Memorandum submitted by the Department
of Energy and Climate Change
This Memorandum responds to the Committee's call
for evidence.
— Section 1 sets out an overview of the
government's vision of the electricity networks needed to meet
our 2020 renewables target, security of energy supply and climate
change goals.
— Section 2 addresses current policy priorities
and in particular the steps being taken to accelerate investment
and put in place the right regulatory framework for offshore and
onshore network development in order to support our objectives
for 2020.
— Section 3 covers the offshore transmission
regime.
— Section 4 covers longer term challenges
to 2030 including the role of "smart grids".
INTRODUCTION
1. As set out in the 2007 Energy White Paper
we face two principal long term challenges in energy policy:
— tackling climate change and reducing
carbon dioxide emissions within the UK and abroad; and
— ensuring secure, clean and affordable energy
as we become increasingly dependent on imported fuel.
2. Adequate and reliable electricity networks
are critical to a modern economy. Those networks need to adapt
to meet future challenges and to ensure they fully support a low
carbon future.
3. If we are to meet our climate change
targets and ensure security of supply, we need to be able to connect
large amounts of renewable generation to our electricity networks
as well as the other essential generation that will be needed
to replace the existing nuclear and fossil fuel plant that will
close over the next decade. Towards the end of the next decade
new nuclear plant will have an increasing role to play and grid
connections will need to be reinforced to handle the extra power
from this plant. Renewable generation requires substantial investment
because the best resource is often in areas that do not have significant
transmission infrastructure.
4. Looking further ahead our networks are
likely to have an increasingly important role in enabling consumers
to play an active part in low carbon energy use and generation
and potentially in integrating networks across the EU and beyond.
5. This memorandum summarises DECC's views
on the vision of the electricity networks needed to meet our security
of energy supply and climate change goals in 2020 and beyond.
SECTION 1: OVERVIEW
OF THE
GOVERNMENT'S
VISION FOR
THE ELECTRICITY
NETWORKS
6. The UK has a highly reliable electricity
network with a significant investment programme to replace and
refurbish existing assets. There are, however, some significant
challenges for electricity generation and the supporting networks.
7. The UK share of the EU renewable energy targets
will mean that 15% of our energy will come from renewable sources
by 2020—this may mean 30% electricity generation. Offshore
and onshore wind generation will play the biggest part in meeting
our electricity share of energy targets. Meeting around 30% of
electricity demand from renewable sources could mean up to 13GW
(compared to 2.7GW today) of onshore wind and at least 14GW (compared
to 0.6GW today) of offshore wind generation. Much of this new
generation will necessarily be in areas where the electricity
infrastructure is weak or non-existent. In addition, the combination
of nuclear retirements and the requirement to close coal and oil
plant that have "opted out" of the Large Combustion
Plant Directive are expected to lead to the loss of at least 18GW
of capacity by 2018. This means that we will need to connect both
new nuclear plant and new fossil-fuel generation plant to maintain
security of supply.
8. Electricity networks are a key enabler
to these investments. We need to be sure that both the physical
network and the right regulatory, commercial and technical framework
are in place.
9. In the short to medium term our priorities
are to (i) speed up new grid connections, (ii) ensure faster investment
in the network, and (iii) deliver a new regime for licensing offshore
transmission.
10. In the longer term the electricity network
will need to evolve to ensure security of supply and help us meet
carbon targets in 2020 and beyond. The way we source, use and
store energy will change in this time so the framework for future
networks must be able to facilitate and adapt to such changes.
More intermittent renewable generation such as wind will require
technical solutions, and a mix of generation types, for smarter
system balancing. We must also ensure that the network is fit
for purpose with a changing pattern of generation and demand.
Smart grids, greater interconnection, more distributed generation,
use of electric vehicles, a switch to electric heating and a possible
European "super-grid" may all have important parts to
play in the future. We, therefore, need to ensure that our policy
framework is flexible and supports innovation in network development
and operation.
