Scotch whisky giant Diageo warns net zero under threat

The drinks giant, which also produces Gordon’s Gin, Guinness, and Bailey’s Irish cream liqueur, has invested hundreds of millions of pounds to reduce its water usage, manage its packaging footprint, and install biofuels, biogas, and biomass facilities to cut its carbon footprint in recent years.

However, it said its ambition to establish new grid connections to sites such as its vast Cameronbridge whisky grain distillery in Fife, as part of its net zero drive, are being undermined by the queuing system for major infrastructure projects overseen by Ofgem, the energy regulator. The company said the current design of the system means “shovel ready” projects are often in the queue behind plans which have still to be completely finalised and costed.

Ewan Andrew, above, Diageo president of global supply chain and procurement, and chief sustainability officer, said it has invested more than £100 million in biomass and biogas facilities at Cameronbridge, which produces 100 million litres of spirit per year. That means it can take spent grains from the whisky-making process and create steam energy that can be used by the distillery, and spent wash or effluent can be put through anaerobic digestion to create biogas, at “industrial scale”.

Those facilities supply 70-80% of the site’s steam requirements, but Mr Andrew warned: “To get that facility to net zero, I need to put in electrification… for the balance of my energy and heat needs. Therein is the challenge. When I speak with SPEN (Scottish Power Energy Networks), the lead time to put in that infrastructure and the size of cabling I need to put up the power usage of the site is eight years or more.”

He added: “It is not the assets I need at my site. I have the investment, I have the assets I can buy and put into the site. It is simplistically the scale of power you need to put into the site.”

While the potential of hydrogen often commands attention in the debate around the energy transition, Mr Andrew said “electrification” holds the key to Diageo’s net zero goals.

“Often, hydrogen grabs the headlines, but it is not going to help much between now and 2040,” he said. “The scale of infrastructure just isn’t there. Electricity is the way that we can decarbonise our operations in that time. What we have progressed in our roadmaps essentially are biofuels, biogas, and biomass and that is what we have invested in to the tune of hundreds of millions of pounds here in Scotland. Now I need to deliver on electrification between now and 2030.”

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Around 45% of Diageo’s energy needs are currently said to come from renewable sources.

Mr Andrew said that, while there is rightly a lot of focus on developing infrastructure to create energy from wind and solar farms, and from hydro and nuclear power, “one of the biggest challenges is the connectivity to that for business”.

He noted: “In simplistic terms, how do I plug into it?”

Mr Andrew expressed frustration over the current queuing system overseen by Ofgem, which he likened to companies “joining a bus stop in a queue”. He added that, “as it stands today, if I want to do a new infrastructure project, I join the back of the queue”.

“He said: “It doesn’t matter how big or how impactful or how important it is for Scotland, or the world’s decarbonisation, you just join the queue.”

Ofgem moved in mid-November to respond to such concerns by announcing new rules that it said would speed up electricity grid connections for viable projects, and allow stalled or speculative developers to be forced out of the queue. It said the changes will mark a major improvement on the “first come, first served” system, which it acknowledged had led to a long queue of energy projects.

The regulator noted that its new queue management milestones would be implemented by the UK’s grid operator, National Grid ESO, from November 27 and be introduced to both existing and future grid connections.

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It said this would terminate stalled projects which are blocking the queue for high-voltage transmission lines and means ready-to-go generation and storage to enable net zero can be fast-tracked.

Mr Andrew expressed hope that the changes would result in projects that are not progressing being pushed to the back of the queue.

He said: “Often what happens is the projects are in the queue, but then they are not ready, and everyone gets mobilised, and they have to go to the next one. It is just very slow.

“Whereas, if you are what we would call shovel-ready… then you should be at the front of that queue, you should be getting the infrastructure put in.”

“They [Ofgem] are saying that there are 232 projects due to connect by the end of 2025, and 144 are high-risk of not being ready. So, they put the cabling and the plugs in, but there is nothing to plug into. That is why that queuing mechanism is one that needs to be tackled.”

Diageo also called for greater collaboration between firms, local communities, and government to share the cost of infrastructure investments, given that all parties in an area can share the benefits of the investment.

At present, he explained, should Diageo commit to installing new cabling for Cameronbridge, it would have to bear the full financial cost up front, even though other businesses and community groups in the area would benefit. “That ruling really hurts my business in a way,” he said.

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He also pointed out a flaw in a pricing mechanism, which means the cost of renewable electricity tracks the price of gas. He explained: “The wholesale price of electricity is set by the cost of producing the last unit of electricity needed to meet the demand, and more often than not that is gas. So then the whole market is driven by the gas price, not by the cost of renewable electricity.

“As someone who is a driving a global transition I’m thinking: if you want a transition to work, surely you have to decouple that so that the most cost-effective, lowest carbon, best thing for the planet is the cheapest, most accessible thing? Not the thing that costs you more carbon and costs you more money.

“So until those things flip, there won’t be an acceleration, because businesses will be slow to move towards tripling its costs, when it should be reducing costs.”