Memorandum submitted by the Nuclear Industry
Association
The Nuclear Industry Association (NIA) welcomes the
opportunity to submit evidence to the Select Committee's inquiry
into electricity networks. Security of our electricity supplies
is increasingly seen as one of the most pressing issues of energy
policy but the provision of secure supplies will be of no value
if the infrastructure is not in place to deliver it to the consumers.
NIA is the trade association and information and
representative body for the civil nuclear industry in the UK.
It represents over 160 companies operating in all aspects of the
nuclear fuel cycle, including the current and prospective operators
of the nuclear power stations, the international designers and
vendors of nuclear power stations, and those engaged in decommissioning,
waste management and nuclear liabilities management. Members also
include nuclear equipment suppliers, engineering and construction
firms, nuclear research organisations, and legal, financial and
consultancy companies.
We have confined our evidence to the questions
posed by the committee as set out below:
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?
A flexible grid is required. It must be capable
of coping with the variability in renewable (especially wind)
output but also able to cope with baseload generation. However
network operation as well as the supporting infrastructure should
support the active participation of the demand side in the electricity
market. This would include—through appropriate incentives—smoothing
of the electricity demand profile, mechanisms to permit customers
to respond dynamically to market prices and conditions, and active
shaping of load where appropriate. This will have the effect of
reducing peaks in demand which are costly to serve, while increasing
security of supply and ensuring efficient use of the network and
generation infrastructure. Diversity is the key to ensuring secure
energy supplies. In the electricity sector this will mean a mix
that includes nuclear, renewables and fossil fuels (with carbon
sequestration if it can be made to work). The grid also needs
to be able to adequately distribute this mix of sources and whatever
demand side measures are put in place, what is clear is that the
total demand will rise. For example the need to decarbonise the
transport sector is likely to lead to a large rise in the demand
for low carbon electricity for both trains (the existing fuel
mix on electrified lines is mostly low carbon nuclear but it is
planned to electrify the rest of the network) and for road transport
(either by directly using electric vehicles using hydrogen as
an energy carrier). In addition the system will have some larger
units on it and so for both these reasons grid reinforcement will
certainly be required.
How do we ensure the regulatory framework is flexible
enough to cope with uncertainty over the future generation mix?
Network regulation is an essential component of delivering
the government's energy policy, and needs to operate within a
framework that ensures that government targets for renewables
and de-carbonisation are to be met. As noted above, ensuring that
the demand side of the market plays an active role is an essential
part of delivering the necessary flexibility.
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
We do not see any particular insoluble technical
barriers to providing sufficient capacity as this can be done
through a combination of demand management, intelligent grid technology
and grid reinforcement. However as this is a commercial system
there are some regulatory issues which need to be overcome to
ensure the technical solutions are put in place. The regulator
needs to address the shortage of transmission infrastructure compared
with anticipated future needs, and the arrangements by which access
is granted. Ofgem is reviewing incentives for National Grid to
make longer-term investment plans ahead of firm commitments by
connection applicants, but this process has not yet run its course.
What are the issues the Government and regulator
must address to establish a cost-effective offshore transmission
regime?
There is an case to be made that the existing Offshore
Transmission Network Owner rules; whereby each generator must
contract for its own offshore transmission, but with prescribed
rules on the transmission design and enforced ring-fencing of
operation of the generation from its offshore transmission assets;
will lead to expensive and inefficient outcomes because:
(i) the rules fail to permit synergy in the design
or configuration of the offshore transmission (leading to a series
of spurs to individual wind farms rather than a network) and;
simultaneously
(ii) the rules fail to permit synergy in the operation
of the offshore generation and transmission assets.
Arguably, having a regulated offshore transmission
operator is more likely to secure the necessary investment (with
a lower risk premium) while maximising efficiency in offshore
network configuration.
What are the benefits and risks associated with
greater interconnection with other countries, and the proposed
"supergrid"?
The principle benefit will be the potential
for reduced capacity grids in each country with less reliability
on intermittent sources in each country (as the intermittence
is averaged out over a larger area, although not eliminated).
In addition backup capacity for major outages is spread over a
number of countries. However the cost of sub-sea interconnection
is significant and cannot be ignored. Also there are issues with
compatibility with other markets into which we connect which could
distort competition. It also introduces a reliance on third parties
and adds complexity to the system.
What challenges will higher levels of embedded
and distributed generation create for Britain's electricity networks?
These present significant challenges to the distributed
network operators and the grid as the assets need to be reconfigured
for the volatility of supply. This applies for increased renewable
generation too but the effect is magnified with the increase in
distributed generation. Another issue for embedded generation
is that it can be very unpredictable in how it reacts to grid
stresses which makes responding more difficult. Again as noted
above, the importance of the demand side is critical to the incorporation
of distributed resources to the market in an effective way. Schemes
are in place which permit aggregation of distributed energy resources
to help distribution and transmission operation but these schemes
are not well supported by the regulatory regimes.
What are the estimated costs of upgrading our
electricity networks, and how will these be met?
We will not comment on this section as others (notably
the Energy Networks Association) are in a better position to answer
this question.
How can the regulatory framework ensure adequate
network investment in light of the current credit crunch and recession?
The regulatory regime to date is widely believed
not to have encouraged innovation and investment in networks (only
in reducing operating expenditure). The regulatory regime should
do more incentivise long-term investment and reduce risk. The
risks associated with this investment increase the cost of capital
at a time when that cost is already high.
How can the regulatory framework encourage network
operators to innovate, and what is the potential of smart grid
technologies?
We will not comment on this section as others (notably
the Energy Networks Association) are in a better position to answer
this question.
Is there sufficient investment in R&D and
innovation for transmission and distribution technologies?
We will not comment on this section as others (notably
the Energy Networks Association) are in a better position to answer
this question.
What can the UK learn from the experience of other
countries' management of their electricity networks?
The UK can learn by having an energy network policy
in which the government provides strong direction, via the regulator,
to the grid in a long-term public good approach rather than focusing
on short-term commercial gain. The benefits are:
(i) the development and implementation of smarter
technologies due to the longer planning and implementation cycles
these require; and
(ii) ongoing sustainable development of the grid
to meet long-term demand and ensure timely connections and reliability
in a secure manner rather than cyclical peaks and troughs which
drive up the cost of delivery and limit long-term development.
This requires a government energy network policy
in which the regulator is mandated to include this long-term policy
approach in assessing value for money (we recognise that progress
has been made of late in this area through the use of long-term
scenarios, the intention to fund FEED and consents work for new
transmission) but there is more that needs to be done. A purely
commercial approach to provision of grid capacity is unlikely
to allow for a grid infrastructure that delivers the mix of generation
that we require in a stable and secure manner because such an
environment is too short-term. That is not to say that the grid
infrastructure can not be delivered by the private sector but
that that the regulatory framework must ensure a more long-term
policy.
March 2009
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