SECTION 2: CURRENT
POLICY PRIORITIES
AND STEPS
TO ACCELERATE
INVESTMENT AND
PUT IN
PLACE THE
RIGHT REGULATORY
FRAMEWORK FOR
OFFSHORE AND
ONSHORE NETWORK
DEVELOPMENT
11. National Grid Electricity Transmission
(NGET) owns the England and Wales transmission system, with Scottish
Power Transmission Ltd (SPT) and Scottish Hydro-Electric Transmission
Ltd (SHETL) each owning part of the transmission system in Scotland.
As transmission owners, these companies are responsible for building
and maintaining safe and efficient networks. The grid in Northern
Ireland is owned by Northern Ireland Electricity. National Grid
also has responsibility for overseeing and managing the flow of
electricity across the whole of the GB transmission network, including
the elements owned and operated by SPT and SHETL; and for co-ordinating
the process of making connection offers to new generators.
12. There are 14 electricity distribution networks
owned and operated by seven different companies—distribution
network operators (DNOs).
13. All electricity networks in Great Britain
are regulated by Ofgem, which is independent of Government. Ofgem
regulates networks differently from electricity generators and
suppliers to reflect the fact that they are natural monopolies,
for example by regulating the amount of revenue they can recover
from users of their networks.
14. The system operator for Northern Ireland
(SONI) manages the electricity system and flows within Northern
Ireland.
15. There is a high level of interest in
investment in new generation. The Government has recognised that
uncertainty around grid access may delay or stop these investments.
Increasing amounts of variable renewable generation (wind) supported
by back up generation will mean that by 2020 there may be around
105GW of generating capacity[58]
for current levels of demands compared to 80GW today. There is
an opportunity therefore to share network access more efficiently.
16. At present, there is a 61GW "queue"
of generators seeking connection to the transmission network,
including around 17GW of renewables, with some projects receiving
connection offers as late as 2023. However, the "queue"
does not give a good indication of which projects will actually
connect. A broad guide is that perhaps 50% of generation projects
will get consented, financed and built. The "queue"
is currently managed on a first come first served basis and, as
a consequence, less viable projects can block those that are further
advanced or could be developed earlier. Capacity can be booked
in the queue where there is no realistic prospect of a plant being
connected by the contracted date. The current arrangements lead
to considerable uncertainty and restrict entry into the energy
market.
17. These connection delays are partly a
result of the difficulties in achieving planning consent for new
infrastructure (as with the proposed Beauly-Denny upgrade). In
most cases major transmission investment takes longer to deliver
than the generation that will connect to it, which is particularly
the case when there are delays in the planning process. For example,
the last major upgrade to the grid was the North Yorkshire line,
which took 10 years from announcement to its completion in 2003,
primarily because of the length of time it took to proceed through
a planning inquiry. There is a strong case, therefore, for starting
major network developments in anticipation of generation developments.
We are also working, however, to address some of the problems
identified with the current planning system—this is discussed
further in the section on planning reform below.
18. The Government set out, with Ofgem,
in the Transmission Access Review (TAR)[59]
in June 2008 a programme of reform that when taken together will
remove or significantly reduce the grid access barrier. We are
now in the implementation phase of the TAR, and Ofgem is overseeing
this process. There are three priorities for improving grid access:
— grid access reform to make the most from
the infrastructure we have;
— interim measures to connect projects
before longer term grid access reforms can be implemented; and
— setting out a vision for the network
in 2020 and taking a strategic approach to delivering major transmission
infrastructure.
19. As at present there is very little electricity
network infrastructure installed offshore, DECC is working closely
with Ofgem to develop a new regulatory regime for offshore electricity
transmission so that significant amounts of renewable offshore
generation can be connected to the onshore grid. The aim is for
this regime to be fully in place by 2010. This is discussed further
in the section on the offshore transmission regime below.
Grid access reform
20. Getting the right regulatory framework
for grid access (ie who gets a connection, when and on what terms)
is a critical part of our strategy.
