Examination of Witnesses (Question Numbers
180-197)
MR GORDON
EDGE, MR
TIM RUSSELL
AND MR
JASON ORMISTON
29 APRIL 2009
Q180 Chairman: You are also saying
that you felt that the framework was not yet developed to encourage
renewables. Does that apply to off-shore wind as well?
Mr Edge: We are looking forward
to when the regime that is in its last throes of consultation
will come into force. We have come through a long process down
here. Perhaps it may be fair to say that if we had known back
then what we know now, we might have asked for something a bit
different, but we are where we are and we want it to be in place
because it needs to be what we want to see, and certainly it is
the case around one or two projects that really all we need is
a radial connection to shore; that is fine; it works. Our issue
is that going for the strategic approach you will need for the
larger Round 3 projects and, indeed, going out in terms of interconnecting
with the rest of Europe, which again I think is another supply
chain issue, is going to require even more cable. We do not think
that the Government is actively engaging on the super grid issue
as much as it could. It is taking very much a back seat. It is,
"Oh, this is a European project." The North Sea grid
is one of three strategic electricity interconnection projects,
but the Government seems to be taking the view that it is happening
out there; it is a European project; we do not really have to
get involved. No, we need the UK Government to be actively engaging
on the regulatory and technical issues so that we can roll it
out as swiftly as we can, because it is going to be of major benefit.
Mr Ormiston: I think National
Grid, Ofgem, most of the people in the industry and, I suspect,
most politicians have really been caught out by the pace of demand,
offshore and onshore, for renewables. When I came back from one
of the European summits saying we have signed up to 15 per cent
renewable energy by 2020, it took a few people by surprise that
they would commit to that target. In other words, that commitment
is really worthwhile. What it means though is that you have 35,
40 per cent renewable electricity by 2020, which is an enormous
amount of capacity to get built. ENSG tried to respond to that
with its Transmission Report and now, with the interest in offshore
wind, wave and tidal in Scottish waters, we find the ENSG report
perhaps needs a review to look at the potential of the offshore
renewables. We just need to keep pace. I do not think we are keeping
pace in our forward thinking, what needs to be in place to deliver
that potential, but you cannot lose sight of that 2020 target.
That 40 per cent carbon commitment that Alistair Darling made
last week is really important and he cannot let it slip.
Chairman: Yes, it certainly is. Can I
apologise, we are trying to keep to time, but as part of that
commitment to renewables and reducing carbon there has to be a
range of different technologies and different transmission. That
brings to us distributed generation, which, of course, is still
quite small but it is developing. Paddy wants to come in on this.
Q181 Paddy Tipping: Yes, but there
are benefits from being embedded into the system. The National
Grid are going to change the rules, are they not? What are your
views on this?
Mr Russell: There certainly is
a worry that they are going to change the rules. There are a number
of different things that there is concern about. The chief one
is that at the moment, for the majority of generation that is
connected to a distribution network, the output of which is absorbed
by demand within that distribution network and, therefore, does
not flow broadly on to the transmission network, you can effectively
net-off the two charges as far as transmission charging exists.
So there is a benefit by netting-off generation and demand locally,
which, of course, affects the physical reality of the power not
flowing onto the transmission system, and that is what is known
broadly as embedded benefit. There have been noises in Ofgem that
they do not think this is justified and they wish to charge generation
connected to a distribution network for using the transmission
network as if all the power was going onto it and, exactly the
same, the demand that that is meeting would also be charged on
a gross basis. There was an industry working group that met I
think two and a half years ago now and, with the exception of
one network company, the industry's view was absolutely unanimous
that net charging is what is cost reflective, reflects the physical
reality and should continue. Ofgem agreed with the single company
in the industry—
Q182 Paddy Tipping: You had better
tell us which company this is.
Mr Russell: It is NGC. —and
says that that they do not think under the current arrangements
where if power nets itself off on a distribution system they should
pay charges as if it was flowing onto and then off the transmission
mission, which of course it is not, and they have written a letter
saying that NGC does have to sort this out and come up with enduring
arrangements. Indeed, they are placing an obligation on NGC to
bring forward proposals to do this and have them implemented not
later than April 2011. So it is, unfortunately, a real threat
that generators connecting to a distribution system are worried
about. It is non cost reflective and, if you followed it through
logically, you would actually have the nonsense of charging every
single generator in France, Germany, right over to Bulgaria and
every single bit of demand for using the GB transmission system
rather than just charging the net flow that comes over the interconnector
between France and England.
