Project Summary
SIF Innovation Challenge
This project fits under the theme of Improving Energy System Resilience and Robustness and specifically 'Strengthening UK's energy system supply chain resilience to support efficient roll out of new infrastructure.' From either the viewpoint of a large programme of works such as the hydrogen backbone (Project Union) or by the 'run the business' activities required during an energy transition, a functioning and available supply chain is one of the most important factors for resilience and robustness during the period of change.
Network Innovation
Supply chains are established today and National Grid Gas (GT&M) manage their current supply chain via the in-house procurement and contract management teams. These teams are focused on today's supply chain and ensuring the natural gas assets are available to buy ahead of the current campaigns. An innovative approach is therefore needed ahead of the energy transition that will support the networks in building procurement strategies for the future that both understand what assets will be needed and the risks to the suppliers. By doing this, procurement risks during the transition will be minimised helping keep the rate of change required for the country's net zero ambitions.
Experience and Capability
GT&M own and operate the gas National Transmission System (NTS) which is roughly 7,600km of high-pressure pipelines, 24 compressor stations and over 500 above ground installations. The GT&M procurement team currently have a headcount of circa 35 and look after a range of category areas from; Indirect procurement (Consultancy, HR, Legal, Design Services, etc), Direct Procurement (Construction, Security, Customer works, Cyber and Electrical, etc) and Contract Management activities.
InsiderPro are an expert procurement consulting business with a specialism in challenging and uncertain supply chains. They are well suited to this supply chain mapping exercise as they have a strong understanding of the UK supply chain having produced original research which evaluated c1,500 UK manufacturing businesses with the conclusions reported in the Independent and other media outlets.
Potential Users
For any solution to this challenge there will have to be a collaboration between the gas networks (both transmission and distribution) in the UK, potentially reaching into European transmission system operators in order to 'strengthen' the buying power of the consortium and therefore prevent being left behind when procuring assets against larger organisations globally. For this reason, the potential users could be any number of gas networks that buy similar assets from similar suppliers.
Innovation Justification
Problem
As National Grid Gas (GT&M) look to operate, maintain and transition its network to net zero we will be competing against all of the other gas networks in the same position therefore putting a large strain on the supply chain we operate within. Whilst established within the supply chain GT&M do not have the buying power of some of the larger, multinational gas networks globally and so there is a risk of long lead times or paying over the market rate for assets.
Innovation
To combat the potential of delaying our own energy transition, a fresh look at the gas supply chain and procurement strategies is required with the specific challenge in mind of net zero and the risks and impacts it presents to the global marketplace. The key output of the Discovery phase will be to derive a list of potential innovative solutions to carry forward into the next stage.
Knowledge gaps
The current supply chain is well understood and managed by GT&M teams however a review of the market conditions with the energy transition in mind has not been carried out to date. Gaps in knowledge include the types of suppliers that will be needed in the future and what risks they face including such as, over demand, lack of skills, insolvency, raw material availability and inflation. Stakeholder engagement in the Discovery phase will look to understand the appetite from the wider gas networks in the UK and Europe for collaborative procurement strategies.
Economic & sustainability
Ultimately the economic value will be a cheaper cost to the consumer for the energy transition. This will come from two parts, either from being able to negotiate better prices by buying in bulk with others or by preventing the need to over pay for the same assets to secure delivery.
In terms of sustainability there will be indirect benefits of bulk buying assets and transporting them to a central hub for further distribution than individually buying them for each network. Also, one of the solutions could be to promote UK manufacturing of the required assets, therefore reducing the transportation miles completed from manufacture to site
Funding
This project cannot be funded by 'business as usual' as GT&M do not currently have funding for hydrogen deployment, Project Union looks to resolve this triggering a reopener in Nov22 however this will not look at innovative supply options outside of current practice.
Project Benefits
Financial - future reductions in the cost of operating the network
To track this benefit analytics can be used on the costs of assets brought today versus the costs of them in the future if brought in bigger bulks. Whilst this is a relatively simple calculation, provisions will have to be put in place for the natural cost increase of raw materials and services when comparing future costs to todays. Another way to track benefits in the future will be to look at the lead times on key assets and compare this to today or what a supplier would quote if buying in smaller quantities. Hydrogen ready assets may have additional costs associated and this will be considered in this calculation.
Environmental - carbon reduction -- direct CO2 savings per annum against a business-as-usual counterfactual
By ensuring our assets are purchased ready for when they are needed it will help gas networks reach their targets for carbon neutrality, any delay to this will result in CO2 emissions that could have been avoided and this can be tracked.
Environmental - carbon reduction -- indirect CO2 savings per annum against a business-as-usual counterfactual
Indirect emissions from the removal of heavy haulage off the road due to bulk buying or UK manufacturing will be hard to track although an estimation of number of journeys saved could be attempted.
Revenues - creation of new revenue streams
New revenue streams and markets set up in the UK to support the supply chain can be directly tracked by their annual accounts showing the impact they are having to the wider UK economy and job market.
Quantitative Measurement
The cost benefit analysis will be carried out as part of Discovery and benefits associated to the identified solutions will be defined. It is therefore difficult to place a quantitative number on the amount of savings we can generate, although buying in bulk and carrying out an effective procurement strategy could save GT&M £ms during the energy transition. In terms of timelines these savings could be seen over a long period of time, through to the goal of net zero by 2050.
A 'UK Manufacturing Barometer' report was completed by project partners Insider Pro and claimed that:
"we estimate that British manufacturers could release as much as £3.5bn of cash tied up in working capital if they fixed sourcing, purchasing and supply-chain difficulties."
