Select Committee on Environmental Audit Memoranda


Memorandum from the National Grid Company plc


  1.  National Grid owns and operates the high voltage transmission system comprising the 400kV and 275kV transmission lines in England and Wales. Our network delivers electricity from power stations connected to it to distribution companies and a small number of large industrial customers. The distribution companies then delivers it to the majority of customers through their 132kV and lower voltage networks.

  2.  Our statutory duties are to develop and maintain an efficient, co-ordinated and economical transmission system and facilitate competition in the generation and supply of electricity. Our licence prohibits us from discriminating between parties who make use of the transmission network. To help meet our responsibilities we provide transparent information on the charges for using our network, its capability and characteristics, including opportunities for future use, and guidance to anyone who wishes to connect to our system.

  3.  As system operator we currently despatch all generators over 100MW, whether they are directly connected to our network or embedded in distribution networks, to meet the national demand for electricity. Currently, there is approximately 63,000MW of such plant in England and Wales, more than 90 per cent of which is directly connected to the high voltage transmission network. All existing renewables in England and Wales are connected to the lower voltage distribution networks and we expect the majority of renewables energy developments, needed to meet the Government's targets will also be connected to distribution networks. It is important to note, however, that renewable energy sources in Scotland and in Europe can be accessed by consumers in England and Wales through the interconnections between the high voltage transmission systems.

  4.  The New Electricity Trading Arrangements (NETA), due to start in the spring, represent a significant change for generators and electricity suppliers as well as for National Grid as system operator. In the future, generators and suppliers of electricity will enter bilateral contracts for energy and will largely "self-despatch" to meet the terms of these contracts. National Grid will be responsible for balancing the system, ensuring secure supplies and achieving the required quality of supply. We will do this by continuing to buy "ancillary services"[56] and by accepting bids and offers for electricity from generators and suppliers (ie bids for demand) in the NETA Balancing Mechanism.

  5.  We are pleased to take this opportunity to provide information to the Select Committee on the implications of renewable energy sources for transmission and to indicate how our approach is dealing with these implications will help the achievement of these targets and also accommodate further developments of renewable energy in the longer-term.


  6.  Most of the renewable energy developments and much of the new CHP needed to meet the Government's targets are likely to have small generating unit sizes and so will find it most cost-effective to connect to low voltage distribution networks. This trend towards having a larger proportion of "embedded" generation will interact with the high voltage transmission network in the following respects.

(i)  Flows at the Transmission to Distribution Network Interfaces

  7.  Generally, we expect an increasing proportion of embedded generation to reduce the flow across the interfaces between the transmission and distribution networks. This will tend to delay the need for us to reinforce this part of our network but it is unlikely to remove the need for the substations at these interfaces. These will continue to be needed to balance the fluctuation between generation and demand in specific parts of the distribution network from minute to minute.

  8.  In a few areas it is possible that embedded generation may increase to a level where there could be electricity exports from distribution networks to the transmission system. However, reinforcements would only be needed at these interfaces if the level of exports to the transmission system were to rise to a level that exceeded the existing capacity.

(ii)  Bulk Power Transfers on the Transmission Network

  9.  The general reduction in the flow from the transmission to distribution networks as a result of embedded generation development does not necessarily lead to a similar reduction in the bulk transfers across the transmission network. This is because these transfers depend on the geographical location of generation with respect to demand.

  10.  At present there is a substantial north to south power transfer across our network of up to 10,000MW. This arises because generation capacity located in the north near coal and gas fuel supplies substantially exceeds demand in that area, and it exports to meet demand in the south. These transfers occur throughout the year because, as demand reduces from the annual peak, the output of the more expensive generation in the south reduces first.

  11.  Against this background, embedded generation that connects in the north, displacing higher cost generation in the south, will increase system transfers in just the same way as any other new generator connecting directly to the transmission system in the north. Embedded generation locating in the south displaces older southern generation, and so leaves north to south power flows unchanged.

  12.  For these reasons, bulk transfers on the transmission system can be expected to continue unless there is a significant overall shift towards an improved regional balance between demand and generation, whether embedded or directly connected to the transmission network. From the present situation, improved regional balance will require a very significant increase in generation in the south.