In order to achieve better use of the current network
and speed up access, industry working groups have been developing
options for reform of the current access regime. Industry proposals
have now been put to Ofgem who will need to approve any changes
following a detailed impact assessment. Ofgem expect to make decisions
in July.
21. The options being considered fall into
three broad categories:
— evolutionary change which seeks to improve
the allocation of existing capacity by allowing greater flexibility
and sharing of capacity;
— connect and manage, whereby generators
would receive a fixed connection date, and would be entitled to
use the system or receive compensation if the works required to
connect the generator were not completed on time, and
— a form of auction whereby either all
rights would be reset and reallocated by auction. Alternatively
an auction could be limited to future access rights with grand-fathered
rights for existing generators.
22. The different ways of creating and allocating
rights to connection each have different impacts on a number of
variables such as:
— how quickly new generators will connect;
— what rights "incumbent" projects
already connected have vs rights for "new entrant" projects
in the connection queue or who will join the queue in the future;
— costs to consumers in terms of the likely
system balancing costs that arise from using the new rules;
— the certainty of when connection dates
will be offered and for how much capacity; and
— the complexity of each option and how
quickly they may be implemented.
23. The Government considers timely and
effective reforms to be essential. That is why the Government
took powers in the Energy Act 2008 to intervene if necessary.
We are considering the outcomes of the industry process and what
steps if any need to be taken to ensure a satisfactory outcome.
Key consideration for us will be the extent to which the proposals
add certainty for developers, speed up connections and ensure
the efficient operation of existing plant.
Charging
24. Transmission charging is an important
part of grid access arrangements. The Government supports a charging
system that treats generators and consumers fairly and reflects
the costs that network users impose on the network. Ultimately
it is for National Grid and Ofgem to decide on the most effective
charging methodology and ensure that the detailed arrangements
are fair.
25. The higher cost of transporting electricity
across longer distances (eg from the north to centres of demand
further south) mean that generators further from demand pay higher
charges. Equally consumers close to generation pay lower charges
(via their supplier). The majority of the costs of the network
are, however, met by consumers in the south. There is no evidence
that cost reflective transmission charges are harming the development
of renewable generation in areas that are further from end consumers.
26. Any proposals to reduce charges for
generators further from demand need to be very clear as to who
is to meet the shortfall in cost recovery and why that would be
a fair outcome.
Interim measures
27. In the meantime we are taking urgent
steps, with National Grid and Ofgem, to make sure that those projects
that already have consent can connect at the earliest possible
date. National Grid has already offered earlier connection dates
to 450MW of renewable generation and is considering what further
projects could be offered earlier connection.
Strategic investment in new infrastructure
28. Significant investment will be needed to
support our energy security and climate change objectives. We
will need major onshore and offshore network reinforcements and
extensions in the period from now up to 2020 and beyond. The cost
of this has been estimated at up to £4.7 billion,[60]
in addition to current refurbishment and expansion plans of some
£4-5 billion which have already been approved by Ofgem.
29. In general, major electricity transmission
infrastructure takes longer to consent and build than new power
stations, primarily because of the longer lead time for receiving
planning consent. Current arrangements do not allow transmission
companies to anticipate projects and develop the network until
there is a clear need case from potential generation connection.
This approach has served to keep the level of stranded assets
on GB at a very low level.
30. We do not think this approach is sustainable,
given the likely profile of generation development and that a
strategic approach to investment is needed. The Government and
Ofgem therefore asked the Electricity Networks Strategy Group
(a senior industry group chaired by DECC and Ofgem) to develop
a vision for the transmission system for 2020 and beyond. The
first phase was published on 4 March 2009 and sets out an ambitious
programme for network development. This will be followed up by
studies looking ahead to 2025 and 2030. It will be for National
Grid and the Scottish network companies to put further detailed
proposals, consistent with this strategic vision to Ofgem for
consideration. However, the information set out in this report
was based on indicative assessments of the costs, and any projects
will be presented to Ofgem for a fuller assessment of whether
or not the costs are efficient.
