Select Committee on Environmental Audit Appendices to the Minutes of Evidence


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. National Grid delivers electricity from power stations connected to our network to distribution companies and a small number of large industrial customers. The distribution companies then deliver power 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 are responsible for balancing the system second by second, ensuring secure supplies and achieving the required quality of supply. Under the New Electricity Trading Arrangement (NETA) we do this by purchasing "balancing services"[50] through contracts and by accepting bids and offers for electricity from generators and suppliers in the NETA Balancing Mechanism.

  4.  All generators larger than 100MW, whether they are directly connected to our network or embedded in distribution networks, are required to contract their output directly with suppliers or traders in the NETA system. Most energy is sold in bilateral contracts with suppliers and less than 5 per cent of energy is associated with our balancing activities. At present, there are approximately 63,000MW of such generating plant in England and Wales, more than 90 per cent of which is directly connected to our high voltage transmission network.

  5.  Smaller generators, including all existing renewable plant in England and Wales, are connected to the lower voltage distribution networks. These generators have the option of contracting with electricity suppliers in ways that bypass the costs associated with the national NETA markets and transmission network. We expect much of the new renewable generation and the majority of the CHP developments that are needed to meet the Government's 2010 targets will be connected to distribution networks, with only the larger developments finding it most economic to connect directly to the transmission network. Of course, consumers in England and Wales will also have access to renewable energy sources in Scotland and in Europe through the interconnections between the high voltage transmission systems.

  6.  We are pleased to take this opportunity to provide information to the Select Committee on the implications of renewable energy sources, CHP and other distributed generation technologies for transmission. In describing our approach to dealing with these implications, we hope to explain how we will help facilitate the achievement of the Government's 2010 targets for renewables and CHP and also accommodate further developments of renewable energy in the longer-term.


  7.  With the possible exception of the larger wind farms, 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

  8.  Generally, we expect an increasing proportion of embedded generation to reduce the flow across the interfaces between the transmission and distribution networks at grid supply point substations. This will tend to delay the need for us to reinforce this part of our network and reduce the need for capacity at these substations over time. However, it is unlikely to remove the need for the substations because 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.

  9.  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 capability.

(ii)  Bulk Power Transfers on the Transmission Network

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

  11.  At present there is a substantial north to south power transfer across our network of up to 10,500MW. This arises because generation capacity located in the north near coal and gas fuel supplies substantially exceeds demand in that area, and it exports power 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 currently in the south tends to reduce first.

  12.  Against this background, embedded generation that connects in the north, displacing the marginal 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. On the other hand, embedded generation locating in the south, similarly displacing southern generation, will tend to leave north to south power flows unchanged. In short, bulk transfers depend on the location of generation with respect to demand and not on the voltage levels to which the generating plant connects.

  13.  From the present situation, improved regional balance will require a very significant increase in generation in the south. Whereas a trend towards increased use of domestic and district heating CHP may improve regional balance, the development of wind and other renewables may result in increasing transfers because these energy sources are more abundant in the North and West of the country. For these reasons bulk transfers on the transmission system can be expected to continue for the foreseeable future. For example, analysis of the four scenarios for 2050 developed by the Royal Commission of Environmental Pollution all suggest continuing and, in some scenarios, increasing bulk transfers.

  14.  Paragraphs 22 to 25 below describe our transmission charging arrangements and how they seek to ensure generators and "demand" take into account network costs when choosing their locations. Nevertheless, and despite this locational incentive, some generation continues to locate in the north, reflecting other advantages of siting there (including availability of suitable sites and access to fuel supplies). In the future, the relative abundance of wind resources in the north will be another such factor.

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

  15.  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. This capability of the transmission system will become more important as the proportion of more intermittent generation, such as wind, increases.

  16.  National Grid has undertaken analysis to assess the impact of wind fluctuations, particularly those fluctuations that effect the requirement to balance generation and demand from second to second. These studies, which we published as part of our submissions to the Energy Policy Review by the PIU[51], represents how the transmission network would harness the diversity between fluctuations of wind generators in different areas of the country. This permits much of the fluctuations observed from individual wind farms to be averaged out leaving the less variable national "common mode" fluctuation to be managed. Using scenarios representing wind developments necessary to meet Government targets in 2010, we expect this total fluctuation to be manageable and the necessary additional balancing services to be available from the service markets, albeit at additional cost.

  17.  For the reasons set out above, the transmission system will continue to play an enduring and 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.


  18.  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.

