Select Committee on Innovation, Universities, Science and Skills Written Evidence


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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