31. Ofgem are consulting on new incentive
arrangements for transmission companies to allow them to start
work on specific projects on which money will need to be spent
in the next financial year. In addition, Ofgem is also developing
proposals to deliver the right framework for successful aniticipatory
investment. The immediate priority is to provide certainty that
essential (relatively low cost) design and pre-consenting work
can be urgently progressed in the next few months and Ofgem has
approved up to £43 million needed to begin pre-construction
work on the projects agreed in the ENSG report.
32. Transmission related costs currently
account for around 3%-4% of consumers' electricity bills. National
Grid's initial estimate is that the level of investment envisaged
in the recent ENSG report of up to £4.7 billion could result
in around a 1%-1.5% increase in consumer electricity bills, although
this figure is currently the subject of more detailed modelling
work.
Planning reform
33. In order to address some of the problems
identified with the current planning system, the Planning Act
2008 sets up an independent Infrastructure Planning Commission
(IPC) and a simplified "single consent" regime to streamline
the whole process.
34. Ministers will retain responsibility for
the policy framework which will be set out in National Policy
Statements (NPS). The IPC will have to take decisions on energy
consents within the policy framework set by Ministers and set
out in the NPSs; in the case of electricity networks infrastructure
this means the Overarching Energy NPS and the electricity networks
NPS. These will set out the need for the infrastructure and how
the IPC should consider impacts.
35. Planning applications for nationally
significant infrastructure projects will be improved by requiring
consultation on applications before they are submitted to the
IPC and guidance will be issued on what constitutes good quality
applications. This will mean that the IPC will be able to consider
applications with greater efficiency and to set timescales.
Skills
36. The electricity networks are known,
from research by the Sector Skills Council, Energy and Utility
Skills (EU Skills), to have an ageing workforce with increasing
losses to retirement in the coming decade. Skills gaps are also
increasing as new technologies are introduced. The offshore networks
will require skills and experience with high-voltage DC, which
are rare in the UK.
37. Current levels of recruitment and training
are too low and will lead to increasing skills shortages. Moreover,
the capacity to train new workers is limited, especially by a
shortage of work placements. Recognising this, employers with
EU Skills are working to increase the inflow of skilled workers;
including the development of a National Skills Academy for Power,
which it is planned to launch towards the end of 2009. They are
also undertaking research and planning to ensure that the forthcoming
Distribution Price Control Review with Ofgem has detailed information
on training needs and costs.
38. EU skills will give a detailed analysis
of the situation in its own submission to the Committee.
SECTION 3: THE
OFFSHORE TRANSMISSION
REGIME
39. The UK has some of the best wind resources
in the world—and offshore wind in particular will be a major
contributor in meeting the UK's share of the EU 2020 target for
20% renewable energy. As part of its Strategic Environmental Assessment,
DECC commissioned National Grid to undertake a feasibility study
based on an agreed scenario of connecting an additional 25GW of
offshore wind generation into the onshore transmission system.
This concluded that the onshore electricity transmission system
can be developed to accommodate an additional 25GW of offshore
wind generation provided appropriate investment is undertaken
in a timely manner. This would ultimately mean the connection
of up to 33GW of offshore renewable generation.
40. An effective licensing regime for offshore
wind transmission lines will therefore be vital to the successful
delivery of our renewables targets. Following a series of consultations,
government concluded that the offshore grid regime should be based
on the onshore regime—with licensed grid companies ("OFTOS")
responsible for building, owning and maintaining the offshore
cables. But rather than have area based monopolies, licences will
be awarded by tender as offshore generators seek to connect to
the grid. We believe this approach will increase the number of
parties able to build the connections and deliver them quickly
and at best cost for generators (and ultimately electricity consumers).
41. We took additional powers in the Energy
Act 2008 to enable Ofgem to run effective tenders and recover
their costs. We are currently preparing the final consultation
document for Ministers approval and we expect Ofgem to start running
the first tenders to appoint new grid companies this summer. The
first tenders will appoint OFTOs to take over the ownership and
maintenance of the cables from the developers. Future rounds will
appoint OFTOs to also design and build the grid connections.
