A study led by the University of Oxford answers the question: How can we dismantle the gas network, without prohibitive costs and troubled investments, to the phase out?
A new 5-stage approach to preparing for the Gradual Phase-Out of Gas
Plan the Gradual Phase-Out of Gas so as not to be overwhelmed by unsustainable costs related to the distribution network. That would weigh mainly on the end customers, especially the most fragile ones. How? With a new regulatory approach that navigates between attention to avoid “stranded assets”, planned redundancies and funding for the gradual closure of the gas network. This is suggested by a detailed study conducted by the University of Oxford and other British and German academics and published in One Earth magazine.
Gradual Phase-Out of Gas: there is an elephant in the room
Researchers are dealing with a crucial issue related to the phase-out of gas. The demand for this fossil source (but also for hydrogen) is expected to decline sharply in the coming decades. In Europe, the reduction by 2050 is estimated at 70%. But there is an “elephant in the room”: the costs associated with the distribution network.
Less demand for gas means fewer users paying their bills and, therefore, fewer resources to amortise investments and provide maintenance. Costs, however, are charged to end users. With the risk, in the next few decades, of seeing final gas prices “slip out of control”.
The size of the problem is not insignificant. Today, in Europe, the main gas dorsals run for 130,000 km, three times the Earth’s circumference. Local distribution networks amount to 1.8 million km. For infrastructures that are still being developed and for existing ones, depreciation plans have a horizon of decades and, in most cases, are based on scenarios that do not predict a drop in gas demand. Despite the narrative that proposes hydrogen as a clean alternative to fossil gas, this decline concerns all gas fuels. The most recent impact assessment prepared by the EU Commission predicts a 71-73% reduction between 2019 and 2050 for all gases, H2 and biomethane included.
A new regulatory approach
The main consequence? Costs of bills that will leaven. According to the estimates presented in the study, within half a century the costs associated with the distribution network will increase by 5 times in Germany, by 3 times in France, by 10 times in the UK, and for Austria by 4 times already in 2040. A dynamic that will induce an accelerated escape to avoid such prohibitive costs. But it will leave behind those who do not have access, for various reasons, to valid alternatives. That is, the poorest families.
For these reasons, the gradual abandonment of gas must be prepared and accompanied by the development of a new regulatory approach that can cope with the hardships that await us along the road to climate neutrality.
The study proposes 5 pillars:
- Integrated planning. With a long-term perspective, it must involve gas, electricity and heating infrastructure. With a granular look to grasp the specifics of demand at the local level, not just national.
- Remodulate depreciation rates. The current regulatory framework uses amortization timetables around 45 years, which will be unsustainable net zero by 2050. Therefore, it is necessary to accelerate the amortization of existing assets, abandoning the flat-rate model used today. This reduces the risk of faulty investments.
- Criteria and thresholds for redundancies. The gradual abandonment of gas requires an orderly dismantling of the network. To implement it, criteria and thresholds must be defined according to which operators can discontinue supplies and disconnect the network. “Potential indicators for defining these thresholds could be, for example, the number of customers per kilometre of line length (number of customers/km), connected load (MW/km) or sales per kilometre of line Length (MWh/km).
- Minimize capital investments. Regulators could use modified investment valuation processes, incentives to extend the life of existing assets, and accelerated depreciation of new assets to reflect the expected decline in gas demand.
- Financing disconnections and redundancies. Disconnection costs are a significant barrier in families’ decision to choose alternatives. To reduce it, governments should provide funding for disconnections, especially for low-income customers. Similarly, governments must provide funds for network dismissals, so that these costs incurred by operators do not fall, in a cascade, on customers.
