Supplementary memorandum submitted by
Scottish Renewables
Many thanks for providing Scottish Renewables
with the opportunity to give evidence to the Select Committee
on the future of Britain's electricity networks.
I am writing to provide the Committee with supplementary
evidence on an issue that has emerged after the launch of this
timely inquiry and which was touched upon during the sessions
of 29 April, 2009.
The issue is important because the proposed
changes about to be discussed in this paper would be a backward
step with potentially sufficient impact to jeopardise the UK's
ability to respond effectively to climate change and maintain
acceptable levels of network reliability and affordability.
MANAGING CONSTRAINTS
IN THE
SYSTEM
Currently the Transmission Access Review (TAR),
initiated by both Ofgem and the UK Government, is being played
out and one of the short-term measures identified by TAR—proactive
queue management—is being delivered by National Grid (NG)
in Scotland. In Scotland there is a significant connection backlog
of renewables projects wanting to connect but currently with a
connection date some time off into the future. In response to
growing pressure to connect projects that are ready but can't,
and TAR's principle objective of providing connections to generators
when they want it, NG has identified 450MW it can progress quickly
and another 450MW it would like to bring on in a second wave.
Meanwhile the long standing problem of insufficient
transmission capacity at the Cheviot Boundary means that occasionally
Scottish generators are being paid not to generate and that the
derogation from Ofgem allowing relaxed security standards across
this boundary has to date allowed more connection in Scotland
than normal security standards demand.
However, the 450MW of renewables generation
identified by NG for advancement will add to constraint costs
and initially Ofgem thought that this would amount to an additional
£100 million per annum.
Earlier this year Steven Smith, the Managing
Director of Networks at Ofgem, mused at our annual grid conference
that he was struggling to justify the derogation needed to allow
the 450MW to advance on grounds of cost.
The cost of constraints has been reduced by
Ofgem to £40 million but crucially it will not be close to
this amount in the first year and possibly up to the full amount
in three years.
Consequently, Ofgem conceded the benefits of
advancing the 450MW outweighed any potential costs and said that
it was minded to allow the derogation and has recently confirmed
that opinion in a decision. However it has required that NG identifies
long term measures to mitigate the problem of constraint costs
and especially to target costs on those that Ofgem perceives to
have caused the constraints. In other words, and as far as Scottish
Renewables is concerned, target generation north of the Cheviot
Boundary but not demand south of it.
It is important to note that the constraint
across the Cheviot Boundary is a temporary one and the Transmission
Operators have an investment plan for reinforcement ready to implement
over the next few years. In contrast the proposed modification
would be an enduring change.
THE NG RESPONSE
National Grid has come forward with two modifications
that would target the cost of constraints on those that Ofgem
perceives to be the cause.
CAP170, if approved by Ofgem, provides NG with the
ability to switch off any generator in Scotland and compensate
them for lost revenue on a model designed by National Grid. The
proposal has not been well received by industry and has faced
significant opposition.
GBECM18 is a modification to the method that
calculates charges associated with balancing services. It will
target the costs of constraints caused by network "pinch-points"
on all generation behind a derogated boundary (where there is
a pinch-point and where Ofgem has allowed the relaxation of security
standards to allowed more generation to connect) such as the Cheviot
Boundary.
The current model spreads the costs equally
across all generators in GB irrespective of location. The current
and proposed models will be in addition to transmission use of
system charges.
It is conceivable that generators behind a number
of boundaries will face significant additional locational balancing
service charges which may cause the suspension of a number of
projects. Unfortunately due to the limited consultation time it
has been impossible to assess the full impact.
As in CAP170, the industry has opposed this
approach.[115]
SCOTTISH RENEWABLES'
POSITION
We believe that the defect is not with additional
generation but a lack of investment in transmission capacity.
Constraint costs provide a very useful signal to transmission
owners to invest in new capacity. The Cheviot Boundary constraint
has been understood for years and it is only following a positive
response by National Grid to TAR (ie queue management) that Ofgem
has responded in the way that it has.
Ofgem has imposed some urgency behind its instruction
to National Grid to consider alternative charging models for balancing
services. We believe this to be an unhelpful approach and whilst
we accept that there may be an opportunity to consider alternatives
to the status quo the rush for change does not allow a proper
analysis of the implications of proposed modifications.
As I said in evidence there are a number of
European Directives (current and about to be established) which
point towards an approach to charging for transmission that should
be proportionate and non-discriminatory, especially to generators
in "peripheral regions" or areas of low population density.
CAP170 and GBECM18 are likely to be viewed by many in the industry
to be in contravention of such directives.
We hope that the above note is helpful. Needless
to say if there is any point that I can clarify please get in
touch.
May 2009
http://www.scottishrenewables.com//Default.aspx?DocumentID=931e8218-b887-43fb-ad11-a008ca7fc0a2
115 Scottish Renewables responses to both can be viewed
here: Back
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