Select Committee on Science and Technology Appendices to the Minutes of Evidence


APPENDIX 40

Memorandum submitted by National Grid Company plc

INTRODUCTION

  1.  National Grid Company, which is part of the National Grid Transco Group, 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 few 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 to facilitate competition in the generation and supply of electricity. Our licence prohibits us from discriminating between parties who make use of the transmission network and also prohibits us from generating and supplying electricity ourselves other than as part of our operational role in balancing the system. 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. We do this by purchasing "balancing services"[20] through contracts and by accepting bids and offers for electricity from generators and suppliers in the Balancing Mechanism. At present, many (although not all) of the balancing services we use are provided by generators. Consequently, our ability to balance the system in the short-term depends on the electricity market incentivising participants to establish adequate generation capacity to meet the requirements for electricity.

  4.  All generators larger than 100 MW, 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 market framework. Most energy from these generators (ie 95%) is sold in bilateral contracts with suppliers, and less than 5% of energy is associated with our balancing activities. At present, there are approximately 65,000MW of generating plants larger than 100MW in England and Wales, more then 90% of which is directly connected to our high voltage transmission network. This capacity is available to meet the England and Wales peak demand for this winter which we forecast at 53,400MW (ie a plant margin of 21.7%).

  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 the 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 interconnection between the high voltage transmission systems.

  6.  We are pleased to take this opportunity to provide information to the Select Committee on our Research and Development activities and on aspects of the broader network issues which will affect the development of renewable energy sources and contribute to reductions in carbon emissions.

RESEARCH AND DEVELOPMENT ACTIVITIES

  7.  National Grid's Research and Development activities are focused on our statutory duties of developing and maintaining an efficient, co-ordinated and economical transmission system. This system comprises some 7,200 km of high voltage overhead lines, 640 km of underground cables and 340 substations where electricity is either fed into the system from generators or taken off the system onto the distribution networks. While National Grid has invested over £3.5 billion since 1990 to replace ageing components and to meet the needs of new generating developments and demand growth, a key priority for us is to manage our existing network assets, many of which were built in the late 1960s and early 1970s.

  8.  Given the size and the age of the system and its importance in maintaining security of supply, much of our specialist Research and Development activities (which currently represent £5 million spend per annum) are directed towards:

    (1)  Development and implementation of condition assessment techniques to ensure that equipment is replaced in appropriate time-scales—ie not needlessly early, and conversely, before the point at which the condition of the assets could adversely affect the reliability of the system. This includes, for example, the development of condition assessment techniques for instrument transformers and other high voltage equipment.

    (2)  Techniques to slow the ageing process and to extend the reliable life of network assets. For example, the development of "intelligent" transformer monitoring and fault diagnosis systems.

    (3)  Techniques and equipment to increase the capacity of existing assets in order to transmit energy more efficiently and to increase the capacity of the system without major capital investment. For example, by exploiting the short-term dynamic ratings of overhead lines.

  9.  Whereas the majority of our research and development activities are directed at the physical condition of the system and its capacity, we also have projects that seek to assess the impact of future technologies on the network and how best to manage the network following such developments. For example, we will be providing support to EPSRC Supergen—Future Network Technologies Consortium—a project intended to bring forward new concepts and technologies to facilitate the sustainable development of the industry. Our contribution will also include the provision of our expertise in economic and engineering aspects to the Supergen workstreams. This will add to our existing technology assessment project which makes strategic assessments of the main emerging technologies of commercial relevance to National Grid.

  10.  As part of our approach to research and development, National Grid is developing key alliances in areas of strategic importance to ensure a sustainable R&D capability for both National Grid and the academic community. The National Grid High Voltage Research Centre is currently being established in UMIST at a cost of just over £0.5 million. The centre will provide not only high voltage research but will utilise the engineering, science and management skills at UMIST in a range of projects. National Grid plans to undertake approximately £0.3 million per year of research at the centre. A joint initiative with EPSRC is being pursued to enhance the department further and attract other users. Alliances are also being developed in at least four other institutions, together with a flexible agreement with EPRI to both collaborate on and contribute to projects.

  11.  The £5 million per annum expenditure identified as specialist research and development within National Grid (as described above) has tended to be focused on finding solutions to technical problems and managing technical risks to our business. These activities are relevant to facilitating the development of the high voltage network and integrated electricity system to meet the needs of all users including new low and non-carbon technologies. However, they are a rather specialist part of our wider development activities. These wider activities, which account for additional development expenditure by National Grid, include the development of the physical and electrical aspects of the network, the associated operational processes, and the commercial and regulatory arrangements through which our customers access the network. These activities are particularly relevant to facilitating entry of low and non-carbon technologies to the network and are described below.

TRANSMISSION NETWORK ISSUES RELATING TO RENEWABLE ENERGY DEVELOPMENTS

  12.  A major part of the Government's policy towards reducing carbon emissions is to achieve the target of meeting 10% of the UK's electricity needs from renewable sources by 2010. The Government also has a target of establishing 10,000MW of electricity generating capacity from Combined Heat and Power (CHP) plants over the same period. The recent PIU report suggests that the target for renewables should be increased to 20% by 2020.

  13.  Although any emerging new use of the electricity system is likely to require a response on our part, renewable energy developments will provide three particular challenges to National Grid:

    (i)  As many renewable sources are likely to be remote from the main load centres, there is the need to develop the physical capacity of the transmission system to meet the additional requirements to transmit electricity resulting from renewable developments.

    (ii)  The task of ensuring that demands for electricity continue to be met second by second will also become more demanding given the intermittent nature of many renewable energy sources.

    (iii)  Because many of the new low carbon generation technologies will be small in scale, they will tend to connect to distribution networks and require more active management of the distribution networks. This will require development of new market arrangements for local services and evolution of the existing relationship between transmission and distribution operators.

  Each of these issues is discussed further below.

THE TRANSMISSION SYSTEM AND RENEWABLE ENERGY SOURCES

  14.  In the period up to 2010, the required major expansion of renewable energy resources is likely to be met, primarily, from wind generation, both on-shore and off-shore, although other sources (such as biomass, wave, tidal stream and photovoltaic) may also contribute. The majority of wind developments are likely to be of a size which will make it most economic for them to connect to the systems of the Distribution Network Operators. Normally, it is uneconomic for generating developments of less than around 300MW to connect at transmission voltages.

  15.  Nevertheless, developments of the scale required to meet the 2010 target, much less the proposed 2020 target, could have a substantial impact on power flows on the transmission system and on the requirement for transmission capacity. At present, for historic and economic reasons, flows on the transmission system within England and Wales are predominantly from north to south with up to 10,000MW being transferred regularly. Many of the potential sites on-shore in Great Britain are located in the north and west, and, particularly in Scotland. Similarly, many potential off-shore sites are in the north of the country, although to a lesser extent than for the on-shore sites.

  16.  Irrespective of whether they are embedded in distribution networks, or, directly connected to the transmission system, development of renewable energy resources in the north of England or indeed in Scotland will add to north-should power flows on the transmission system. This is only unlikely to be the case, if, in the same period as these renewable sources are developed, there are very extensive closures of existing northern generating plant. Even then, we doubt that this would be to the extent necessary to preclude an increase in transmission capacity to meet the likely increased flows.

  17.  Work has been undertaken by three British transmission-owning companies (Scottish Power, Scottish and Southern Energy and National Grid) on behalf of the DTI Transmission Issues Working Group on the potential developments and investment requirements on the transmission system to meet an additional 2,000MW; 4,000MW; and 6,000MW, of wind-generation located in Scotland by 2010. In addition, for the same group, work has been undertaken separately by National Grid on the basis of similar developments in England and Wales on a similar timescale.

  18.  Both studies have concluded that substantial transmission development and investment will be required, including the upgrade of some distribution circuits and building some new substations, if renewable developments on this scale are to take place and indeed if the Government's targets for 2010 are to be met.

