Memorandum 55
Submission from National Grid
NATIONAL GRID—WHO
ARE WE?
1. National Grid plc owns and operates the
high voltage electricity transmission system in England and Wales,
and operates the Scottish high voltage transmission system. National
Grid also owns and operates the gas transmission system in Great
Britain and distributes gas in the heart of England, to approximately
11 million offices, schools and homes. In addition National Grid
manages electricity and gas assets in the US, operating in the
states of New England and New York.
2. In the UK, our primary duties under the
Electricity and Gas Acts are to develop and maintain efficient
networks and also facilitate competition in the generation and
supply of electricity and the supply of gas. Our activities include
the residual balancing in close to real time of the electricity
and gas markets.
3. Through our regulated and non-regulated
subsidiaries, National Grid also owns and maintains around 20
million domestic and commercial meters, the electricity Interconnector
between England and France, and a Liquid Natural Gas importation
terminal at the Isle of Grain.
4. National Grid is pleased to have the
opportunity to contribute to this inquiry and our submission will
focus on our role in managing the high voltage electricity system
in the UK such that new renewable generation is connected and
its production efficiently delivered to market. These activities
require us to undertake significant investment in new network
capacity and make significant developments to our commercial regimes
in order to meet the particular characteristics of this generation.
As well as the demands of these immediate challenges we will also
make reference to our wider engagement in the area of Research
and Development.
OPERATION OF
THE ELECTRICITY
TRANSMISSION SYSTEM
IN THE
UK
Balancing the system
5. In our role as GB System Operator (GBSO)
National Grid is responsible for ensuring the electricity market
balances in real time and provides security and quality of electricity
supply to customers. As electricity cannot be stored, this role
requires us to ensure that total production and consumption match
second by second. We must ensure there are sufficient reserves
to cope with unexpected changes in the levels of electricity production
and consumption and also ensure that the flows that arise do not
exceed the power carrying capacity of the network.
6. The variable and unpredictable nature
of wind generation impacts on this role. As well as accurately
assessing the statistics of wind fluctuations in different timescales
and across different areas of the country, we are developing new
and innovative forecasting techniques to allow us to balance the
system and maintain security of supply.
Interaction with the electricity distribution
network
7. National Grid manages the high voltage
electricity transmission network, comprised mainly of 400kV and
275kV lines, which efficiently transport energy from the areas
where it is produced, currently mostly by large scale generators
directly connected to the transmission network, to substations
where electricity is then distributed to households and business
by lower voltage distribution networks. Appendix 1 details a map
showing National Grid's high voltage transmission system. Appendix
2 shows the areas covered by distribution network operators.
8. Smaller generators (typically below 100
MW) are connected to the lower voltage networks or within customer
premises. In the future we expect larger amounts of such distributed
generation to be connected in order to harness renewable sources
and improve energy efficiency through combined heat and power.
9. As this type of generation increases,
distribution network operators (DNOs) will increasingly need to
undertake active management of their networks to ensure local
security and quality of supply, performing a role locally that
will become more similar to that which National Grid performs
nationally, including the purchase of services from distribution
connected generators.
10. National Grid has already developed
commercial arrangements to allow distributed renewable generators
the opportunity to provide services (such as reserves) alongside
transmission connected generators. Moreover, as the volume of
such distribution connected generation increases, and they have
a material impact on power flows on the transmission network.
We have been active in developing arrangements to manage such
impacts in a manner which ensures that all generation (ie transmission
and distribution connected) is treated equitably. We are engaging
in research to integrate the arrangements we require for transmission
management with those required by DNOs and other market agents.
Planning reform to accommodate renewables
11. National Grid believes that there are
enormous challenges for the companies providing energy infrastructure
in the UK over the next 20 years. New infrastructure is needed
as renewable generation grows, old power stations are replaced
and new gas importation and storage terminals are built as North
Sea supplies continue to deplete.
12. Energy network companies, especially
National Grid, will need to invest in new infrastructure to connect
these developments and ensure energy can be moved to where it
is needed. National Grid expects to be investing around £10
billion in the UK between now and 2012. This investment includes
asset replacement, upgrades and new infrastructure.
13. Reform of the current planning regime
is essential to meeting the Government's aims of moving to renewable
energy—both large scale renewable projects and microgeneration,
ensuring continuing secure gas and electricity supplies.
14. In Britain, National Grid currently
has signed contracts with the generating companies to connect
38,000 Megawatts (MW) of new generation to the transmission system
in the coming years, over half (18,000 MW) for renewable energy
projects. However roughly 70% of generators are either held up
in the consents process or have not yet applied.
15. Currently there are 2,300 MW of transmission
and distribution connected wind generation of which approximately
1,300 MW is contracted with National Grid. Note that this is not
the total volume of existing wind generation, as we would not
contract with, or even be aware of smaller scale plant.
