Select Committee on Welsh Affairs Written Evidence


Written Evidence from National Grid Plc

INTRODUCTION

  1.  The National Grid plc (National Grid) owns the electricity transmission network in England and Wales, and operates the electricity transmission system throughout Great Britain via its subsidiary company National Grid Electricity Transmission plc. National Grid also owns the gas transmission network and four of the eight gas distribution networks throughout Great Britain, under its subsidiary company National Grid Gas plc.

  2.  National Grid has statutory duties to build, develop and maintain efficient, co-ordinated and economic networks and facilitate competition in the generation and supply of gas and electricity. Our licence prohibits us from discriminating between parties who make use of the electricity transmission and gas transmission and distribution networks. To help meet our responsibilities we provide transparent information on the charges for using our networks, its capability and characteristics, including opportunities for future use, and, guidance to anyone who wishes to connect. We also balance the gas and electricity markets. In the case of electricity, this is done in real time, ensuring that demand and supply are equally matched on a second by second, day by day basis.

GAS TRANSMISSION

  3.  National Grid Gas plc, is the licensed public gas transporter and owner and operator of the National Transmission System (NTS) in Wales, England and Scotland.

  4.  The NTS is a buried pipeline system which transports gas at high pressure, from coastal reception terminals to points of supply and the regional gas distribution systems.

  5.  Within Wales, National Grid currently has 125.7 kilometres (79.3 miles) of NTS pipeline.

GAS DISTRIBUTION

  6.  Since June 2005, gas distribution in Wales, has been owned and operated by Wales & West Utilities, part of Macquarie Investment Management (UK) Ltd. National Grid continues to provide the emergency call handling from within the distribution area. The emergency number for any gas incident is 0800 111 999.

WELSH GAS REQUIREMENTS

  7.  Between 1994 and 2004 annual gas demand in Wales rose from 34 TWh to 44 TWh, an average growth rate of 2.6% per annum. Wales has a large proportion of non-domestic demand relative to Great Britain as a whole (52% of distribution network demand in 2004, compared to 41% for Great Britain as a whole). [17]

  8.  Annual gas demand in Wales is forecast to rise from 44 TWh in 2004 to 52 TWh in 2014, an average growth rate of 1.7% per annum. [18]

ELECTRICITY TRANSMISSION

  9.  National Grid Electricity Transmission plc, is the electricity transmission licence holder and owner operator of the high voltage electricity transmission system in Wales and England, which operates at 400,000 volts (400kV) and 275,000 volts (275kV).

  10.  As System Operator for Great Britain, the Company's role extends to operating the GB Transmission System. The primary function of the transmission system is to transport electricity in bulk between generators and the lower voltage Distribution Network Operators (DNOs) or major electricity users with direct connections, such as steel works and smelters.

  11.  As electricity cannot be stored in bulk and as GB System Operator, it is National Grid's role to ensure that the balance of generation matches demand in real time.

  12.  Within Wales National Grid currently has 893.7 circuit kilometres (555.1 miles) of overhead line, 32.5 circuit kilometres (20.2 miles) of underground cable, and 26 substation compounds.

ELECTRICITY DISTRIBUTION

  13.  Electricity distribution in Wales is operated by two companies—Western Power Distribution (WPD) which covers the southern half of Wales and SP Manweb (SPM) which operates the system over the remainder of Wales, plus parts of Cheshire and Merseyside.

WELSH ELECTRICITY REQUIREMENTS

  14.  Between 1993-94 and 2003-04, electricity demand met via the WPD network increased from 11 TWh to 13 TWh, [19]ie average growth of 1.7% per annum. Over the same period, however, demand in the SPM distribution area fell from 18 TWh to 17 TWh.

  15.  National Grid forecasts electricity demand met via the WPD network to increase to 15 TWh by 2013-14, an average growth rate of 1.4% per annum and electricity demand met via the SPM network to increase to 18 TWh by 2013-14, an average growth rate of 0.6% per annum.

NETWORK INVESTMENT

  16.  National Grid has a licence obligation to invest in the electricity transmission network in an economic and efficient manner, and as a regulated company, we can only recover costs deemed efficient by Ofgem. For this reason we can only undertake network investment to facilitate generation connections in response to appropriate signals from the market ie when generators make firm financial commitments to underwrite the costs of the network connections required. To remove network constraints and reinforce the system where there is no direct trigger from a new generator, Ofgem's explicit support is required and we need to demonstrate that these costs are economic and efficiently incurred.