42. OFTOs will receive a licence from Ofgem
and a regulated income stream for 20 years. This approach will
require less regulatory oversight than onshore where Ofgem reviews
the income the grid companies receive every five years. As onshore
the generators will pay to use the cables through an annual transmission
charge. Also as onshore the electricity consumer will take the
risk that cables are built but the generation project fails and
the assets are not used. This regulated approach should assist
the financing of both offshore wind projects and the offshore
cables—by leveraging in lower cost of capital through lower
risk.
43. We estimate that up to £15 billion
of investment will be needed to connect Rounds 1, 2 and 3 offshore
wind. That is more than twice the value of the onshore grid and
we believe it is right to give new parties the opportunity to
bid to build and finance the cables. Releasing those investment
opportunities through staged tenders should help companies to
raise the finance—and our discussions with potential investors
indicate the stable income stream for 20 years is an attractive
investment opportunity.
44. To ensure co-ordination of the onshore
and offshore grid we are extending National Grid's role as GB
System Operator. Analysis undertaken for us indicated that the
majority of Round 1 and 2 offshore wind farms will connect to
shore via direct "point to point" links. However, as
Round 3 may require a more "zonal" approach—offshore
developers will have the option of seeking a grid connection for
the whole zone. The government and Ofgem have been working closely
with The Crown Estate to ensure that the approach to the development
of offshore renewables and associated grid infrastructure is compatible
and delivers the most economic and efficient network infrastructure
from offshore renewable generation. The Government believes that
our proposals are sufficiently flexible to accommodate existing
and future projects. Under our proposals NGET will be able to
make connection offers based on a single project; a phased project;
and a group of separate projects. We have further proposed that
generators will have the choice of which OFTO tender window to
enter following their onshore connection application/offer. This
should help ensure that the grid can be developed in a co-ordinated
way, based on the needs of generators. The Crown Estate published
in December 2008 the study undertaken by Senergy Econnect and
National Grid looking at the potential for offshore grid connections
for Round 3 wind farms. Following publication of the report The
Crown Estate said that it believed the co-ordination and planning
to achieve offshore transmission infrastructure can be accommodated
within the offshore transmission licensing regime.
45. The final government consultation on
the offshore regime will be in late March 2009 with the aim of
the first competitive tenders for eligible existing projects being
run from summer 2009, with the regime being fully established
in June 2010.
SECTION 4: THE
CHALLENGES FOR
2030 INCLUDING ROLE
OF "SMART
GRIDS"
Embedded and Distributed Generation
46. The Energy White Paper in 2007 made
it clear that Government sees potential advantages from more use
of distributed energy, alongside the traditional centralised system.
Through the Energy Act 2008, we introduced powers to allow for
the implementation of feed-in tariffs to provide financial support
to small scale low carbon electricity generation. Feed-in tariffs
will provide price certainty over a fixed period for renewable
technologies up to a maximum capacity of 5 megawatts (50 kilowatts
for gas fired CHP). We believe this will encourage individual
households, communities, businesses, schools, hospitals, universities
and a host of other organisations to consider installing small-scale
low carbon electricity generation technologies.
47. Evidence indicates that in the short to medium
term (2030) the networks could cope with increased levels of distributed
generation at small extra cost and that a significant capacity
of micro-generation, 3.5GW across GB, could be connected without
the need to reinforce distribution networks (assuming a relatively
even distribution of these new generators).[61]
48. The Review of Distributed Generation, published
alongside the Energy White Paper 2007, highlighted concerns that
the current charging regime for using the distribution network
did not properly reflect the benefits that small scale distributed
generation can bring. Ofgem are leading work through the Distribution
Price Control and Distribution Charging Project to ensure the
best connection opportunities are available for small scale generation.
