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


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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