The future of Britain's electricity networks - Energy and Climate Change Contents

Memorandum submitted by the National Grid


  1.  National Grid owns and operates the high voltage electricity transmission system in England and Wales and, as Great Britain System Operator (GBSO), we operate the Scottish high voltage transmission system. National Grid also owns and operates the gas transmission system throughout Great Britain and through our low pressure gas distribution business we distribute gas in the heart of England to approximately 11 million offices, schools and homes. In addition National Grid owns and operates significant 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 subsidiaries, National Grid also own and maintain around 18 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.  The Government's vision for 2020 must be of a transmission system which evolves to connect extensive renewable generation to achieve climate change objectives. This sustainability objective must be achieved whilst maintaining a diverse generation background and appropriate network standards in order to maintain security of supply and to do so affordably.

  5.  We set out a blueprint for the evolution and operation of the electricity transmission system, including strategic investments in physical assets and the challenges in operating a generation fleet with radically different operating characteristics. The regulatory and market frameworks appropriate to the incremental changes in generation of the past must now be revised; National Grid is leading the way in the industry and bringing forward proposals for change.

  6.  Since June 2008, we have worked with other energy companies, Government and Ofgem within the Electricity Networks Strategy Group (ENSG). Following extensive modelling efforts by National Grid, in March 2009, ENSG published a vision of the network reinforcements required to meet the 2020 renewable energy target.

  7.  Our vision, which is shared by ENSG, was based on an energy scenario developed by National Grid and tested within ENSG covering the UK's total energy demand across the electricity, heat and transport sectors. This scenario set out the requirement to connect circa 32 GW of renewable wind capacity; around 20 GW offshore and 10 GW onshore by 2020, while accounting for an unprecedented churn in the generation fleet due to the closure of older coal and oil plant because of the Large Combustion Plant Directive, and the retirement due to age of existing nuclear capacity. It also recognises the connection of 12 GW of new gas-fired generation in the same timescales.

  8.  Whilst further work is necessary to fully cost the solutions, our current estimate is that onshore transmission network investments will total £4.7 billion. We estimate that this amounts to about £6 on domestic consumers' annual electricity bills.

  9.  This will result in a challenging investment programme which we believe can be delivered providing a number of policy and regulatory hurdles are overcome.

    9.1 Effective implementation of National Policy Statements recognising the investment in the transmission network identified by ENSG and the establishment and maintenance of an Independent Planning Commission as set out in the Planning Act 2008.

    9.2 Timely changes to the current regulatory framework to deliver the required network investment to allow network companies to make strategic, rather than piecemeal investments.

    9.3 Review the proposed offshore transmission arrangements in light of the 2020 targets such that offshore transmission[84] networks are delivered most effectively within a strategic plan for offshore investments rather than ad hoc connection applications.

    9.4 We have led the industry in putting forward proposals for a root-and-branch reform of the regime prescribing the use of the transmission network. Agreement within the industry and with Ofgem is now key to the timely delivery of revised transmission access arrangements and thereby the greater proliferation of renewable generation.

  10.  Operating the system described by ENSG poses significant challenges. Variable wind generation together with larger and potentially more inflexible plant will require additional balancing services. Yet much of the older, more flexible fossil-fuelled plant that has traditionally provided these services will retire.

  11.  We expect the generation market to deliver many of these services. However, we are working hard to develop new providers. Smart metering may unlock a new source of these services from households and from distributed generation. It may also provide increasing energy efficiency, improved demand forecasting and facilitate electric vehicle adoption. We will be consulting on our need for greater volumes of balancing services in April 2009. However, given the potential that smart metering presents, we advocate the efficient and rapid roll out of the technology to capture the benefits as soon as possible.

  12.  Distributed generation and smart technologies are likely to play a significant role in meeting the UK's renewable energy targets. Our scenario for 2020 includes contributions from embedded biomass CHP, solar thermal and solar photovoltaic technologies. The transmission system must work alongside small scale generation and demand technologies to maintain historical levels of security of supply and to achieve our renewable energy ambitions.

  13.  We are active in working with partners to understand and exploit these new technologies. R&D funding through Ofgem's Innovation Funding Incentive is welcomed, although our potential involvement and development of new technologies is limited to a narrow scope within the existing remit of our licence. We advocate extending the criteria and increasing funding to allow us to consider innovation and R&D on a much wider scale.

What should the Government's vision be for Britain's electricity networks, if it is to meet the EU 2020 renewables target, and longer-term security of energy supply and climate change goals?

