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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