EU networks, Interconnection and the "Supergrid"
49. The electricity grid in most of mainland
Europe is well-connected and integrated, although some parts are
still poorly connected, for example the Baltic states and Iberian
peninsula. The EU grid will, however, need to be reinforced to
transport the increase in renewable energy expected in the coming
years. The third package of measures to liberalise the EU's electricity
and gas market, once fully implemented, will improve the incentives
for commercial investment in necessary electricity links. It will
do so by ensuring that network operators are independent of generation
and supply businesses and therefore have no conflicts of interest,
by making regulatory frameworks more consistent and by improving
cross-border cooperation.
50. The GB system already has inter-connector
links with France and Northern Ireland. The Government agrees
that wider interconnection with mainland Europe could have an
important part to play in managing the impacts of intermittency,
and increasing the security of supply more generally by providing
access to generation outside the UK. This is why we support greater
interconnection with the rest of Europe and are pleased to see
that there are a number of further inter-connector projects involving
the UK currently under consideration by developers—with,
for example, the Netherlands, Belgium and Ireland.
51. In addition to the land-based European
grid, the concept of a European "Supergrid" has been
widely discussed. This may be designed to link European electricity
markets with new renewable sources of electricity which are currently
at the boundaries of the system such as offshore wind projects
in the North Sea and Baltic Seas or in the longer term, solar
projects in the Sahara dessert.
52. The Government believes that the costs
and benefits of a European Supergrid relative to the alternatives
are not well-understood. We consider that for the moment, it is
cheaper and quicker to link offshore renewable energy installations
with their nearest mainland grid and for electricity to flow between
Member States through relatively short inter-connection links,
such as already exist between the GB and Europe. Officials are
currently in discussions with the European Commission on their
concept of an offshore grid in the North and Baltic Seas, to share
our experience on offshore transmission and ensure UK objectives
are met in any developments on this project. The UK is also in
contact with EU counterparts on the proposals for a Mediterranean
Solar Plan which aims to develop solar and wind energy in North
Africa and to export quantities of the energy produced to mainland
Europe.
53. This type of project involves many difficult
cross-border regulatory and jurisdictional issues which will require
significant effort to resolve and will take time to do so. Given
the need to make rapid progress we do not want to see the development
of a wider vision for a "supergrid" delaying the deployment
of offshore wind. Indeed, continued development of offshore wind
and the sub-sea links that have been considered in the work of
the ENSG will provide a real test of the technologies that might
be deployed in a wider "supergrid".
Developing Network Technology—"Smart
Grids"
54. The active engagement of consumers in
managing their own energy needs will play an important part in
delivering a low carbon future. This is likely to include micro
and community level generation and more demand-side management
to enhance security of supply and maximise reduced carbon emissions.
Smart electricity networks are likely to have an important part
to play in supporting these changes.
55. Today's electricity networks carry power
from large, mostly centralised generation, across the high voltage
transmission system and down through largely passive distribution
networks to our homes and businesses. These passive networks have
proved to be very reliable, but are likely to need to change in
order to meet the challenges that will arise from changes in the
way we will generate and use our energy over the next decade and
beyond. Our shift to a low-carbon energy system, will see our
energy mix changing to include much more renewable generation
eg wind, solar, biomass and increasing amounts of distributed
and micro-generation. Looking beyond 2020 we can also expect greater
electrification of the heat and transport sectors. This will present
new challenges for the design and operation of our networks requiring
them to evolve over time in response to these changing characteristics
becoming as is commonly termed a "mart grid"
56. A "smart grid"typically encompasses
a number of different technologies such as smart meters, appliances
that can respond to price and other network signals, energy storage,
and sophisticated network cntrol and communication technologies
that allow more active network management including easier control
of the direction of flow of electricity. The introduction of these
"smart" technologies over time will enable a radical
change in our energy system where consumers are also producers
and households can respond dynamically to changing generation
and demand, playing a direct part in keeping the system balanced
and in the efficient and cost-effective use of our energy.