  1.  National Grid supports Government in addressing climate change. We welcome the commitment to sustainability by agreeing the EU 2020 renewables target and setting a greenhouse gas reduction trajectory towards meeting the 2050 target. The electricity transmission network of the future must connect renewable and low carbon generation to the country's demand centres. However, it must also provide security of energy supply and do so at an affordable cost.

2.  It is our view that the electricity, heat and transport sectors must significantly contribute to carbon emissions reductions to meet all climate change objectives up to the year 2050. Our scenario modelling of the country's future sources of power generation suggests three key strategies are required:

    — Use less energy through simple and economic efficiency measures across the heat, transport and electricity sectors.

    — Decarbonise electricity through renewable wind deployment and low-carbon technology. Wind generation offers huge near term potential combined with a mature and economic technology platform. Electricity decarbonisation also unlocks the long-term potential for eliminating emissions from the transport sector through the gradual electrification of the vehicle and rail fleet.

    — Reduce the carbon content of heat. This can be achieved by increasing the use of renewable heat sources or by substituting carbon-intense incumbent fuel with a cleaner fossil fuel.

  3.  Based on an energy scenario which meets climate change objectives, a UK "map" of windfarms power stations was generated. National Grid, working within the Electricity Networks Strategy Group (ENSG)[85] then determined a blueprint for the future electricity transmission system. ENSG is a collaboration which includes Government, Ofgem, National Grid and the Scottish Transmission Owners. The National Grid vision which is shared by ENSG, meets the renewables and carbon reduction targets whilst facilitating the connection of other generation that is required to maintain security of supply.

  4.  Our vision economically facilitates 32 GW of transmission connected offshore and onshore wind generation by 2020. We must also connect new carbon capture and nuclear technologies which will provide base-load and /or mitigate the effects of intermittent wind-generation.

  5.  A map of the strategic investments is provided in appendix 1.

How do we ensure the regulatory framework is flexible enough to cope with uncertainty over the future generation mix?

How can the regulatory framework ensure adequate network investment in light of the current credit crunch and recession?

  6.  A more flexible mechanism is required to deliver the infrastructure investment in our vision. These are "strategic investments", because they are undertaken prior to specific connection signals from generators. Moreover, strategic investment ensures that the construction programmes of the transmission companies and (particularly) the wind farm developers are aligned. This strategic approach underpinning our vision avoids the inefficient and piecemeal connections that would have been driven by an approach based on individual applications.

  7.  Strategic investment requires changes to the current regulatory regime and National Grid is in discussions with Ofgem on this matter. Assuming the license changes, currently being consulted upon to provide funding for preliminary engineering in 2009/10, are approved, the key issue will be to agree a regulatory model for strategic investment as soon as possible. Agreeing an appropriate regulatory regime in a timely manor will be particularly appropriate in light of the current credit crunch and recession.

What are the technical, commercial and regulatory barriers that need to be overcome to ensure sufficient network capacity is in place to connect a large increase in onshore renewables, particularly wind power, as well as new nuclear build in the future? For example issues may include the use of locational pricing, or the availability of skills.

  8.  Our vision comprises of some technologies which have yet to be employed in the UK energy system i.e. HVDC and Series Compensation. Despite this, we believe that there were no technical barriers, including supply chain issues, to the incorporation onto the system of the level of wind required to meet targets.

9.  Further operational challenges are posed by the increase in wind powered, nuclear and carbon capture-ready generation. This is exacerbated by the closure of older, conventional fossil-fired generators as European Directives come into effect. Each challenge requires additional balancing services and can be described thus:

    — reserve required to complement intermittent renewable generation;

    — reserve/response that may be required against the potential for new generation plant to be delivered without the required flexibility; and

    — fast-acting reserve (called response) against the expectation that larger plant will increase the maximum potential instantaneous loss of generation from its present level of 1320 MW.

  10.  These additional balancing services may derive from generation or from new and existing demand side players. In order to explore the potential for new services, National Grid will initiate a major consultation process in April 2009. This will seek views on the extent of the challenges, and the strategies that we need to adopt in order to address them.

  11.  There are three major commercial/regulatory challenges to be overcome in order to deliver the networks in the ENSG. The first is strategic investment, to which we have earlier referred.

  12.  The second is to optimise new and existing transmission capacity through reform of the Transmission Access Regime (TAR) and optimisation of the generation "queue":

    — In respect of TAR, National Grid has led the industry debate by raising Connection and Use of System Code (CUSC) amendment proposals and proposing modifications to the charging methodologies. We anticipate that this process will conclude by 2010-11 dependent on which modification proposal is chosen to be progressed.