  19.  Through our participation in the DTI/Ofgem Embedded Generation Working Group (autumn/winter 2000), we have actively worked to ensure that our approach to embedded generation aligns with the actions and options identified by the Working Group to ensure that renewables and CHP are treated on an equitable basis compared to other users of distribution and transmission networks. We are now contributing to the Distributed Generation Co-ordinating Group and the associated Technical Steering Group.

  20.  In addition, as a result of our work on wind fluctuations and our participation in the working groups examining consolidation of small generators under NETA, we are also seeking to develop our system balancing activities such that they will facilitate the market changes needed to mitigate the impact of NETA on small and fluctuating generators. In particular, we recognise the benefits of reducing the NETA market gate-closure to one hour before real-time and we are aiming to deliver the system balancing changes needed to achieve this in July 2002.

  21.  A summary of the issues arising from transmission interactions with embedded generation 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 2010 targets and beyond.

Recognising the Benefits of Embedded Generation and Co-ordinating Developments

  22.  For those larger generation developments that do require a direct connection to the high voltage transmission system, National Grid uses a "shallow" connection charging methodology. This means that a connecting customer is responsible for directly financing only those assets required in the immediate vicinity of the connection (in the case of a generator, this may include a substation and the new line needed to connect it to the existing network). The cost of reinforcements that may be required "deeper" within the transmission network are shared with other transmission customers, both on the generation and demand side, through a Network Use of System tariff. In this way, National Grid's transmission charging methodology facilitates sharing of reinforcements benefiting all customers while maintaining locational signals through a zone specific element.

  23.  National Grid's charging methodology differs from that used by Distribution Companies who, for technical and historic reasons, follow a "deep" connection methodology in which they recover all network reinforcement costs from the connecting generator. Distribution Companies are currently reviewing their approach to network connections with Ofgem.

  24.  As embedded generators do not connect directly to the transmission system they are not liable for any transmission connection charge. Also, because they reduce the demand that their supplier counter-party imposes on the transmission system, they can help suppliers avoid transmission use of system charges. This results in what is referred to as "embedded benefits" which the supplier can share with an embedded generator according to the terms of their contract.

  25.  For some years, National Grid's charges for use of the transmission system have provided an incentive for generation using the transmission system to locate in areas that reduce the need for transmission investment. For example, the use of system charges for generators in some southern areas of the country are negative to reflect the network costs that would be avoided if new generation locates in those areas. As mentioned in the previous paragraph, 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.

  26.  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

  27.  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 National Grid would become optional. A modification to the Connection and Use of System Code is currently being progressed on this issue.

Network Access Arrangements and Processes

  28.  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.

  29.  In addition, we are seeking more opportunities to respond to the needs of renewables developers. To address the particular requirements of developers of new wind power projects, we have produced specific guidance information and, with a variety of wind developers, discussed the process of obtaining connections to the transmission network. This guidance is now available on our web site.[52]

Intermittency and Balancing Issues

  30.  To address the balancing 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 currently in progress. 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.

  31.  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 in respect of reserve and response that may be needed to accommodate large amounts of wind generation can be provided. 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.

Network Capacity and Stability

  32.  As noted in paragraph 13, there is the potential for bulk transfers to change and for network reinforcements to be required as a result. Reinforcements at pinch points in our network may well 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.

  33.  One aspect of establishing sufficient network capacity is to ensure that the generation (usually most critically in exporting areas) will remain stable and synchronised in the event of network disturbances. This issue becomes most challenging in circumstances where large concentrations of generation are located remotely from load centres. The particular type of generation technology and the characteristics of their control systems are also important factors in stability performance. We are currently undertaking analyses of such issues[53] and examining the new generation technologies that are being developed.


  34.  As a larger proportion of generation is connected to distribution networks, the interface with distribution network operators will need to be developed. We have provided detailed consideration of the emerging requirements on this interface in our supplementary evidence to the PIU concerning "active" distribution networks.

  35.  As the proportion of more intermittent generation like wind power increases, the tasks of frequency control and system balancing actions will become more demanding. While we do not foresee this issue becoming an absolute technical limit for such generation, the management of intermittency will become increasingly expensive and the trade-offs between purchasing additional balancing services, developing storage technologies and improving demand response will become more important.


  36.  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.

  37.  However, for transmission, we do not currently foresee any insoluble 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.

March 2002

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

51 Back

52 Back

53   This includes a joint transmission study with the Scottish transmission licensees to facilitate the exports of renewables from Scotland. Back

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