableeconomicallyandtherehasbeenacoordinatedswitchtoalternativeheatingmodels,suchasdistrictheatingandelectrification.Thiscanleadtoasituationinwhichasignificantproportionoftheexistinggasgrid(acrossbothdistributionandtransmission)couldbedecommissioned.InthecaseoftheUK,thiscanbeupto80percentaccordingtoFrontierEconomics(2016).Therearehowevertwoimportantconsiderationsinthisscenario.Firstisthatsuchsubstantialdecommissioningrequiresaddressingthechallengeofdailyandseasonalenergystoragecapacitythatwillbelostiftherewereasignificantdecommissioningofthegasnetworks.IntheUK,forexample,naturalgashasbeenplayingacriticalroleinaddressingseasonalfluctuationsofenergydemand.ThepeakdemandforheatintheUK,whichhappensinthewinter,ismanytimeshigherthanthatoftheelectricitydemand.Asaresult,unlessalternativeenergynetworksarepreparedtohandlesuchademand,fulldecommissioningofthegasnetworkwillbeachallenge.Furthermore,suchanapproachrequiresacomprehensivecost-benefitassessmentofgasgridcommissioning.Whilethedecommissioningofspecificpipelinesandassetsisquitecommonaspartofthecurrentoperationofthegasnetwork,nationwidedecommissioningofthousandsofkilometresofpipelinesandstationsisnewtothegasnetworkcompanies.Thesecondissueisthatdeterminingdecommissioningcostsandregulatorytreatmentofthesecostsarenotstraightforwardtasks.Thecostofdecommissioningisuncertainbecausetherearemultiplepossibleoptionsforthis.Forexample,pipelinescanbefilledwithgrout,removedentirelyfromthegroundorsimplyleftunderground,althoughthelatterisliabletocreatesafetyconcerns.Furthermore,thebestapproachtodecommissioningislikelytodifferbasedonthespecificationofthepipelines,regionandconfigurationofthenetworkinanarea.Thereremainsthekeyquestionofregulatorytreatmentofthedecommissioningcosts,inotherwordswhoshouldpayforthesecosts?Shouldthecurrentorfuturegascustomersbearthecosts?Shoulditbechargedtothecustomersofthegasnetwork,thefutureusersofthehydrogennetwork,orboth?Isthereacaseforthesecoststobepaidthroughpublicfundsinordertoavoiddistortingenergypricesignalsintheenergymarkets?Isitfairtosaythatthenetworkcompaniesshouldthemselvesberesponsibleforthesecostsandnottheendusersbecausedecommissioningisaconventionalbusinessriskaspartoffallingdemandthatinvestorsshouldhavetakenintoaccount?Thereisnoeasyanswertothesequestions.Thescenarioofmaintainingthegasnetworkforasmallnumberoflargecustomersalsohasitsownchallenges.Thecostofthenetworkinfrastructureislargelyfixedastheseassetsexhibitahighlevelofeconomiesofscale.Therefore,withanincreaseinthenumberofcustomerstheaveragecostofthenetworksfalls.Thismeansthereisnoeasywayofrecoveringnetworkcostsfromasmallnumberoflargecustomerswithouthurtingtheireconomiccompetitiveness.Furthermore,inthisscenario,therewouldstillbesignificantrisksinnetworkinvestmentbecauseofthepossibilityofthenetworksbecomingstrandedinthefuture.Thiscanhappen,forexample,whencheapertechnologiesbecomeavailableandcausesomeoftheexistinggascustomerstoswitchtootherdecarbonizedfuels.Ifthisriskistransferredtothenetworkcustomers—forexample,throughanaccelerateddepreciationplan—itwillincreasethecostforthegridusers.Ontheotherhand,ifthisriskisleftwiththenetworkcompanies,itwillincreasetheircostofcapitalandaffecttheirabilitytoupgradeandmaintainthenetwork.Thethirdscenarioenvisionsacontinuingopportunityforgasnetworkcompaniestoremaininthebusinessoftransportinggaseoussubstancesotherthannaturalgas.Forexample,intheUK,biomethaneanddecarbonizedhydrogenarebeingdiscussedastwopotentialsubstitutesfornaturalgas.Biomethaneisconsideredaperfectsubstitutefornaturalgasandthereforedoesnotrequireanyfurtherinvestmentintermsofdedicatedpipelinesandstorageinfrastructures,thoughitmayneedsomeminoradjustmentstotheexistinggasnetworkstoaccommodateahighnumberofsmallerdecentralizedinjections(FrontierEconomics,2021).11Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Thesituationisdifferentwithrespecttohydrogen.Hydrogenisnotaperfectsubstitutefornaturalgas,thussubstantiallevelsofinvestmentarelikelytoberequiredtotransportandstorethehydrogeneitherbyconvertingtheexistinginfrastructureorinvestinginnewones.Thisrequiresaddressingarangeofimportantchallenges.Forexample,significantvolumesofhydrogenmaynotbeavailablefortheadjustmentoftheexistingnaturalgasinfrastructuretomakeeconomicsense.Also,hydrogencanbetransferredviaarepurposedgasnetwork(ornewpipeline)butalsoviaavailablepowerandtransportationnetworks(rail,road,waterways).Therefore,repurposingthegasnetworkinfrastructuretocarryhydrogenmightnotbetheoptimalchoiceinallcases.Apartfromthethreedistinctscenariosdiscussedabove,amoreprobablescenarioislikelytobeapatchworkoutcome,wherepartsofthegasnetworksareconvertedtocarryhydrogen,partsofitaredecommissionedandpartsofitremainoperationaltoservicetheremainingdemandfornaturalgas.2.3HydrogennetworkTheexistenceofanadequatenetworkinfrastructurewhichenableshydrogentobetransportedtostoragefacilitiesandtotheconsumeriskeytothedevelopmentofahydrogeneconomy(HMGovernment,2021).Hydrogencanalsobegeneratedatthepointofconsumption;however,themostefficientsupplysourcesarenotnecessarilylocatedclosetothedemand.Ahydrogennetworkconsistsofvariousmethodsfortransportingenergy,includingpipelines,roadtransport,railtransport,riversandmarinevessels,eachofwhichissuitableforspecificpurposesandconditions.Pipelinesareamongthemostefficientformsofhydrogentransportforshorttomediumdistances.Attheearlystageofhydrogendeployment,whenthereisnosufficientvolumeavailableforittohaveitsowndedicatedinfrastructure,blendingitwithmethaneisaneconomicsolutionthathelpstheindustrytotakeoff.Severalcountrieshavealreadyeitherintroducedblendingorhaveaplantointroduceitinthenearfuture.Overtime,asthehydrogenvolumeincreases,dedicatedinfrastructuresmaybedeveloped.Thetransportinfrastructureneededforhydrogendependsonthevolumeandlocationofthesupplyanddemandfortheproduct.Atthemoment,thedemandforhydrogenisdominatedbyspecificindustries,includingoilrefineries,ammoniaproducers,methanolproducers,andsteelproducerswhichareoftenlocatedinindustrialzones.Thisiswhythecurrentfocusofthededicatedhydrogentransportinfrastructureistoconnectexistingindustrialclustersaswellasports,cities,andareaswhichhavedeployedpilotprojectsorhostcommercialhydrogendevelopmentfacilities.Inthelongerterm,ashydrogenuseexpandstootherindustries,suchasheating,transport,andthepowersector,thefocuswillturntoconnectingregionalandnationaltransportinfrastructures.Thecostsofdedicatedhydrogenpipelinesarelikelytobehigherthantheirnaturalgascounterparts,althoughfactorssuchasthespecificationsofthepipelinesandtheterrainhaveanimpactonthesecosts.Thecostofrepurposingtheexistinggasinfrastructure,ontheotherhand,islowerthanbuildinganewone.Thekeycomponentsofrepurposingaremeasuringgascompositionandremovingundesirableelements,suchasnitrogen,toavoidimpactingthenetworkstructuralintegrity,replacingvalvesifneeded,continuouslymonitoringthepipelinestoidentifycracks,addingalayerofinternalcoatingifthepipelineisgoingtobeoperatedatahigherpressure,andmodifyingcompressorstationstomakethemcompatiblewithhydrogentransfer(Guidehouse,2020).Althoughpervolume,hydrogencontainsmuchlessenergythannaturalgas,thevolumeofhydrogenflowinthepipelinecanbeadjustedtocompensate,toagreatextent,forthelowerenergycapacityofhydrogentransport.Therearemanyissuesthatneedtobeconsideredwhenplanningforhydrogennetworkdevelopment.First,hydrogencanbetransportedbyvariousmodes,suchaselectricitynetworks,repurposedgasnetworks,purpose-builthydrogengrids,road,rail,ormarinetransport.Theincreaseinmultimodalinteroperabilityofhydrogentransportmodesisachallengewhenintendingtoexpandcurrentenergynetworksforthetransportofhydrogen.Thisisbecausesomeofthesemodes,suchasroad,rail,ormarinetransport,arecompetitive,whereasothers,suchasgaspipelinesorelectricitynetworks,are12Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.naturalmonopolies.Thismakesitdifficulttodeterminetheextentoftheneedfornaturalmonopolyinfrastructures,eitherbyconvertingexistingnaturalgaspipelinesordeployingnewdedicatedinfrastructures.Theregulatorcannoteasilyspecifyhowthedemandforhydrogentransportwillbesharedbyvariousmodesoftransport.Inotherwords,itischallengingtodeterminethepipelinerequirementsforhydrogentransportorsetapriceonthetransportationofhydrogenthroughnaturalmonopolieswithoutthisimpactingthecompetitivemeansoftransportingthehydrogen.Thereisariskthataninefficientlevelofpipelinedevelopmentoccursifthereisnomechanismtoachievecross-sectoraloptimizationacrossallavailablemodesofhydrogentransport.Thisrequiresawholesystemviewofthetransportationofhydrogenratherthanfocusingsolelyononemode,suchasrepurposingtheexistingnaturalgasinfrastructure.Thesecondissueisthathydrogeninfrastructures,includingtheexistingpipelines,arecurrentlymostlyunregulated.Infuture,however,theexpansionofthehydrogennetworkwillrequireanappropriateregulatoryframework,suchasthatfortheelectricityandnaturalgasnetworks.3This,amongothers,istoensurethatsufficientinvestmenthappensinthehydrogennetwork.Asthefuturedirectionofpolicieshasanimpactonhydrogendemand,investorsinhydrogennetworksareexposedtosignificantuncertaintieswhichcanraisetheircostofcapital.Theroleofregulationinmitigatingtheserisksforinvestorsiscrucial.Also,appropriateregulationisneededtoensurethatexistingcommerciallydriveninvestmentsinpipelinesareintegratedintofutureregulatedhydrogennetworkinfrastructuresandtheriskofthembecomingincompatibleandstrandedisminimized.Anotherimportantroleoftheregulationistoenablethird-partyaccesstothehydrogennetwork.Attheearlystageofhydrogennetworkdevelopment,itishighlylikelythatpublicfundingisnecessarytohelptheindustrykickoff(FrontierEconomics,2021).Inthesecases,sincecustomersareconfinedtoasmallnumberoflargeunits,itmightbepossibletoattachconditionstoallocatedsubsidiesonthird-partyaccess.Thisistopreventdiscriminatorybehaviour,ensureaccesstothepipeline,andthatlinkingittothewiderhydrogennetworkinthefutureisnotblockedbytheinfrastructureoperator.However,thisisnoteasyforexistingprivatelyfundedhydrogenpipelinesthatprovidepoint-to-pointconnectionsbetweentheproducerandconsumer.Althoughgiventhelocaluseofthesenetworks,theremightnotbeaconcernatthebeginningaboutdiscriminatorybehaviour,astheseprivatepipelinesbecomeconnectedtowiderhydrogennetworks,accesstothembecomesvital.Thus,hydrogennetworkdevelopmentrequiresagoodunderstandingofthecurrentandfutureneedforthird-partyaccessregulation.4Finally,anotherproblemisthattorepurposetheexistingnaturalgaspipelines,amechanismisneededtovaluetheseinfrastructuresandremovethemfromtheregulatoryassetbaseofthegasnetworkcompanies(ACER/CEER,2021).Thisistoavoidcrosssubsidiesbetweennaturalgasandhydrogennetworkownersandthusensuretheusersofeachnetworkbeartheefficientcostofoperationanddevelopmentofthatnetworkonly.Thisisspecificallyanissuewhenbothnetworksareownedbythesameentity,whichmeansthatateatleastaccountingunbundlingofthetwooperationsisrequired.2.4HeatingandcoolingnetworksThedecarbonizationofheatingandcoolingareamongthemostimportantchallengesofnet-zerocarboninitiatives.Theglobalenergydemandforheatinginbuildingsandindustriescurrentlyoutweighsthedemandforcooling.However,itispredictedthatthelatterisgraduallycatchingupandby2060energydemandforcoolingwillovertakethatforheating(IRENA,2017).3Theonlydifferencehereisthatwhenregulationwasintroducedforgasandelectricityinfrastructurestheirnetworkswerealreadyinplacewhereasthehydrogengridstillneedstobedeveloped(ACER/CEER,2021).4Anotherrelatedissueistheregulationofafuturehydrogennetworkoperator,whichmayormaynotbeanetworkowner,topreventtheabuseofitsmonopolyposition.13Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Inbuildings,theheatisusedforambientheating,cooking,andforheatingwaterwhereasintheindustrialsector,inadditiontospaceheating,itisusedforprocessheatingbothinlowtemperatureapplications,suchasfoodprocessing,andhightemperatureuses,suchasironandsteelmaking.Inmostcountrieswhereenergydemandforheatingdominatesotherformsofenergyuse,theresidentialdemandforheatingconstitutesthelion’sshareofthetotaldemandforheating.IntheUK,forexample,spaceheatingandwaterheatingaccountfor74percentoftotaldemandandtheresidentialsectoristhebiggestsourceofenergydemandforheating(seeFigure2).Figure2:YearlyheatdemandintheUKacrosssectors(2019)Source:BEIS(2021b).Giventhescaleofenergydemandforheatinginbuildings,animportantquestionishowtodecarbonizewaterandspaceheatingneeds.Thereisnouniquesolutiontothedecarbonizationofheatingdemandinbuildings.Alongwiththereductionofenergydemandthroughtheincreasedenergyefficiencyofbuildings,therearethreepossiblepathwaysthathavebeendiscussed.Oneistheelectrificationofheatingandthedeploymentofenergy-efficientheatpumps5(assumingthatthepowersectorisprogressivelydecarbonized).Anotherisreplacingtheexistingfossilfuel-basedboilerswithlow-carbonalternatives,suchashydrogenorrenewableresources(solar,biomass,etc.).Thethirdsolutionistodeveloplarge-scaledistrictheatingnetworks.Combinationsofthesesolutionsarealsopossible.Therearegenerallyfourcomponentsthatconstituteaheatingnetwork(Engie,2013),theseare:heatgeneratingunits,6aprimarypipelinewhichtransferstheheattoasubstation(deliverypoint),aheatexchangesubstationwhichisinstalledinconnectedbuildingsandasecondarypipelinethatdistributesheatintheformofhotwaterfromthedeliverypointtoindividualbuildings.Therearealsoheatingmeters5Cookingcanbedecarbonizedeasierthroughresistiveheating,assumingthepowersectorisdecarbonized,andelectricitynetworksarenotconstrained.6Therearearangeoftechnologiesthatcancreateheatfortheheatnetwork.Theseincludeexistingthermalpowerstations,biomass/biogasboilers,wasteheat,combinedheatandpowerplants(CHP),geothermalplants,solararrays,electricboilers,andheatpumps.Currently,inmostcountries,fossilfuelsarethemainsourceofheatfordistrictheatingwithcoalandnaturalgasmeetingthebulkofdemand.Therearehoweverafewcountries,suchasDenmarkandSwitzerland,inwhichrenewablesourcesaccountforasubstantialproportionoftheenergyusedindistrictheating(IRENA,2017b).14Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.attheendusers’premisesthatmeasuretheheatflowtotheproperty.Earlymodels(beforethe1970s)usedpipedsteamorpressurizedhotwater(>100degreesCelsius)andexperiencedsignificantheatloss(UKParliamentPOST,2020).Nowadays,mostsystemsoperateatlowertemperaturesofaround40to60degreesCelsius(forcomparison,ahotshowerisaround40degreesCelsius)andthushavemuchlowerwastedheatandarealsomorecompatiblewithlow-carbonheatsources.Therearemultiplereasonsthatmakeheatnetworks,undercertainconditions,acost-efficientandenvironmentallyfriendlywayofprovidingspaceandwaterheating.First,heatingnetworkscanprovidesignificantadvantagesofeconomiesofscale.Bysharingtheinfrastructure,individualboilersorelectricheatingequipmentcanbeavoidedandasthenetworkgrowstheaveragecostofsupplyingtheheatdeclinessignificantly.Second,heatnetworkscanuselocalandsustainableresourcestogenerateheat,whichreducescarbonemissionsandimprovesthesecurityoftheenergysupply.Third,ineverymoderneconomythereisasubstantiallevelofwasteheatcoming,forexample,frompowerplantsorindustrialandcommercialunitssuchasdatacentres.Thisheatcanonlybeharnessedandutilizedifthereisanetworkinplace.However,aswithanyothernetwork,buildingaheatnetworkiscostly.Thus,itonlymakessensewhenthereisahighenoughdeliveryofheatthroughthenetworksuchthatthenetwork’scapitalandoperatingcostscanberecoveredfrommanyusers.Therefore,heatnetworksmakemoresenseindenselypopulatedurbanzonesratherthaninsparselypopulatedruralareas.Indeed,insomeEuropeancities,suchasCopenhagen,heatnetworksarethemainmethodofspaceandwaterheatinginbuildings(ETI,2018).InGermany,everytownwhichhasapopulationofmorethan80,000peoplehasatleastoneheatnetwork(ETI,2018).ThegrowthofheatnetworksinEuropeispartlycultural/historicalandpartlyrelatedtotheoilpriceshockofthe1970s(ibid).Therearearangeofissuesthatneedtobeaddressedinordertoenabletheuptakeofheatingnetworks.Firstisthat,similartogasandelectricitynetworks,heatnetworksarealsonaturalmonopolies.Customerswhoareconnectedtothenetworkoftendonothavealternativesourcesofheat.Thisraisesthequestionofhowtoregulateheatingnetworks,inotherwordsthecostsofthenetworkanditsqualityofservices,ownershipmodelofnetwork,third-partyaccesstothenetworketc.Therearealsootherquestionssuchashowtosetthepriceofheatingservices.Canamarketforheatingservicesbecreatedsimilartothatofotherretailenergymarkets?Overall,aneffectiveregulatoryframeworkisneededthatincentivizesnetworkdevelopmentanddeterminestheprocedureforpricesetting,qualityofservice,transparencyofinformationforcustomersandminimumtechnicalstandardsforheatingnetworks.Similartoheating,thedemandforcoolingisanimportantdriverofenergydemand.Thisincludesbothprocesscooling,whichisrequiredinarangeofindustries,suchasfoodandbeverage,manufacturing,andmedicalandspacecooling.Theriseofdemandforspacecoolinginparticularisexpectedtobecomeoneofthechallengesofachievingglobalnet-zerocarbonobjectives.AccordingtoIEA(2018),theenergydemandforspacecoolingisgrowingfasterthananyotherenduseinbuildingsandhasmorethantripledbetween1990and2016(Figure3).ThegrowingdemandforcoolingisdrivenbyeconomicandpopulationgrowthintheGlobalSouth.Indeed,China,IndiaandIndonesiaalonearepredictedtoberesponsibleforaround50percentoftheenergydemandgrowthforspacecoolingby2050(IEA,2018).15Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure3:GlobalenergyconsumptionforspacecoolinginbuildingsSource:IEA(2018).Themainsourceofenergyforspacecoolingiselectricityintheformofcompressionchillers;naturalgasintheformofabsorptionchillerscontributesonlyslightlymorethanonepercent(Figure3).Insomeregions,suchastheMiddleEastandUSA,thedemandforcoolingcanconstituteupto70percentofthetotalelectricitydemandofresidentialbuildingsonhotdays.Onaverage,thedemandforspacecoolingaccountsforaround14percentofpeakelectricitydemandacrossallcountries(IEA,2018).Similartotheheatingsector,therearealsodistrictcoolingsystems,althoughtheuseofthemismuchmorelimitedcomparedwithdistrictheating.Figure4showstheshareofdemandforheatingandcoolingthatismetthroughdistrictenergysystemsinselectedcountries.Figure4:Shareofheating/coolingdemandmetthroughdistrictenergysystemsinselectedcountriesSource:IRENA(2017).Adistrictcoolingnetworkiscomposedofachilledwaterproductionplantandassociateddistributionfacilities,includingtwopipelines,oneofwhichtransferschilledwatertoconnectedbuildingsandonewhichreturnsthewatertotheproductionplant.Thesystemoperatesasaclosedcircuitandismoreefficientcomparedwithtraditionalair-conditioningsystems.Animportantadvantageofthecoolingnetworkisthatitcanlowerthecosttotheusersasitdoesawaywiththeneedforthemtohavetheirownair-conditioningsystem.However,similartotheheating16Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.network,forthiseconomicefficiencytoberealized,thescaleoftheoperationandthedensityofthecoolingloadneedtobesufficientlylarge.Giventhefactthatcoolingnetworksaremainlybasedonelectricity,thesesystemsconstituteimportantsourcesofflexibilityinfuturepowersystems.Forexample,inplaceswherethereisatime-of-usetariff,coolingnetworksoftenhaveacoolingstoragetobenefitfromperiodswhenenergytariffsarelower.Thisalsoholdstrueinplaceswithsurplusrenewableelectricityproduction.Advancedsystemscanalsopairheatingandcoolingservicestoimprovetheefficiencyandflexibilityofthewholeenergysystem(IEA,2018).Thiscanbedonebycapturingtheheatfromthecoolingnetworkreturnlinesandusingittoaugmentdistrictheatforwaterheating.3.IntegratedenergynetworksGiventherangeofenergynetworksinfutureenergysystems,alegitimatequestionishowtoutilizethesynergiesbetweenthesenetworksandbenefitfromtheirintegratedoperationtolowerthecostsandchallengesofdecarbonization?Theconceptofintegratedenergynetworksispartofabiggerparadigmknownasthe‘wholeenergysystem’or‘energysystemsintegration’approach.Thisconceptbasicallymeansthatenergyandinfrastructureprovidersshouldconsideralternativeoptionsandtheimpactwhichtheirinvestmentandoperationdecisionshaveoneachother.Traditionally,theinvestmentandoperationdecisionofdifferentnetworkswithinthesameindustry(forexample,electricitytransmissionanddistributiongrids)havebeenmadeindependently.Thiswasalsothecasewithrespecttoenergyproviders(suchasgenerators)andnetworkproviders,aswellasacrossdifferentsectors(suchasgasandelectricity),andwaspartlyduetoliberalizationthatintroducedstructuralchangesintheenergyindustrysuchthatvariouspartsofthesystemwereunbundledandresultedinalossofcoordination.Cross-infrastructureintegration(forexample,betweengasandelectricityorheatandwaste)hashistoricallybeenmorelimitedevenpriortoliberalization.Thekeypointhereisthattheinterdependencybetweendifferentelementswithinaparticularenergyvaluechain,suchasgasorelectricity,aswellasbetweendifferentenergyvaluechains,suchasgas,electricity,heating,cooling,hydrogen,andwaste,meanthatthesolutiontoefficientdecarbonizationneedstobebasedontheseinterdependenciesoratleastitcannotignoretheirpresence.Therearemultiplebenefitstotakingsuchaviewtoenergysystemissuesatthelevelofthenetworkandbeyond.Itwillacceleratedeploymentofcleanerenergytechnologies,bothonthesupplyanddemandsides,andresultinagreaterlevelofflexibilityacrosstheentireenergysystem.Itwillalsoresultintheemergenceofnewbusinessmodelswhichtakeadvantagesofnewtechnologicalpossibilitiesandoperatingmodels.Therearethreelayersofintegrationwhicharerelevanttonetworkinvestmentandoperationwithinaspecificsectorsuchasgasorelectricity(CEER,2020).AsseenfromFigure5,thefirstlayerpromoteshighercoordinationbetweentransmissionanddistributionnetworkoperators(TSOsandDSOs)withinthesamesector.Transmissionanddistributionnetworksarethusincentivizedtooptimizethenetworkasawholeratherthanfocusingonminimizingtheirindividualcosts.Fromanoperationalperspective,higherlevelsofcoordinationbetweenTSOsandDSOspreventorminimizetheeffectofindividualnetworkoperators’actionsonothergrids.Forexample,DSOactivationoflocalflexibilityresourcestorelievecongestioninitsnetworkmayimpactthebalanceofthetransmissiongridifnotproperlycoordinated.Thisisalsorelevantforthegasnetwork,whereashiftfromnaturalgastorenewableorlow-carbongasesaswellastheriseofdecentralizedgasproduction,forexample,frompowertogasfacilities,requirehigherlevelsofcoordinationbetweengastransmissionanddistributionoperators.17Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure5:ThreelayersofanintegratedapproachtonetworkplanningandoperationSource:CEER(2020).AchievingbettercoordinationbetweenTSOsandDSOsalsohasimplicationsfornetworkplanning.Forinstance,sometimesalowercostsolutiontotheproblemofthedistributiongridcanbefoundatthetransmissionnetworklevelandviceversa.Inthesesituations,thenetworkoperatorsneedtobeincentivizedtoadoptaholisticapproachtolowertheoverallcostacrossbothnetworksevenifitentailsahighercostforoneofthenetworks.Thesecondlayerofintegrationinvolvesahigherlevelofcoordinationbetweenregulatedornetworkactivities,andunregulatedactivities,suchasgenerationandsupply,acrossaparticularenergysupplychain,suchasgasorelectricity.Theliberalizationandemphasisonpromotingcompetitionviaunbundlingresultedinalossofcoordinationbetweenthegenerationandnetworkandanybenefitthatitmightprovide.Thisiswhy,inrecentyears,theregulatoryframeworksofnetworkcompaniesarebeingdesignedtoimprovecoordinationbetweenthesetwoactivitiesthroughtheintroductionofeconomicincentives.Theobjectiveistoincentivizenetworkoperatorstomaximizetheefficiencyofmarketsandfacilitatetheintegrationofnewresourcesinawaythatminimizesoverallsystemcosts.TheoperationalimplicationofthisisthatthenetworkoperatorsareincentivizedtoutilizeDERswhenevertheseresourcesaremoreefficientoptionstoaddressnetworkconstraintscomparedwithtraditionalnetworkinvestmentssuchaswires,cablesandtransformers.7Thisalsominimizesinefficiencyinthenetworkdevelopment.Forinstance,ahighergrowthofDERsreducesdemandontheelectricitytransmissiongrid;thusiftheTSOinvestmentplansarecarriedoutwithoutconsiderationfortheuptakeoftheseresources,thiswillresultinasignificantlevelofredundancyinthetransmissiongrid.7Atthesecondlayerofintegration,dataplaysanimportantrole(CEER,2020).Datasharingofnetworkplatformswithdecentralizedenergyresourceswillresultinefficientsitingaswellasoptimaloperationoftheseresourcessuchthatoverallcostofthesystemisminimized.Althoughthecostofenablingdatagatheringanddataprovisionmaynotappeareconomicforindividualnetworks,itwilllikelymakesenseifawholesystemviewistaken.18Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Thethirdlayeriscross-sectoralintegration.Theaimofintegrationatthislevelistorealizepotentialsynergiesthatexistamongdifferentenergyvectors,suchaselectricity,gas,andhydrogen,andenergyuses,suchasheating,cooling,andtransport.Forexample,overgenerationduringperiodsofhighrenewableproductioncanbecapturedbyelectrolysersthatconvertelectricitytohydrogen,canbestoredinthebatteriesofelectricvehiclesorcanbeconvertedtoheat.Theflexibleoperationofelectrolysers,power-to-heatfacilities,orvehicle-to-gridinfrastructuresprovidesignificantopportunitiesbothforsystemoperatorsandnetworkoperatorstoaddressenergybalancingandgridconstraintissues.Figure6providesaschematicrepresentationofinteractioninanintegratedenergynetworkintheUK.Figure6:IllustrativepossibleinteractionsbetweendifferentenergynetworksintheUKSource:ETI(2016).Uptonowthefocusofpolicyandregulationwithrespecttointegrationhasbeenonlayersoneandtwo,howevertheimportanceofintegratedenergynetworksisexpectedtoincreaseastheenergysystemevolves.Currentdecarbonizationandtechnologicalinnovationareintroducingnewconversiontechnologies(suchaspower-to-hydrogen,power-to-heatorpower-to-cooling)intheenergysystems.Atthesame,decentralizationenablesnewsupplypathsforenergy.Thesechangesresultinsomelevelsofsubstitutabilitybetweenvariousenergynetworkswhichtraditionally,atbest,hadcomplementarityfunctions.Forexample,futureenergydemandfortransportcanbemetbothbyelectricitynetworks(throughtheuseofelectricvehicles)aswellasahydrogennetwork(thoughtheuseoffuel-cellcars).Thishasimportantimplicationsbecauseitmeansfutureinvestmentinanyparticularenergynetworkcannotbebasedsolelyonthesupplyanddemandscenariosinthatsector.Instead,italsoneedstobecoordinatedwiththeproduction,consumption,andinfrastructuredevelopmentsinothersectors.19Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Thisraisesthequestionofhowbesttoachievesuchcross-sectoralcoordination.Theoretically,coordinationacrossanintegratedenergynetworkcanbeachievedinthreeways8(PalovicandPoudineh,2022).Thefirstwayisthegovernanceapproach,whichbasicallymeansintroducingacentralplannerwhocoordinatesplanningandoperationacrossdifferentenergynetworks.Thiscaneitherbeaneutralagencyoraplatformthatenablesinformationexchangeamongdifferenttypesofenergynetworks.Thecentralplannercoordinatesactivitiesacrossallenergynetworksasonesystem.CurrentdiscussionsintheUKaboutestablishinganimpartialFutureSystemOperator(FSO)withresponsibilitiesacrossboththeelectricityandgassystemsisanexampleofthegovernanceapproach.TheFSOisexpectedtotakeawholesystemapproachinitsplanningandoperationoftheenergynetworks.Initsrole,theFSOneedstoconsidertheinteractionbetweenelectricitynetworks,gasnetworks(includingnaturalgas,biomethane,andhydrogen),heatnetworks,transportnetworks,andevenCO2networkswhentheyaredeveloped.Thesecondwaytoachieveintegrationisthroughamarket-basedapproach.Inthismodel,theintegrationacrossenergynetworksisachievedthroughtheactionsofdecentralizedindividualagentswhorespondtonetworkaccessandutilizationpricesignals.Forinstance,whenhydrogenusersswitchbetweenvariousmodesofhydrogendeliveryinresponsetoapricesignal,itleadstoanoverallefficientlevelofhydrogentransportinfrastructureexpansionacrosseachmode.Forthistohappen,however,networktariffs,asthemaincoordinationsignalinacross-infrastructurecompetition,shouldpromotealevelplayingfieldforcomparableactivitieswithinanintegratedenergysystem.Inotherwords,networktariffsshouldbecost-reflective,technology-neutral,andfreeofdistortionssuchassubsidies,taxes,orlevies(PalovicandPoudineh,2022).Inmostplaceshowevertheseconditionscannotbemetandthusachievingcrossnetworkcoordinationthroughthemarketisnotstraightforward.Thethirdwayisaregulatoryapproach.Inthismethod,networkregulationsareadjustedsuchthatgridoperatorsareincentivizedtomakeinvestmentandoperationdecisionsthatimprovethenetsocialbenefitoftheentireenergysystemratherthantheirownnetwork.Forexample,ifinvestmentinahydrogennetworkcansolvetheneedforcapacityintheelectricitytransmissionnetworkatalowercost,theelectricitynetworkoperatorshouldbeincentivizedtorefrainfromexpandingtheirgrid.Thiscanbeachievedbyfullypricingtheconsequencesofthenetworkoperators’decisiononothernetworks.Inthisway,regulationaimstoavoidpossiblemisalignmentsbetweenthechoiceswhichoptimizetheindividualnetworkplanningandoperationversusthatoftheentiresystem.Overall,astheenergysystembecomescomplex,theissueofcrossnetworkoptimizationbecomeevenmoreimportant.Thisarearequiresfurtherresearchtoidentifyandpromotetechnologiesthatenablesystemsintegrationaswellasinstitutionalframeworksthatenableanoptimumintegratedenergynetwork.4.SummaryandconclusionsAswemovetowardsalow-carbonenergysystemthatusesnewandmorevariedsourcesofenergy,energynetworkinfrastructures,whichconnectsupplyanddemandacrossspaceandtime,willfacesignificantchallengesandopportunities.Theexistingnetworkinfrastructuresneedtoenhanceandadaptinordertoaccommodatetheincreaseddemandforlow-carbonenergysources,suchasrenewableelectricity,whilenewnetworkinfrastructureswillberequiredtotransfernewformsofenergy,suchashydrogen.Atthesametime,anintegratedapproachtoenergynetworkinfrastructureplanning8ThisissueisdiscussedindetailinthecontextofhydrogentransportinfrastructureinaforthcomingpaperbyPalovicandPoudineh(2022).20Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.andoperationisneededtooptimizetheuseoftheseassetsandlowerthecostofachievingdecarbonizationtargets.Giventhedefaultstrategyofdecarbonizationbasedonelectrification,inmanyplacesaroundtheworldelectricitynetworksareexpectedtobecomethecentralpieceofinfrastructureoffutureenergysystemstransferringthebulkoftheenergyconsumedintheeconomywhileinteractingwithotherenergynetworks,suchasheating,hydrogen,naturalgas,andcooling.However,forthistohappen,theelectricitymarketneedstobedesignedsuchthatpowerflowsremainwithinthelimitsofthepowerlinestotransmitelectricity.InplacessuchasEuropewhereelectricitymarketpricesaremainlyuniformwithincountries,andthusdonotreflectgridconstraints,marketresultsarefrequentlyadjustedthroughtheredispatchofconventionalplantsandfeed-inmanagementofrenewableplants.Thisisnotonlyacostlymechanismbutalsodifficulttorunefficientlyasitissusceptibletoinc-decgaming(whenitismarket-based)orreliesonthecosttransparencyofthepowerplants(whenitiscost-based).Astheelectricitysystemexpands,investmentinthetransmissionnetworkneedstohappenatascaleandpacecomparabletothatoftheincreaseinpeakdemandandthenumberofnewgenerationfacilitiesthatbecomeconnectedtothegrid.Atthesametime,therangeofinvestmentoptionsalsoincreasesasnon-networksolutionsbecomeincreasinglyavailable.Appropriateregulatoryinstrumentsareneededtoensureefficientlong-termplanningofelectricitynetworks.Thesemeasuresincludetheuseofamarketmechanismforprocurementofnetworkserviceswherefeasible,inadditiontointroducingmoregranularityinelectricitypricingacrosstimeandspace.Electricitydistributionnetworksareevenmorecriticalbecausethedecarbonizationofsectorssuchasheatingandtransport,alongwiththegrowthofDERs,meanincreaseddemandandsupplyvolatility,andhigherpeaksinnetworkswhichhavetraditionallybeenmanagedinapassiveway.Thesenetworksrequirearangeofinstruments,suchasefficientregulatedtariffs,flexiblegridconnectionregime,andlocalmarketsforflexibilityservices,inordertoincentivizeefficientuseofexistingassetsandoptimumdevelopmentoffuturecapacities.Electricitydistributionnetworksindevelopingcountriesarealsofacingasetofotherissues.Incountrieswherethesenetworksarenotyetunbundled,distributioncompaniesengagebothinnetworkandretailbusinesses.Atthesametime,inmanydevelopingcountries,suchasIndiaandTanzania,retailtariffsaresubsidized,theleveloftechnicalandcommercialenergylossesarehighandnetworkcompaniesareoftenpoorlymanaged.Thishasresultedinasituationwhereelectricitydistributioncompaniesarefinanciallyinsolventinsomeofthesecountries.Withoutaddressingtheseissues,notonlywilldecarbonizationinitiativesbeatriskbutgovernments’otherobjectivessuchasachieving100percentelectricityaccesswillbecomehardtoachieve.Unlikeelectricitynetworks,whichareexpectedtoenhanceandupgrade,thefutureofnaturalgasnetworksisuncertainbecauseofpolicyandtechnologyuncertainties.Dependingonthestrategyforthedecarbonizationofdomestic/commercialheatandindustrialloadprocessesaswellasthesuccessoftechnologiessuchasCCUSandelectrolysistoscaleup,theshareofnaturalgaswillvaryintheprimaryenergyconsumption.Thepossiblescenariosforthefutureofnaturalgascanbedecommissioning,maintainingitforspecificconsumersorrepurposingittocarryotherlow-carbonalternatives,suchasbiomethaneorhydrogen.Eachoftheseoutcomesentailaddressinganumberofimportantchallenges.Manyissuesneedtobeconsideredwhenitcomestohydrogennetworks.Ashydrogencanbetransportedthroughvariousmodes,suchaselectricitynetworks,repurposedgasnetworks,purpose-builthydrogengrids,road,rail,ormarinetransport,amechanismisneededtoincentivizecross-sectoraloptimizationacrossallavailablemodes.Thisistoavoidunderinvestmentoroverinvestmentinoneormoremodesofthehydrogentransport,forexample,havingmorehydrogenpipelinesthannecessary.Thereisalsoaneedforanappropriateregulatoryframeworktoensureexistingcommerciallydriveninvestmentsinpipelinesareintegratedintofutureregulatedhydrogennetworks,andthatfutureaccess21Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.tothepipelinesandlinkstothewiderhydrogennetworkarenotblockedbytheoperatorsofprivatelyfundedhydrogentransportinfrastructures.Thereisalsotheissueofemergingenergynetworks,suchasheatingandcooling.Althoughtheyarenotyetcommon,theirglobalcontributiontomeetingtheenergydemandforheatingandcoolingisexpectedtoincreaseinthefuturebecauseoftheirhigherefficiency,lowercosts,andthepossibilityofthemoperatingwithlocallow-carbonenergyresources.Asthesenetworksarenaturalmonopolies,questionsariseastohowtoregulatetheircostsandqualityofservices,choosetheoptimumownershipmodelforthemandensurethird-partyaccesstothesenetworks.Finally,intheyearsfollowingliberalizationtherehasbeenlittlecoordinationbetweendifferentnetworkswithinthesameindustry,suchastheelectricitytransmissionanddistributiongrids,aswellasbetweencompetitivebusinessesintheenergyvaluechain,suchasgeneration,andthenetworkbusiness.Thecross-infrastructureintegration,forexample,betweengasandelectricityorheatandwaste,hashistoricallybeenmorelimitedevenpriortoliberalization.However,giventheinterdependenciesbetweendifferentelements,suchasgasorelectricity,withinaparticularenergyvaluechainaswellasbetweendifferentenergyvaluechains,suchasgas,electricity,heating,cooling,hydrogen,andwaste,bettercoordinationintheplanningandoperationofdifferentenergynetworksiscrucialtoachievedecarbonizationobjectives.Theoptionstoachievecoordinationacrossanintegratedenergynetworkaregovernance,market-based,andregulatoryapproaches.Thechoiceofanoptimuminstitutionalframeworkdependsonvariousfactors,suchastheeaseofimplementation,administrativeburden,andeffectivenessaswellascontextualfactors,includingthepresenceofanindependentandcompetentregulator(fortheregulatoryapproach),thepresenceofefficientmarkets(forthemarket-basedapproach),andcompatibilitywithprimarylegislation,suchasthoserelatedtoliberalization(forthegovernanceapproach).Allinall,theimportanceofenergynetworksduringtheenergytransitionperiodwarrantsadedicatedresearchfocus,whichneedstopayspecialattentiontothechallengesoftheelectricitynetworksgiventheirimportanceforthedecarbonizationoftheheatingandtransportsectors.Also,thedeploymentofnewinfrastructuretotransporthydrogenisanimportantareawhichneedstobecarefullyinvestigated.Finally,itiscrucialtoexplorepossibleapproachestotheintegrationofenergynetworksasthisiskeytoloweringthecostandchallengesofdecarbonization.22Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.References(ACER/CEER,2021).‘WhenandHowtoRegulateHydrogenNetworks?’“EuropeanGreenDeal”,RegulatoryWhitePaperseries(paper#1)9February2021.BEIS(2021a).‘CompetitioninOnshoreElectricityNetworks’,DepartmentforBusiness,Energy&IndustrialStrategy(BEIS).August2021.BEIS(2021b).‘OpportunityareasfordistrictheatingnetworksintheUK:NationalComprehensiveAssessmentofthepotentialforefficientheatingandcooling’,DepartmentforBusiness,Energy&IndustrialStrategy(BEIS).September2021.Brandstätt,C.,Poudineh,R.(2020).‘Rethinkingthenetworkaccessregime:thecasefordifferentiatedandtradeableaccessrights’,OxfordEnergyForum.September2020,Issue124.CEER(2020).‘CEERPaperonWholeSystemApproaches’,DistributionSystemsWorkingGroup,CouncilofEuropeanEnergyRegulators(CEER),Ref:C19-DS-58-03,30June2020.(Engie,2013).‘Districtheatingandcoolingsystems’ENGIE.[online].Availableat:<https://www.engie.com/en/businesses/district-heating-cooling-systems>[accessed20February2022].EnergySystemsCatapult(2022).‘HowshouldweregulategasnetworksforNetZero?’[online].Availableat:<https://es.catapult.org.uk/insight/how-should-we-regulate-gas-networks-for-net-zero/>[Accessed1March2022].ETI(2016).‘UKNetworksTransitionChallenges:ASystemsView’.AninsightsreportfromtheEnergyTechnologiesInstitute(ETI).ETI(2018).‘DistrictHeatNetworksintheUK:Potential,BarriersandOpportunities’,EnergyTechnologyInstitute(ETI),anETIInsightSeries.FrontierEconomics(2016).‘FutureregulationoftheUKgasgrid:ImpactsandinstitutionalimplicationsofUKgasgridfuturescenarios–areportfortheCCC’,1June2016.FrontierEconomics(2021).‘Gasnetworkregulationforthenetzerotransition’,areportfortheEnergySystemsCatapult.08November2021.Gómez,T.,Cossent,R.,andChaves,J.P.(2020).‘Flexiblenetworkaccess,localflexibilitymarketmechanismsandcost-reflectivetariffs:threeregulatorytoolstofosterdecarbonizedelectricitynetworks’,OxfordEnergyForum,September2020,Issue124.Guidehouse(2020).‘EuropeanHydrogenBackbone:howadedicatedhydrogeninfrastructurecanbecreated’,July2020.Hickey,C.,Deane,P.,McInerney,C.,andÓGallachóir,B.,2019.‘Isthereafutureforthegasnetworkinalowcarbonenergysystem?’,EnergyPolicy,126,pp.480-493.Hosseini,S.,Allahham,A.,Walker,S.,andTaylor,P.,2020.‘Optimalplanningandoperationofmulti-vectorenergynetworks:Asystematicreview’,RenewableandSustainableEnergyReviews,133,p.110216.IEA(2013).‘ElectricityNetworks:InfrastructureandOperationsToocomplexforaresource?’,TheInternationalEnergyAgency(IEA).IEA(2018).‘TheFutureofCooling:Opportunitiesforenergy-efficientairconditioning’,TheInternationalEnergyAgency(IEA).IEA(2021).‘SecureEnergyTransitionsinthePowerSector’,InternationalEnergyAgency(IEA).23Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.IRENA(2017).‘Heating&Cooling’[online],availableat:<https://www.irena.org/heatingcooling>[accessed20February2022].IRENA(2017b).‘RenewableEnergyinDistrictHeatingandCooling:ASectorRoadmapforRemap’,InternationalRenewableEnergyAgency,AbuDhabi.www.irena.org/remap.LeFevre,C.N(2019).‘TheFutureofGasNetworks:KeyIssuesforDebate’,TheOxfordInstituteforEnergyStudies,September2019.MJB&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