  17.  To facilitate competition we seek to meet the connection dates requested by generation developers. The lead time for network infrastructure projects is dictated by a number of factors, such as land and planning consents, availability of supply chain resource and outage sequences required to ensure that the network is operated to agreed security standards. However, these factors can mean that projects for new network capacity may take a number of years from the date of signing of a contract for network connection to the availability of capacity for that generation project.

  18.  Where generation wishes to connect to a part of the network where there is little or no spare capacity and high levels of congestion, there will be additional costs to upgrade the network and provide additional capacity. In our Seven Year Statement we identify areas where bottlenecks exist and where there is little or no spare capacity available to accommodate new generation or demand. This provides potential users of the network with information concerning the opportunities to use the networks without needing to wait for further reinforcement.

  19.  To ensure that the system maintains current levels of reliability, projects to connect new generation have to be managed in conjunction with ongoing maintenance, replacement and upgrading works.

  20.  In order to ensure that generation is encouraged to locate in the most efficient location, Ofgem has required National Grid to put in place a transmission charging regime which does not encourage or discriminate against any particular generation technology, but which, as accurately as possible, reflects the costs of serving generation and demand in different areas. These charges provide an incentive for new generation plants to locate nearer to the largest demand centres and thereby reducing the amount of the investment required for new generation projects to connect to the transmission network.

  21.  National Grid publishes statements, agreed by Ofgem, of charging every year which illustrate what the cost of connection could be and what the ongoing charges for use of system will be. These financial costs will be taken into account by new generation projects on making decisions on location, as well as other factors, such as the likelihood of necessary planning and consents and the availability of suitable sites with any necessary natural resources.

  22.  National Grid is required by the Gas Act 1986 (as amended) to "develop and maintain an economic and efficient pipeline system". When determining the optimum reinforcement strategy to meet supply and demand growth in the UK, National Grid considers what may be required for future developments up to 10 years ahead in order to minimise the long term cost of providing both entry and exit capacity. This "strategic" analysis is a critical requirement in demonstrating that National Grid's development proposals represent an efficient and economic solution.

  23.  Through an Ofgem-regulated annual auction process, gas shippers signal their capacity requirements to supply gas, at their chosen entry points, to National Grid. National Grid is then obliged, as a licensed Gas Transporter, to release the entry capacity that has been signalled. To comply with its gas transporter licence, National Grid must therefore provide additional gas transmission capacity to move gas to the areas of demand within the UK.

PLANNING CONSENTS

  24.  Before National Grid can construct new gas or electricity transmission infrastructure and in some cases before we are able to replace existing assets, due planning processes must be followed and necessary consents obtained from the relevant bodies. Some of the key approvals required for new gas and electricity transmission infrastructure works are as follows:
Infrastructure Consent RequirementConsenting Authority
Gas Above Ground Installations/Electricity Substations Planning permission (Town and Country Planning Act 1990) Relevant Local Planning Authority
Gas Transmission PipelinesEIA Consent (the Public Gas Transporter Pipeline Works (Environmental Impact Assessment) Regulations 1999) Secretary of State for Trade and Industry
Overhead Electricity LinesSection 37 Consent (the Electricity Act 1989) Secretary of State for Trade and Industry
Gas Compressor StationsIntegrated Pollution Prevention and Control or Pollution Prevention and Control Permit (Environmental Protection Act 1990 and Pollution Prevention and Control (England and Wales) Regulations 2000) Environment Agency Wales


  25.  As a responsible business, National Grid is entirely committed to complying with due planning processes and to adopting "best practice" approaches in the way the Company goes about fulfilling that commitment.

  26.  It should, however, be recognised that a challenge frequently faced by energy infrastructure projects is that they can have the potential to become protracted, being influenced by local issues, which may not attach appropriate weight to the wider benefits afforded by the projects.

  27.  When we need to plan new transmission infrastructure or refurbishment of the existing networks, National Grid undertakes early consultations with a wide range of relevant statutory and non-statutory bodies, landowners and the public. Within Wales the key statutory bodies include the Countryside Council for Wales, Cadw, Environment Agency Wales, Archaeological Trusts, Local Planning Authorities, the National Trust, Civil Aviation Authority and Ministry of Defence.

CURRENT GAS AND ELECTRICITY TRANSMISSION INFRASTRUCTURE PROJECTS IN WALES

  28.  National Grid is currently engaged in a circa £600 million investment programme delivering a series of significant gas transmission system reinforcements required to connect two new Liquefied Natural Gas (LNG) terminals that are being built at Milford Haven by South Hook LNG and Dragon LNG. On completion, these new LNG terminals are forecast to have sufficient capacity to provide circa 20% of future UK gas supplies.