  13.  For some years, charges for use of the transmission system have provided an incentive for generation using the transmission system to locate in the south of the country. Small embedded generators are not liable for these charges and therefore do not receive a direct incentive to locate in the south. However, as small embedded generators can enable suppliers to avoid payments of National Grid demand-related use of system charges, and because these charges are higher in the south than in the north, an indirect incentive remains for small embedded generators to locate in the south. Nevertheless, and despite of this incentive, generation continues to locate in the north, reflecting other advantages of such siting.

(iii)  Value of the Transmission Network for Security of Supply

  14.  As well as ensuring efficiency in bulk electricity flows, the transmission system also provides security. The system contributes to security of supply by ensuring that demand in a specific part of the country is not solely dependent on the availability of generating plant located in that area. It means that any available generation wherever located can be utilised to meet demand.

  15.  For these reasons, the transmission system will continue to play an important role in the future electricity market even with higher penetration of renewables, CHP and embedded generation. Accordingly, we see it as a priority to achieve solutions to the technical and market issues that we can foresee, thereby ensuring that we play our part as effectively as possible in facilitating the change to these technologies.


  16.  In developing our approach to renewables, CHP and other embedded generation we have examined their likely interaction with our transmission network and system operation activities. We have also identified areas where our activities may affect development of such projects. More recently, through our participation in the DTI/Ofgem Embedded Generation Working Group (autumn/winter 2000), we have actively worked to ensure that our approaches to these issues fit with the actions and options identified by the Working Group for ensuring that renewables and CHP are treated on an equitable basis compared to other users of distribution and transmission networks.

  17.  A summary of the transmission issues identified by the Embedded Generation Working Group and National Grid's approach to them is contained in Table 1. From this work we are confident that transmission related issues will not become a barrier to accommodating the amount of renewables or combined heat and power generation necessary to meet the Government's targets. Depending on the location and type of technology that enters the market, we also expect that we will be able to accommodate more renewables, CHP or other embedded generation than is needed to meet the 2010 targets.

Recognising the Benefits of Embedded Generation and Co-ordinating Developments

  18.  The Transmission Network Use of System charging arrangements that we currently have in place will continue to provide locational signals as to the most economic areas for development from a transmission system point of view. Small embedded generators, as described in paragraph 12, can also receive the benefit of the avoided demand charges when meeting demand of local suppliers. Such benefits exist at all locations but are greatest in the south of the country.

  19.  The potential for improving the economic efficiency of locational signals to users of the transmission system that are provided by transmission charges is currently being undertaken as part of a wider review of transmission access arrangements. Currently led by Ofgem.

Minimising Red Tape on Small Embedded Generation Projects

  20.  Embedded generators understandably seek simple contractual arrangements with respect to network issues. Following on from our discussions at the Embedded Generation Working Group, we are working to adapt National Grid's contractual agreements with Distribution Network Operators (DNOs) so that embedded generators can choose to have a single point of contact with their host DNO and any agreement with us would become optional.

Network Access Arrangements and Processes

  21.  The DTI/Ofgem Embedded Generation Working Group highlighted that effective information flows, accessible processes for market entry and transparent terms for connection and use of networks are all key factors in facilitating the development of embedded generation. In these respects we were pleased that National Grid's approaches to providing information on system opportunities through our Seven Year Statement, our policies on connection and use of system charging, and our general approach to facilitating new entry were cited by the Working Group as best practice and worthy of consideration for addressing the issues that are emerging at the distribution level with respect to embedded generation. We look forward to continuing to contribute our experience in the developments needed to meet the new challenges. In addition, we are seeking more opportunities to respond to the needs of renewables developers.


Actions to Address Longer-Term Transmission Issues Associated with Renewables

  22.  To address longer-term technical issues that may arise from a larger proportion of wind and other intermittent renewables, we are actively facilitating and encouraging the further development of open ancillary service markets. We have already established arrangements through which we can use small and decentralised providers for reserve and frequency response through the use of aggregating agents. Further developments to the market arrangements for frequency control are planned once NETA has been introduced. We see benefits in the DTI/Ofgem Embedded Generation Working Group suggestions that distribution network operators should facilitate local markets in ancillary services and we look forward to working with them in this area.

