Memorandum submitted by the British Wind
Energy Association (BWEA)
BWEA, the trade association for the UK's wind,
wave and tidal stream industries, welcomes this opportunity to
comment on the future of the UK's electricity networks. BWEA's
460 members will be in the forefront of delivering the renewable
power necessary if the UK is to meet its commitments under the
new Renewable Energy Directive, and also the carbon dioxide emission
targets as set out in the recent Carbon Budget.
The electricity system of the 21st century will
be considerably different from that of the 20th century. Previously,
system controllers dispatched generators to meet demands that
were regarded as generally uncontrollable. In the future, we will
have a mix of dispatchable and undispatchable plant, which must
be managed to meet demands which will be partially controllable.
This new management paradigm must be supported by a grid infrastructure
which is extended to areas of high renewable resource that the
current network does not reach. These will be the challenges for
network owners and managers in the coming decades.
A vision for the networks
The vision for the long-term future of the UK's
power networks depends on the vision for the long-term generation
mix. The outlook for 2020 is becoming clearer, but given the long
lifetimes of transmission assets, there will need to be clarity
about the vision to 2030 and beyond. This is to allow for the
necessary strategic planning of the grid itself, and so that the
various supply chains for the generation plant and the grid equipment
can invest with reasonable certainty of return. The investments
required for manufacture and installation of offshore wind turbines
will be easier to justify for a market that extends for 20 years;
similarly for cable manufacture. If the UK gets this vision and
its implementation right, then we can capture a significant portion
of the value for UK plc, including opportunities to export products
and services to Europe and the rest of the world, as the globe
moves to a low-carbon economy.
BWEA strongly welcomes the publication of the
Electricity Networks Strategy Group's report Our Electricity Transmission
Network: A Vision For 2020, and Ofgem's consequent approval for
investment in the pre-planning work required to deliver on the
vision. We remain concerned, however, about the mechanisms to
deliver this infrastructure. Whilst BWEA is engaging with and
welcomes the Ofgem process to set a new incentive framework that
allows Transmission Owners to invest ahead of user commitment,
in return for a higher return, there does not appear to be an
actor with which the "buck stops", and who will ensure
that delivery happens. Until there is clear leadership here, BWEA
will continue to be concerned about delivery of the vision.
The regulatory framework
The Transmission Access Review (TAR) and the
consequent work to implement its conclusions are very welcome
from BWEA's point of view. The new framework allowing investment
ahead of user commitment is vital here. We are still, however,
some way from the implementation of the TAR principle that projects
should be able to obtain a firm connection date within a time
frame reasonably consistent with their development timescale.
Along with our colleagues across the renewable energy industry,
BWEA has long been a strong supporter of the "Connect and
Manage" concept of transmission access. We understand Ofgem's
concerns about the rise in constraint costs that will result from
such a system, but believe that the regulator's fears about these
costs are exaggerated. This was most clearly brought out in the
impact assessment of CUSC Amendment Proposal 148 (CAP148), where
alternative analysis commissioned by BWEA showed net costs of
£23m, compared to the Ofgem analysis of £917m.
In this context, BWEA is deeply concerned about
the recent activity by Ofgem in instigating urgent modifications
to the CUSC due to concerns about constraint costs. This sudden
raising of the stakes around an issue which has been on the table
for some time is causing some consternation, as well as straining
the resources of our sector to respond to a cascade of consultations
in a short period on issues of fundamental importance.
Technical, commercial and regulatory barriers
We have discussed some of the regulatory barriers
above. Also of key importance is the consenting process for the
new infrastructure required. Repetition of the experience with
the Beauly-Denny line in Scotland will ensure that targets are
missed. The passage of the Planning Act is welcome in this regard,
and we look forward to the Infrastructure Planning Commission
making a difference here. The National Planning Statement that
will govern the IPC's decisions in this area will be important
here.
Regulation and charging for the grid need to
reflect the different characteristics of renewable generation,
and the consequent differences in their use of the network. The
Security and Quality of Supply Standards (SQSS) are designed around
dispatchable thermal plant, and need to be reformed: BWEA is engaging
with the Review of SQSS that is currently under way.
In order to deliver the network capacity required,
strong and consistent signals need to be sent to the supply chain.
One key example is offshore, where approximately 7,500km of HVDC
cable will be required by 2020 to link up all the offshore wind
projects planned: current global production capacity of this cable
is around 1,000km/yr. Combined with other offshore wind programmes
such as Germany's, there will need to be a massive scaling up
of production. If the right signals are sent to the cable companies,
the resulting factories could be sited in the UK, with benefits
in terms of jobs and possible exports.