    — The management of our existing network capacity is no less important to efficient capacity allocation. Unused long term access capacity available on the GB Transmission System can be utilised by those projects that are able to take advantage of this capacity. Where long term capacity is not available, we examine alternatives that may still provide options for connection.

  13.  Thirdly, in respect of planning, we require the effective implementation of National Policy Statements recognising the investment in the transmission network identified by ENSG. We also require the establishment and maintenance of an Independent Planning Commission as set out in the Planning Act 2008.

  14.  National Grid's transmission licence obligations require us to charge our customers cost-reflectively. However, we recognise that some key stakeholders believe that this acts as a disincentive for renewable generators to locate in Scotland. We are currently seeking industry views on potential changes to the charging regime which might address these concerns and which can be assessed against our current licence obligations.

What are the issues the Government and regulator must address to establish a cost-effective offshore transmission regime?

  15.  We believe that the regulatory regime currently being developed could lead to sub-optimal network design, higher costs to consumers and delays to the connection of offshore generation. No organisation has certainty that it will be required to deliver offshore transmission. There is little incentive on potential Offshore Transmission Owners (OFTOs) to develop the capability to deliver offshore transmission infrastructure. Ultimately, we believe that the proposed regime threatens the ability of the UK to meet the 2020 renewables target.

16.  Ensuring some certainty for the various organisations to deliver offshore transmission could be achieved by extending the onshore regime offshore. Alternatively, the following generic process could be envisaged.

    — A Transmission Design Authority (TDA) develops a coordinated and strategic plan.

    — A body is charged with approving the physical/engineering activities within a defined zone.

    — The enduring regime is advanced in a coordinated way through the early appointment of regional OFTOs, which enables early and co-ordinated planning activity. This process forces windfarm developers proactively to coordinate amongst themselves to avoid the risk that early developments interfere with, or worse sterilise, the effective and efficient rollout of the latter (significantly bigger) developments.

  17.  Whilst more complex than an extension of the onshore regime, the alternative proposal is likely to deliver strategic reinforcement in a timely manner, in contrast to the piecemeal and inefficient approach of the currently envisaged regime.

What are the benefits and risks associated with greater interconnection with other countries, and the proposed "supergrid"?

  18.  Interconnectors provide access to the European electricity markets so increasing competition in electricity supply. The UK already benefits from interconnection to the European mainland, through the England-France interconnector and there is also an interconnector to Ireland. An interconnector from the UK to Netherlands is currently under construction.

19.  Interconnectors are also capable of providing a range of balancing services, including response and reserve; which aids liquidity and competition in the market. Indeed, the unpredictable nature of electricity from renewable energy sources means that firmness and duration of balancing services from providers such as interconnectors will be of greater importance. Of course, interconnectors impact upon the transmission system and can cause constraints on our network and those of our European neighbours. These effects are generally considered in the business case for the project.

  20.  Renewable wind projects are likely to be developed further from the European mainland and the UK. Consequently, the future case for interconnection between projects might become more compelling. However, technical, commercial and regulatory challenges remain, including greater harmonisation of regulation across the EU.

What are the estimated costs of upgrading our electricity networks, and how will these be met?

  21.  Whilst there is further work necessary fully to cost the solutions, our current estimate is that onshore transmission network investments will total £4.7 billion. This means that the end-consumer will see an additional circa £6 annual charge on an electricity bill.

What challenges will higher levels of embedded and distributed generation create for Britain's electricity networks?

22.  Meeting the renewables target requires a contribution from embedded generation. However, we regard embedded generation as complementary to, not a substitute for, transmission connected generation. It is the energy security delivered by the interconnected national transmission system which provides intermittent renewable energy with a platform for growth and to enjoy volume-driven unit cost reductions.

23.  Embedded generation technologies (including micro generation) must contribute to, rather than detract from power system security. Large power stations must comply with strict technical connection standards (called the Grid Code) and appropriate standards must also be developed for embedded generation of all sizes.

  24.  We believe that the funding level is inadequate in the face of the significant technical challenges ahead. We propose that our existing IFI funding should be doubled and that the scope of the IFI funding rules are relaxed. This would enable us to explore the network impact of a wider range of emerging energy technologies such as carbon capture and storage, energy storage and the downstream adoption of smart technologies.

What can the UK learn from the experience of other countries' management of their electricity networks?

  25.  National Grid collaborates with other TSOs within various European trade bodies and participates in international benchmarking exercises. We collaborate on technical standards, scenarios and models in order to further the integration of renewable wind and support energy security.


March 2009

84   For non transitional projects including later round 2, round 3 and Scottish territorial waters. Back

85 Back

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