  19.  How commitment to such transmission investment projects will be made, and, how such investments are to be charged for, will be important factors in influencing whether or not the Government's targets are to be achieved. It is for consideration as to whether a "strategic" approach in regulatory terms to the development of the transmission networks should be adopted to facilitate the achievement of the target.

EFFECTS OF RENEWABLE DEVELOPMENTS ON THE COSTS OF ABILITY TO BALANCE THE SYSTEM

  20.  The intermittent nature of some renewable energy sources, particularly wind generation, has led some commentators to conclude that, in the event of significant developments of such generation, technical problems will arise in balancing the system or alternately that the costs of so doing will rise to unacceptable levels.

  21.  On the basis of our analysis, and assuming no significant change in the availability of balancing services from service providers, we conclude that the need to achieve short-term balancing of the network will not impose a technical constraint on meeting the Government's target of 10% renewables by 2010, even if all the new renewable energy was provided by wind. However, the balancing costs associated with accommodating wind will increase as the amount of wind-capacity increases. For a scenario with wind providing 10% of electricity consumption, and assuming the cost of balancing services remains as now, we estimate (derived from current balancing contract data) that the additional balancing costs would be around £2 for each MWh of wind produced. We estimate that this could represent an addition to current levels of balancing costs (circa £300 million per annum) of £60 to £80 million per annum. Work commissioned by the PIU on the likely additional costs of system balancing associated with 10% levels of wind-generation, indicated a range of £1 to £2/MWh.

  22.  For scenarios with more than 10% of electricity produced from wind, we would not foresee that system balancing would impose a technical ceiling on the amount of wind generation that can be accommodated, but rather, that economic considerations, including the costs of stand-by generation in the wider electricity market, will become increasingly important.

INTERFACE WITH ACTIVE DISTRIBUTION NETWORKS

  23.  As an increasing proportion of the country's generation is connected to distribution networks rather than directly to the transmission networks, the active management of the distribution networks by distribution network operators will become essential. Distribution network operators will need to undertake many of the activities we undertake on the transmission system in order to ensure local security and quality of supply is delivered including the purchase of services from distribution connected generators. To establish a level playing field, the commercial arrangements for such local services will need to interface to those already in place nationally.

  24.  National Grid has been active in developing commercial arrangements that will facilitate participation of service providers from distributed facilities. We have established reserve and frequency control arrangements that aggregate distributed services from factories that can control their demand or activate on-site generation. These arrangements can be extended to other distributed generators and may also be an appropriate framework for the local services that distribution companies may wish to purchase from distribution connected generation.

  25.  Currently we are actively participating in the Ofgem/DTI/Industry Distributed Generation Co-ordinating Group and the associated Technical Steering Group. In this way we can provide information on transmission arrangements that may be adopted to meet new requirements on the distribution networks and ensure transmission arrangements remain in-step with developments that are needed to address the particular requirements of new distributed generation technologies. For example, one issue being considered to better facilitate the connection of distributed generation is the use of "shallow" network charges like those currently used on the transmission system rather than the "deep" connection charges currently used for distribution connected generation. This change would automatically share network infrastructure costs between all the network customers who benefit from the reinforcements rather than just the customer who happens to precipitate its construction. This would facilitate the connection of new generation to the distribution network by reducing the initial costs on such generators and by reducing the risks and administrative burden associated with negotiating a sharing of their "deep" connection costs as other customers make use of them.

CONCLUSIONS

  26.  National Grid's focus in terms of research and development is associated with ensuring economic efficiency in the development and operation of the transmission system. Many of our activities, by seeking to improve the economy and performance of existing network assets and equipment types, will benefit new low and non-carbon technologies, as well as other customers, by better serving their requirements. We also have specialist technical research and development projects that are specifically assessing the changes that certain technologies may bring. However, the key issues that we believe need to be addressed to facilitate the introduction of low and non-carbon fuel technologies are integral parts of our on-going development of the physical capacity of the transmission network, the operational and trading processes, and the commercial and regulatory framework. We hope this submission assists the Science and Technology Committee by identifying these issues and describing National Grid's associated activities.

National Grid Company plc

November 2002



20   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


 
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