  23.  These developments should encourage the most cost-effective provision of frequency control and reserves that are needed nationally. They should ensure that any additional requirements can be provided in respect of reserve and response that may be needed to accommodate large amounts of wind generation. They will also ensure that the displacement of some of the large grid-connected power stations that currently provide these services can take place without any effect on system security. Such markets would also provide embedded generation with the capability to provide such services with an additional income stream.

Longer-Term Network Requirements

  24.  Looking to the longer-term future, there are some technology trends that may tend to bring generation and demand more into regional balance. Fuel cells, micro-CHP and CHP district heating systems would be expected to bring electricity generation very much closer to where it is consumed in all areas of the country by transmitting energy by gas pipeline.

  25.  On the other hand, other technologies may be expected to maintain or perhaps even increase the need for bulk electricity transfers. Many renewable resources, such as wind and wave power, are most abundant in the north and west. Biomass power stations will be located near their agricultural or forestry fuel sources. New hydro and geothermal resources may be brought to the UK by interconnector.

  26.  Overall, we therefore expect bulk transfers to continue on the transmission network for the foreseeable future. Reinforcements at pinch points in our network are likely to be required, depending on the location of new generation and the closure of existing plant. Through the technology at our disposal, we will always exploit the scope for improving the capability of our network before needing to construct new lines.


  27.  We hope that this information helps to explain the issues relating to the high voltage transmission system with respect to the development of renewable generation and the approaches which we at National Grid are taking to ensure we play our part in facilitating the development of this and other embedded generation. In so doing, we do not wish to downplay the challenges that will be faced by the networks, principally those at lower voltages, in addressing the issues that form the major part of the report from the DTI/Ofgem Embedded Generation Working Group.

  28.  However, for transmission, we do not foresee any specific issues that would impose a barrier to meeting the government's 2010 targets for renewable generation. We also believe the actions we are taking now will ensure that there are no barriers for much larger renewable developments in the longer-term.

February 2001

Table 1


Issue for National Grid ApproachProgress
In the longer term renewables may require the purchase of additional reserves and frequency response ancillary services to ensure security and quality of supply. Encourage development and facilitate national ancillary service markets that are open to all potential providers (including embedded generators). Reserve market in operation with successful contracts with demand side and embedded generation service providers.
Ensure continuing availability of ancillary services in longer-term as embedded generators progressively displace present providers. Encourage aggregator agents to assist smaller participants to provide services in required sizes and dependability. (* This role may in future be performed by distribution network operators either as facilitator of markets to obtain services for distribution network or to sell on to transmission). Reactive market in operation with centrally despatched embedded providers but no agreements with smaller power stations yet.Frequency response market awaiting NETA introduction.Some aggregator agents for reserve and frequency response established.
Potential need for transmission reinforcements from northern generation developments. Provide market information through Seven Year Statement and provide financial signals through cost-reflective locational transmission charges. Seven Year Statement under continuing development from customer feedback.Locational transmission charges in place. Further review underway as part of review of transmission access.
Co-ordinate transmission developments with embedded generation developments (mainly affecting our interface with distribution networks). Obtain information on developments that may have material impact on transmission system as early as possible to minimise need for project delays. ** Change contractual arrangements to meet requirements of embedded generators and distribution network operators.
Minimise red tape from National Grid for embedded generation developers. Revise contractual arrangements so that embedded generators can have single point of contact with their host distribution network operator. Discussions with Distribution Network Operators underway to prepare contractual change as soon as possible.
Fully recognise benefits brought by embedded generators to transmission system. Embedded benefit recognised by reduction in supplier demand charges relating to transmission network and balancing costs. 100% allowance provided by arrangements that net embedded generation from supplier's chargeable demand.
  Benefit from location recognised in use of system tariffs. See items isted above.
  Benefits from ancillary and balancing service provision recognised in ancillary service markets.   
Network management issues arising from new generation technologies and actively managed distribution networks. Maintain active participation in these developments at industry forums. Grid Code Review Panel, Charging Principles Forum established. Connection and Use of System Code Panel to be established shortly.

  * The benefits that would arise from increased participation of distribution network operators in activities concerning the aggregation and facilitation of local service markets was identified in the DTI/Ofgem Embedded Generation Working Group.

  ** The benefit of this change to contractual arrangements was highlighted in the DTI/Ofgem Embedded Generation Working Group.

56   Frequency response and reserve, which are needed to balance demand and supply for electricity second by second and reactive power for voltage control. Back

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