  29.  Plans are in place to allow 22 to 32 billion[20] cubic metres of gas per year into the NTS via the Milford Haven terminals. Historically, South Wales has been at the extremities of the NTS, where the existing pipelines are mostly single 600mm diameter pipelines operating at 70 and 75 bar gauge pressure installed in the 1960s and 70s. The existing infrastructure will require upgrading and extending to accommodate the gas supplies that will come from the Milford Haven LNG terminals, as presently the network extends to just North of Swansea.

  30.  Through a gas capacity auction process it was signalled that National Grid must provide additional gas transmission capacity totalling 650 Gigawatt Hours per Day (GWh/d) by October 2007 and 950GWh/d by January 2009.

  31.  To provide this additional capacity, new reinforcement pipeline sections and compressor station works are needed by 2007-8 in addition to the new 120 km connecting pipeline between the Milford Haven LNG terminals and the existing NTS near Aberdulais. An application for consent to build the first stage, the connecting pipeline between Milford Haven and Aberdulais, was submitted to the Secretary of State for Trade and Industry in April 2005. An application for consent for the subsequent 186km section of reinforcement pipeline between Felindre, near Swansea and Tirley, in Gloucestershire, along with a planning application for a new compressor station at Felindre will be submitted around March/April 2006.

  32.  By engaging in a comprehensive consultation process with key statutory bodies, we have identified a preferred pipeline corridor for the Felindre to Tirley section which best balances the range of construction, health and safety and environmental considerations that need to be taken into account. A number of factors will influence the successful and timely delivery of these nationally important infrastructure works. Firstly, National Grid will need to engage positively with key stakeholders and ensure that the potential environmental impacts of the works are minimised as far as is reasonably practicable. Secondly, the co-operation of consenting authorities will be required in accepting the wider national benefits and working constructively with us on siting issues and minimising potential impacts.

  33.  RWE npower has applied for statutory consent for a 2,000MW CCGT power plant at Pembroke. Milford Power, a subsidiary of Petroplus, has also applied for consent for a 1,600MW CCGT power plant at Waterston near Milford Haven.

  34.  To enable the connection of these two power station projects National Grid is engaged in carrying out works which include the building of new and refurbishment of: existing substations at Pembroke, and the overhead transmission line that runs between Pembroke—Swansea North—Merthyr Tydfil. Substation investment will approach £70 million, with overhead line work costing in the region of £42 million.

  35.  In addition to the above works, National Grid will be undertaking a further £20 million of overhead line refurbishment work, commencing next year, and due for completion in September 2006.

FUTURE DEVELOPMENTS

  36.  National Grid is a long-term investment business and recognises the aspiration for Wales to establish a renewables base. As yet there are currently no onshore wind farms within Wales, with direct connections to the National Grid transmission system.

  37.  National Grid must have appropriate signals from interested electricity generators, before any investment in such areas can be triggered.

  38.  Additional investment to build or re-enforce high voltage transmission lines may well be required if significant levels of onshore renewable energy sources were to be connected in Wales (as advocated in TAN 8). This is due to the fact that areas rich in renewable resources, such as Mid and West Wales, are often located away from the main transmission network.

  39.  As identified in the Royal Commission on Environmental Pollution report of 2000, distributed CHP generation has been identified as having the potential to make a significant contribution to Britain's fuel mix in the future. Most of the new CHP units needed to meet the Government's targets are likely to have small generating sizes and so will find it most cost-effective to be embedded within the low voltage distribution networks. Generally, we expect an increasing proportion of embedded generation to reduce the flow across the interfaces between the electricity transmission and distribution networks, 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 in order to maintain security of supply.

  40.  In addition National Grid also excepts bulk energy transfers to continue, or increase, as electricity from remote wind, tidal or wave power must be carried to demand centres. Our analysis of the Royal Commission, as well as our own scenarios, shows that the requirement for transmission will be at least as large as the present infrastructure and may need significant expansion for certain scenarios, as generation adapts to deliver the target carbon reductions by 2050.

December 2005






17   National Grid 2005 10 Year Statement. Back

18   National Grid 2005 10 Year Statement (excluding shrinkage on a 17 year seasonal normal basis). Back

19   Electricity Industry Review. Back

20   Present South Wales market demand for gas is 3.25 billion cubic metres per year. Back


 
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