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


Annex

The North West Electricity Distribution Network and Distributed generation

INTRODUCTION

  1.  UU owns and operates the electricity distribution network in Cumbria, Lancashire and Greater Manchester, and parts of surrounding counties, an area of approximately 12,500 km2 (see map at Annex 1) with some 2.2 million customers connected.

  2.  Power is taken from the National Grid and existing local power stations, and distributed via networks operating at different voltage levels: 132kV; 33kV; 11kV/5.5kV; and 415V/240V. Each network has a combination of underground cables and overhead lines, the mix principally being dependent upon age and geography. Electricity is normally supplied to dense urban areas by underground cables, smaller towns and semi-rural areas by a mix of underground cables and overhead lines, and rural and remote locations predominantly by overhead lines. Around 25% of the UU network is overhead (some 14,000km of lines, with some 45,000km of underground cables).

  3.  The network was designed as a "passive network", with power flowing in one direction only. Such a design is the most efficient way of linking a small number of National Grid Supply Points and power stations with a large number of customers, successively stepping down the voltage from 400kV to customer supply voltages. However, it is not generally well suited to accepting new generation connected within the network, so called "embedded" or "distributed" generation. This is particularly true in more remote parts, where the network is weakest.

INCOME, REGULATION AND CONNECTIONS

  4.  UU does not sell electricity—it derives its income from charges to electricity supply companies which use its network, and sets its charges in line with Ofgem's assessment—reviewed every five years—of the income UU needs for operation and maintenance. In turn, the supply companies pass on these charges to their customers.

  5.  UU has a duty under its licence to offer cost-reflective terms for connecting to its network, both for consumers and generators of electricity. Charges are regulated by Ofgem to ensure network operators do not abuse their market power. Although there is a statutory duty on UU to connect new generators or consumers, the industry under Ofgem's leadership is increasingly opening up this activity to competition. A number of companies now offer connection services—designing and installing cables and infrastructure—and all but the final connexion to the existing network assets can be undertaken by them.

CONNECTING NEW GENERATION

  6.  Our network already has some 125MW of distributed generation connected that is eligible for the renewable obligation, most from onshore wind farms (60MW) and landfill gas plants (45MW). To achieve the Government's target of 10% of renewable generation by 2010, we estimate that we would need to connect some 400MW of new capacity, just to contribute our share. In practice, given the abundant natural wind resource in the North West, it is likely that figure will be larger as this region shoulders a greater share of the national target.

  7.  In a number of areas of our network, there is growing demand from developers—generally of wind farms—to connect new generation. Pressure is particularly acute along the coast of Cumbria, where the 132kV system capacity is already fully used in transporting the output of three large long-standing power stations and more recently connected renewables to the National Grid. In such areas, the costs of connection may be very large, reflecting not only the cost of installing a cable to link the wind farm with our network, but also the cost of reinforcing our network to provide capacity and maintain overall system security at 132kV. In parts of Cumbria, the cost of connecting even modest new generation (say less than 10MW) would exceed £10 million in reinforcement costs.

  8.  There was no allocation in the 2000-05 Price Review for us to spend on strategic reinforcement of this nature, and under the current regulatory arrangements, we require the generator to pay these costs up front. As might be imagined, this is dissuading potential generators from developing projects in the areas affected. Ofgem and the DTI are currently consulting on regulations to make second comers share the costs borne by the initial developer who shoulders the reinforcement costs, but even with this arrangement, the costs of strategic reinforcements will always dissuade the first comer.

  9.  For that reason, Ofgem has been encouraging network operators such as UU to move to a charging regime under which developers were not required to take on all the reinforcement costs up front—a move from "deep" to "shallower" connection charging in the industry jargon. We agree that this might ultimately be appropriate, but it currently leaves unresolved the questions of risk and return. Essentially, it moves the risk of funding any investment to the network operator, to recoup from charges over time. But that income stream is uncertain (the generator may go bust) and could leave network operators with unfunded investments.