57. The replacement of a significant proportion
of network assets over the next five years provides the opportunity
to make decisions that "future proof" the networks,
so ensuring that we retain the flexibility to incorporate new
technologies as they become available should they prove to be
an attractive option. Ofgem has therefore invited industry to
identify options that can be applied during this intensive period
of investment, which could make the networks more flexible to
future changes. This should help us to improve our understanding
of the potential for the introduction of new technologies into
our networks as opposed to like-for like replacement of infrastructure
at the end of its lifetime and so accelerate the move towards
a smarter network.
58. The introduction of smart meters and
supporting communications systems will provide the platform for
the transition towards the smart grid of the future. Smart meters
will allow the efficient real time sharing of demand and supply
information, which will be important to facilitating a "smarter"
use of the network, more informed energy consumers, as well as
supporting greater "end to end" management of our energy
system.
59. We have therefore already taken the
decision to require the provision of advanced metering to larger
non-domestic sites when meters are replaced, and in all cases
by April 2014. This process will begin in April 2009. We have
also announced our intention to mandate smart meters for all households
in Britain with an indicative timetable for completion of end
2020.
60. The costs and benefits of a "smart
grid" will depend on the combinations of technologies that
are brought together—some are well-understood, but others
are at an early stage of development. Going forward we will need
to be clear about our objectives, make the right choices and be
sure that the networks are ready in time to both facilitate and
support these changes while avoiding solutions that are inefficient
in the longer term.
61. We are well placed, working with the
Energy Technology Institute, National Grid, Ofgem and Industry
to ensure that we explore opportunities for developing the understanding,
technologies and solutions to the network challenges of the future.
62. National Grid is currently taking forward
a study that will look at future operation of the grid, and is
due to consult on this in Spring this year. The Government is
also participating in a Poyry study with a number of energy companies
on the market impacts of intermittency which will provide scenarios
to asses the likely demands on grid balancing and the costs.
R&D
63. We are already supporting a number of
initiatives that are exploring the potential for "smarter"
networks and will inform the future development of our networks—these
include:
— The Energy Technologies Institute—a
public/private sector partnership which aims to invest up to £110
million per year for at least the next 10 years in the development
of low carbon energy technologies, including electricity network
technologies and solutions. It is also developing a Networks Programme
that could include R&D into storage technologies.
— The Technology Strategy Board is currently
providing around £1.2 million to support ongoing research
projects into new energy storage technologies such as batteries,
flow cells and fuel cells.
64. In the recent transmission price control
review, Ofgem identified R&D as being critical to addressing
the fundamental challenges that the network companies are facing,
and recognised that the incentives for network operators to take
innovative approaches—or invest in innovative technologies—were
limited. Ofgem therefore created the Innovation Funding Incentive
(IFI) specifically supporting R&D and innovation by network
operators. The IFI allows, subject to meeting certain criteria,
up to 0.5% of regulated revenue to be spent on innovative projects
each year, and in 2007-08 National Grid spent £3.0 million
on innovative projects, out of a total allowable IFI spend of
some £5.4 million.
65. The distribution companies (lower voltage
networks that transfer power from the high voltage grid to end
consumers) also have provision for IFI in their price controls,
again allowing for a maximum of 0.5% of each company's revenue,
subject to meeting certain criteria, to be spent on innovation.
In total distribution companies invested some £12.1 million
in IFI projects in 2007-08, which represents 0.33% of their total
revenue. Distribution companies also have provision for Registered
Power Zones, which provide appropriate funding for connecting
additional distributed generation in specific areas, and encourages
technical innovation.
March 2009
58 SKM Report Growth Scenarios for UK Renewables
Generation and Implications for Future Developments and Operation
of Electricity Networks June 2008 http://www.berr.gov.uk/files/file46772.pdf Back
59
Transmission Access Review-Final report http://www.berr.gov.uk/files/file46774.pdf Back
60
Our Electricity Transmission Network: A Vision for 2020 A Report
by the Electricity Networks Strategy Group March 2009 http://www.berr.gov.uk/files/file50333.pdf Back
61
Econnect Consulting report Accommodating Distributed Generation
May 2006 http://www.berr.gov.uk/files/file31648.pdf Back
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