Connecting renewables and transmission access
16. Generators (and load customers) wishing
to connect to the high voltage transmission system and access
the GB national energy market are required to enter into an agreement
with National Grid (in its role as GBSO). This agreement commits
National Grid to establishing the required connections and system
reinforcement works and, in turn, obliges the user to pay cost-reflective
transmission charges to fund the capacity that they require to
be established.
17. As connections and certain remote infrastructure
will need to be established before a generator can commence operation
(and begin paying charges), there is a risk that network investments
could become stranded if, for any reason, the requesting generator
subsequently fails to commission. To avoid such wasted investment,
and ensure the costs and environmental impacts of new network
are only incurred when generation projects are sure to advance,
National Grid requires new users to provide a financial guarantee.
To connect large power stations and loads, such guarantees (sometimes
called "final sums") have been set to match the cost
of the transmission works required. However, this arrangement
has caused difficulties when a number of (usually smaller) generators
require a shared reinforcement—(For example, when a number
of wind developments require a new transmission link). National
Grid has been working with the industry and Ofgem to develop new
commercial mechanisms to meet the challenge of co-ordinating network
investment with generation development.
18. The network capacity that should be
established to accommodate particular patterns of generation and
load is defined in security standards specified within National
Grid's transmission licence. The reinforcements required to deliver
this capacity are identified in the bilateral access agreements
described above and means that access is conditional on the required
reinforcements being completed.
19. This gives rise to what is called an
"invest then connect" model (ie new generators only
connect when both the immediate connections and the required deeper
infrastructure works are ready). However, the particular characteristics
of wind generators means that this approach may not be the most
appropriate. It is likely that wind generators will share existing
infrastructure capacity with each other and with the conventional
generation capacity needed to provide back up on low wind days.
For this reason National Grid is reviewing the transmission security
standards and developing new commercial arrangements which will
permit generators to connect and share network capacity efficiently.
20. National Grid is actively participating
in the Transmission Access Review (a BERR/Ofgem initiative) to
address the issue of access to the Grid and believes that changes
will better facilitate the timely connection of significant volumes
of renewable generation.
Opening up offshore through GBSO
21. Offshore generation will play a key
role in meeting any Government targets for renewable electricity.
BERR and Ofgem are currently running a project to develop the
regulatory arrangements for offshore transmission with a desired
implementation date of Q4 2009. Upon implementation, National
Grid will have its role as GBSO extended to cover the offshore
area (the Renewable Energy Zone).
22. For now, we are operating as offshore
GBSO designate and, as such, we are assisting Ofgem and BERR in
the development of the regime. To date we have delivered recommendations
relating to the offshore security standards (ie the amount of
offshore transmission infrastructure that should be built) and
these recommendations have been approved.
23. National Grid has also delivered recommendations
of the technical requirements that should apply offshore (via
the Grid Code) and are awaiting approval of these recommendations.
We continue to progress other work on the offshore project including
offshore arrangements for charging, access, connection processes,
managing the interface between the GBSO and offshore transmission
owners and we will be responsible for delivering a suite of industry
codes to facilitate the detailed regime.
24. In undertaking development, National
Grid is very mindful of the urgency of making the arrangements
ready to accommodate offshore wind projects. We are therefore
critically assessing the design of the commercial arrangements
and seeking to minimise, where we can, the complexities arising.
Some of the associated commercial developments are further expanded
below.
Charging and embedded benefits
25. Any party using the high voltage transmission
system operated by National Grid as GBSO is obliged to pay charges
for connection and use of the system.
26. Charges levied by the GBSO (which are
set by Ofgem in order to recover transmission owner regulated
revenues) are designed to reflect the costs that any individual
party imposes on the transmission system (cost-reflective charging).
National Grid, as GBSO, has a transmission licence obligation
to keep the methodology used to calculate charges at all times
under review.
27. The development of cost-reflective transmission
charges is important to ensure that generation developers consider
network issues when choosing their locations and connection voltage
level. Without such cost-reflectivity, more remote sites or inappropriate
connection options might be chosen driving up overall costs to
end customers. Accurate cost-reflective charges provide appropriate
embedded benefits for distributed generation connecting near to
demand.
Electricity market—impact on renewables
28. The GB electricity market has undergone
significant change since the introduction of the New Electricity
Trading Arrangements (NETA) in 2001. The main impact of these
changes has been to expose market participants to the consequences
of their imbalances and thereby enable decentralised decision
making in the market and hence encourage innovation and competition.
29. Market development has been in the form
of incremental change (via individual modifications to industry
codes) or as major step-changes such as the introduction of the
British Electricity Transmission and Trading Arrangements (BETTA)
in 2005 which opened up the NETA market arrangements in Scotland.
National Grid has a central role in all of these changes and as
the system operator is key to ensuring successful implementation.
30. While some developments to address the
specific issues faced by renewable generators have been approved
by Ofgem, National Grid believes that there is an ongoing and
increasing requirement to ensure market arrangements are fit for
purpose and consistent with accommodating the volume of renewables
that is required to meet Government targets. As such we are currently
doing our part to manage the transmission system and plan for
an increase in renewable generation, however there are a number
of areas we would like to see reviewed by Government and Ofgem.