Skills will be important to delivery of the
new network capacity: BWEA is working with EU Skills on plans
for a National Skills Academy for Power, which should help in
this regard.
The offshore transmission regime
BWEA supports the regime as currently being
drafted for transitional projects; subject to the modification
and further clarity in the current consultation. The system should
be appropriate for the "radial" connections to shore
that the Round 1 and Round 2 offshore wind projects need.
However, industry is unified on the need for
a more strategic approach to the offshore transmission network.
The business environment surrounding the proposed regime has changed
with the current financial crisis, increased competition in the
global supply chain and the interpretation of EU requirements
effectively preventing generators from owning their own transmission
assets. These factors have increased the uncertainty around the
ability of planned regime to deliver transmission infrastructure
on a scale and timing needed to meet 2020 targets.
Therefore, we recommend that DECC and Ofgem
establishes, at the earliest opportunity, a route map setting
out how the competitive tendering process will apply to non-transitional
and Round 3 projects in order to deliver the required investment
to meet the UK targets.
Industry believes that for each of the nine
proposed Round 3 zones there should be one OFTO appointed. This
would mean that one competitively appointed company would be responsible
for connecting a number of projects in the same geographical area.
This would allow a more coordinated approach so that investment
can be made in early stages that will facilitate the efficient
connection of later stages. In addition, this approach should
ensure compatibility with future European interconnection.
"Supergrid"
Installation of much larger interconnection
capacity with mainland Europe and its "meshing" to form
a "supergrid" will bring key benefits. Most important
will be the ability to absorb much larger amounts of variable
renewable generation in the wider network that will be created.
This is especially the case if the large hydro capacity of Norway
is used as a storage buffer. There is a key need to sort out the
regulatory issues involved in this expansion of interconnection,
and UK Government should actively engage in this process. At present
there is a sense that DECC is taking an attitude that this is
a European project that is happening "out there" in
Brussels and elsewhere. If there is to be timely progress on this
project, the UK must be an active partner. Without clarity on
the regulatory issues, then the cables cannot be laid, so this
is the necessary first step.
Embedded and distributed generation
The large amounts of generation that will connect
to the distribution network throw up challenges to the management
of these grids. There must be more active management of generation
and demand in the lower voltage grids, perhaps with "Distribution
System Operators" (DSO5) on the TSO model. This issue is
being addressed in the RPI-X@20 Review that Ofgem is conducting.
However, this is explicitly excluding any impact on the current
Distribution Price Control Review; measures to enhance the distribution
networks' ability to manage distributed generation will need to
be implemented in the 2010-15 period that the DPCR covers.
Cost of upgrading networks
The ENSG report referred to above gives a figure
of £4.7bn to provide the necessary onshore grid. It should
be borne in mind that the choice is not between spending £4.7bn
or nothing; there is a need to invest in a network coming to the
end of its design life. The choice is between this investment
to create a grid fit for the 21st century or investment to recreate
the 20th century grid. This money will come from private investment,
recouped through Transmission Network Use of System (TNU0S) charges.
Government funding will not be required, though actions to bolster
the finance sector for these investments would be welcome (see
below).
The amounts required sound large, but are only
a small proportion of customers' bills. The expenditure is required
to allow us to meet carbon and security of supply objectives.
It is also required to allow maximum deployment of renewables
and thus gain the most value for money from the Renewables Obligation.
Funding investment
The low-risk, low-return assets that regulated
transmission investments give should be very appealing in the
current economic climate; institutional investors and private
capital generally is interested in this sector. There may be a
role for the European Investment Bank or similar institutions:
there have been proposals for a state "green" investment
bank, funded by "green bonds", with infrastructure such
as networks a key target. BWEA would welcome such moves.
Innovation
Most innovation in this area needs to happen
in the distribution sector—the "smart grids" which
many have discussed. The poor take-up of the Innovation Funding
Incentive (IFI) and Registered Power Zone (RPZ) programmes is
therefore disappointing. We would welcome action to encourage
the DNOs to take up and expand the funding available to such projects.
At the transmission level, there needs to be
more flexibility in grid codes to allow innovation. This should
come via the SQSS review referred to above. The Code Governance
Review that Ofgem is leading also needs to look at this issue.
More investment in innovation is necessary if
we are to maximise the amount of renewables on our grids. The
culture of "sweating assets" and cutting down on unnecessary
expenditure that has prevailed since privatisation has resulted
in low spending on innovation generally. This needs to change.
However, there is a confusing plethora of funding bodies in this
area, with remits that either overlap or leave gaps. Government
needs to rationalise this area and direct more funds to energy
innovation generally.
May 2009
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