Q183 Paddy Tipping: We are going
to move to a situation where there are going to be more and more
local networks. That is inevitable. What is the ideal charging
system?
Mr Russell: The ideal charging
system is very simple. Firstly, quite a different issue, obviously
there is generation connected to distribution systems, and that
should pay appropriately for using the distribution systems, which
may in some cases be negative charges if they are deferring the
need to invest more in distribution systems; if they are far from
demand they may be positive charges. As regards the transmission
system, it is very simple: one should pay (and who one is I will
come on to it in minute) for the net injection from the distribution
system to the transmission system or the net off-take from the
transmission system to the distribution system; so that it is
the net flow that physically passes onto or off the transmission
system that causes costs on the transmission system and for which
charges should be payable.
Q184 Paddy Tipping: Mr Ormiston,
you reminded us earlier on that in Scotland some people are paying
both system costs.
Mr Ormiston: Correct.
Q185 Paddy Tipping: That cannot be
right, can it?
Mr Ormiston: It is right. There
are generators who theoretically, the National Grid believe will
spill their electricity or put their electricity on to the transmission
network and therefore have to pay what is known as the gross-net
charging model, so they are paying both transmission and distribution
charges. Often they also have to be grid code compliant as well
and for this theoretical risk of their using the transmission
they have to put in significant bits of machinery and plant to
be able to grid code compliant. This tussle between National Grid
and the distribution network operators is being played out in
different ways. Charging models is one, DPCR-5—the Distribution
Price Control Review 5—is another; and also CAP167, which
is all about if there is a theoretical risk of you using the transmission
network you have to get what is known as a statement of works
from National Grid. Effectively that is a date by which you can
connect your small generating station to the distribution network
because you might have a knock-on effect on transmission investment
further down the line. What that means is theoretically a one
kilowatt PV panel on a roof may be deemed to have an impact on
the transmission network and therefore in Scotland, in some cases,
is not allowed to actually connect to the network until 2018.
That is the kind of illogical conclusion of the CAP167 debate
and one that is current. Because we have these code numbers it
sounds a bit "anoraky" but it is an interesting subject
where community projects, small scale renewables, micro generation
and distributed generation can be prevented from connecting because
of this theoretical risk and this tussle, I think, between distribution
network operators and transmission companies.
Q186 Dr Whitehead: Is there not an
issue though as far as distributed generation is concerned of
volatility? I have an image of the main transmission network,
as it were, as a long distance railway with trains timetabled
and going on in an orderly fashion and then the distributed system
as a branch line and the claim is, apparently, that for the future
any train that turns up goes around the branch line system. Is
that not a problem as far as the future integrity and viability
of a distributed system is concerned because if we are serious
about the extent to which distributed generation will move forward
over the next ten, 15 years we simply cannot tell who is going
to connect up, where, when and under what circumstances.
Mr Edge: I think this is a wider
issue around the management of the distribution networks generally.
Distribution is generally the poor relation of the network and
grid area and does not receive the attention that it increasingly
will need to, given that we will have a feed-in tariff, there
will be more micro generation and small generation; we are going
to have increasingly demand side participation and this all at
the distribution level and this is where this buzz phrase, "smart
grids", which I believe a lot of people use and not many
understand, actually applies in most cases. And it really is not
getting the attention it deserves, particularly, for instance,
in the current Distribution Price Control Review, which is for
the period 2010 to 2015, which is when we will need a lot of investment
to manage exactly these issues and it is not part of the debate.
It is being addressed to a certain extent under Ofgem's RPI-X
@ 20 Review but they have explicitly stated that it will not apply
to this DPCR. So I think there is an enormous gap; we are going
to get through to 2015 and realise that we should have done this
about five years previously and we are way behind the curve. So
I think there are lots of issues in general around here which
need to be forced up the agenda.
Mr Ormiston: And in terms of having
a long term vision for networks for GB and indeed Europe, how
is electricity going to be used, what services are you going to
provide by 2050, it is not just going to be powering our lights
and our gadgets, it is going to be for transport and it is also
going to be for heat and in those circumstances you need a pretty
robust distribution network. Moving forward—and I think
this may be at the heart of the question—are we emphasising
so much on transmission investment and transmission that we lose
sight of the small scale and distributed networks? If we do that
we have made a massive mistake because we will need to have a
robust distribution and transmission network with which to move
around our power. Transmission networks almost give you a certain
amount of guarantee of security and reliability because you can
move that electricity long distances in distribution networks,
ie people to use electricity, in the many forms that we are using
it by 2050. So big investment and innovation in these smarter
grids, these intelligent systems and allowing a lot more distributed
generation to actually get on the system will require this investment
in distribution.