Future planning of the electricity transmission
system
31. National Grid is currently undertaking
scenario analysis looking at investment up to 2030. In the years
up to 2030 there will be significant changes to the generation
capacity in the UK as we see the closure of existing coal, oil
and nuclear plant to be replaced by (potentially) new nuclear,
gas and renewable generation.
32. We envisage that currently notified
changes in the generation mix will go some way to achieving Government's
renewable targets and we are investing to address these requirements
on the GB transmission network and in the interconnections with
mainland Europe. However, in order to meet Government targets
on renewables a number of areas will need to be further addressed:
— a robust carbon price needs to
be set and sustained strong incentives for renewable generation;
— a reformed regime for access to
the transmission system. As indicated above, an Ofgem/BERR
review is in progress in this area;
— mechanisms to facilitate anticipatory
and enabling investment in the transmission system ahead of
a specific signals from individual users;
— suitable offshore transmission
arrangements need to be implemented as soon as possible to
minimise delays to connecting these key renewable sources;
— progression with carbon capture
and storage;
— new and retrofit efficient CCGT
to fill the capacity gaps as we move towards 2030;
— development of active DNOs and
co-ordination of their management with transmission as described
previously; and
— progress with energy management
and storage.
In all scenarios we note that there is an increasing
requirement for the bulk transfer of electricity.
NATIONAL GRID
ENGAGEMENT ON
RESEARCH AND
DEVELOPMENT
33. National Grid is undertaking research
to find innovative ways to prepare for, and mitigate, the effects
of climate change on National Grid's assets. We are on target
to deliver a 60% reduction in greenhouse gas emissions from our
operations and offices across the company well before 2050. R&D
solutions are also being developed to improve the efficiency and
reliability of our electricity and gas systems and to facilitate
the connection of new generation sources.
34. Across National Grid's gas and electricity
business in the UK and US, we spend £23 million a year on
funding R&D activity.
35. Much of the R&D we are engaged in
is through sponsorships of university research. An example is
our sponsorship of the National Grid High Voltage Research Centre
at the University of Manchester. Here, experts from National Grid
and the University of Manchester carry out research to develop
new technology solutions to increase the reliability, security
and efficiency of high-voltage equipment. The centre itself includes
five laboratories, a postgraduate research area and lecture room.
Equipment includes National Grid's 2MV (two million volt) impulse
generator, able to simulate lightning strikes. National Grid also
has strategic partnerships and sponsorship programmes at the universities
of Southampton, Strathclyde, and Cardiff.
36. Through our sponsorship of R&D we
work collaboratively with students to develop knowledge and innovative
solutions, as well as investing time and resources in developing
future engineering talent.
ENGAGING IN
THE POLICY
DEBATE ON
R &D
37. National Grid notes the concerns of
the Committee on the issue of skills and the necessary R&D
base needed to underpin the development of renewables. We have
for many years played an active role in the policy debate on R&D
and contributed to Government and Industry working groups at a
high level in order to seek solutions to some of the issues we
face in the UK.
38. National Grid plays an active role in
the Energy Research Partnership (ERP), interacts with UKERC including
as part of the Supervisory Board and contributes to the development
of the Research Council UK's (RCUK) Energy Programme.
39. We are also working with suppliers and
with other utilities through collaborative agreements and the
Engineering and Physical Sciences Research Council (EPSRC)'s Supergen
Programme to establish R&D aimed at solving short to long-term
energy supply related problems, as well as, promoting the development
of new technology. Working with the Government's Meterological
Office, National Grid is addressing the way in which climate change
will affect our business. We need to prepare for the effects of
climate change on our assets, and also any changes in energy use
and demand.
40. We have worked with BERR and Materials
UK to develop the Energy Materials Strategic Research Agenda and
continue to pursue opportunities from the Technology Strategy
Board. We are discussing potential collaboration with the Energy
Technology Institute on network developments to enable the implementation
of renewables.
41. We support young engineers through organisations
such as the Power Academy who organise a sponsored programme in
partnership with the Institute of Engineering and Technology for
the provision of financial support for students studying Electrical
and Power Engineering degrees at university in order to develop
future talent in the engineering sector.
CONCLUSIONS
42. Our written evidence to this inquiry
has highlighted how an increase in renewable electricity generation
will impact upon our role of managing the transmission system,
and how we have, and intend to, address the challenges that this
will bring.
43. To meet the ambitious longer-term Government
targets, we believe that further change to the industry is required
in a number of areas.
44. National Grid is keen to be involved
with, and where appropriate lead, the work required to assess,
develop and implement the required changes.
45. We hope that this submission is helpful
to the Innovation, Universities and Skills Select Committee inquiry
on Renewable Electricity Generating Technologies.
January 2008
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