  10.  However, the above discussion focuses on cost-recovery for the network operator. Cost recovery is not an incentive, it merely removes a very strong disincentive. A real incentive would enable network operators to make appropriate extra profit by changing their behaviour to encourage the connexion of distributed generation, and in an efficient manner.

  11.  For our part, we believe some mechanism needs to be found which:

    —  encourages distribution network operators to invest in appropriate network strengthening to open up connection opportunities for new distributed generation;

    —  recognises the riskiness of this investment, by allowing us an appropriate rate of return;

    —  encourages network operators to seek out potential generators, and encourage them to ensure that the generator output is maximised, at least in so far as network issues are concerned; and

    —  funds the required investment from all UK customers' bills, rather than expecting consumers in areas where renewable resources were plentiful to bear a disproportionate share of Kyoto compliance costs.

  12.  We recognise that these are actually very challenging issues, and we are actively working with Ofgem to help find appropriate mechanisms.

SMALL SCALE AND DOMESTIC GENERATION

  13.  Connecting small-scale, domestic generation—CHP and PV—raises technical and regulatory issues. A standard, stable voltage—essential for the operation of domestic appliances—is currently designed into local circuits (the voltage is highest near the substation, tapering with distance). Injecting new generation into these local systems will disturb these arrangements if the generation can export from the domestic premises to the network. In order to maintain voltages within statutory requirements, network operators will have to deploy a variety of techniques, some of which involve established technology, others of which will need further development. Clearly there are cost issues, but we believe that these steps are necessary to enable the most efficient use of domestic generation. The Committee may be aware that this area has a dedicated workstream of the Technical Steering Group (ie the group set up under the Distributed Generation Co-ordinating Group to tackle the technical and commercial issues not directly addressed within Ofgem's authority), and UU's perception is that the metering and settlements problems for Suppliers are more fundamental than the network engineering issues.

RESEARCH AND DEVELOPMENT PRIORITIES

  14.  From UU's perspective as a network operator, we would fully support the general points on R&D effort in regulated monopolies made by NGC in their written (ie NCE 40) submission: it is crucially important for us as a business to minimise our costs of asset stewardship and this has been the focus of our R&D effort.

  15.  We also perceive that many of the technical solutions required to meet the 2010 targets already exist—but we know we are not alone in being confused as to how to seek assistance in developing these solutions into practical workaday applications. We firmly believe that a programme of demonstration projects would be valuable here: neither network operators nor developers are able to shoulder all the risk of development. We understand that funds may be available from central government and from Europe, but we have yet to find a mechanism through which to exploit such resources in support of joint initiatives between network operators and project developers. This could be an area where further support from government would yield positive results and of course we would be delighted to discuss further if that is helpful.

  16.  Another area where there has been an R&D deficit in the past is the exploration of commercial and regulatory initiatives for distribution networks when penetrated by significant quantities of distributed generation. Clearly the search for a workable solution is now taxing companies and Ofgem in designing the next price control. We believe that this area should not be overlooked if R&D priorities are being considered for the future.

UNITED UTILITIES ACTIONS

  17.  Within United Utilities, we have recognised the need to move the debate along, by looking strategically at the likely costs and implications of transforming the network so that it can accept much higher levels of small and medium scale generation. Clearly Great Britain needs an integrated set of policy and practical solutions, and we are trying to fully play our part by supporting the changes processes in place, at all levels, and particularly through the Renewables Advisory Board, the Technical Steering Group and within the Electricity Association. Closer to home we have set up a Network Transformation Unit to drive forward the thinking necessary to condition our own network to accept increased amounts of renewable generation in the most efficient and beneficial (to customers) way.

SUMMARY

  18.  We have been very public in our support of renewable energy. However, there are regulatory, funding and technical obstacles in connecting new distributed generation to distribution networks. We believe it desirable that these be cleared rapidly, to avoid losing more time from the Government's challenging 2010 target for renewables.

  19.  Our belief is that assistance with the development of technical solutions, possibly via demonstrations projects, is key in the short to medium term. We also advise that future research should not forget the non-technical aspects of distribution network ownership and operation.

November 2002


 
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