Q187 Dr Whitehead: That being the
case, particularly as Gordon has mentioned, the issue of smart
grids coming into play, particularly in the distributed end, who
pays?
Mr Edge: For investment in smart
distribution?
Q188 Dr Whitehead: Indeed; it may
strengthen the distribution system or smartening it and getting
it more reliable as far as potential volatility is concerned.
Mr Edge: But then you are also
getting the benefits of perhaps lower investment in wires per
se if you are able to manage the flows and the demands, so
that you do not need to pay more for the wires; you invest some
in the smartness and that gives you the opportunity to invest
less in the dumbness of just the wires. This is a point perhaps
I should have made slightly earlier when I was talking, that it
may be that you need a distribution system operator to do all
the management and the investment around this, but I do not see
why it should not just be recovered through the distribution network
user system charges. I do not see why it should make a huge difference,
and the percentage of the customers' bills which is applied from
the distribution network is very small.
Mr Russell: Ultimately, to answer
the question in a straightforward manner, the customer always
pays. The point is, by having smart networks they are paying less
than they would be if you did not have smart networks.
Q189 Chairman: That is what we hope
to see.
Mr Russell: That is the idea.
If they are not then you should not be doing smart networks. You
are not doing them just to keep engineers amused; they are being
done because ultimately they will be able to do what engineers
do or should do well, which is to do for ten pence what any idiot
can do for a pound and deliver the same level service in a smarter,
more intelligent way. On something you said earlier—your
train analogy—I assume you were talking not about hour by
hour management of the system but longer term management and generators
that build and connect to distribution networks in an uncontrolled
fashion. Nobody is suggesting that the interface between distribution
networks and the transmission networks must not continue to be
very carefully managed by the respective network operators; they
do this at the moment. In general the majority of cases flows
from transmission to distribution and connecting some new generation
at the distribution level, all that means is that those flows
are less and may indeed reverse. That is no different from demand
reducing and there is and continues to need to be liaison very
regularly between distribution network operators and transmission
system operators to manage the interface and the connections between
the systems.
Chairman: These are very important areas
and I wish we had a little bit more time to go through them, but
unfortunately our time is constrained, as you appreciate. But
there is an awful lot of food for thought here, on which we would
like to reflect. Just to bring this session to a conclusion, we
did mention the problem of planning, which you flagged up and
Anne Main wants to come in on this.
Q190 Anne Main: I can almost need
a one word answer on this. Do you believe that the changes that
were brought about in the 2008 Planning Act will actually speed
up the process for new electricity network infrastructure and
do you think that any improvements in the planning in Scotland
will deliver similar or greater benefits?
Mr Edge: It should, in England
and Wales.
Q191 Anne Main: So England and Wales
it should. Scotland?
Mr Ormiston: In Scotland the second
National Planning Framework and the Planning Act 2006 ought to
speed the process up but we would need to get it down for—
Q192 Anne Main: Shoulds and oughts
are not exactly—
Mr Ormiston: It remains to be
seen. We have an 11-year process of Beauly-Denny at the moment
and we need to get that down. I imagine it would come down but
would it come down to the point where it is acceptable? That remains
to be seen.
Mr Edge: The issues around things
liker resourcing of the Infrastructure Planning Commission is
that they are actually going to have to do an awful lot of different
things and they need to have enough resources.
Q193 Anne Main: You have concerns
about the resourcing?
Mr Edge: Yes.
Mr Russell: Can I say a different
word? Not surely or will but hope. We hope it will. There is one
concern and this is not to do with wires, it is to do with generation
projects and that is in England and Wales—it will not directly
affect generation of less than 50 megawatts and that is a major
area of concern to us.
Q194 Chairman: It is exempt.
Mr Russell: That it does not affect
the local authority process.
Q195 Anne Main: Is that a failing?
Mr Russell: We would like to see
that made as certain in terms of timescale and not going over
the same arguments, national ones, again and again for projects
of that size, as we hope the new legislation in England and Wales
will lead to for larger projects.
Chairman: Thank you very much, gentlemen.
I have to draw this to a conclusion there but thank you very much
for the detailed way you have answered the questions; it has been
very helpful to the Committee.
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