Memorandum submitted by Professor Goran
Strbac, Imperial College London
EXECUTIVE SUMMARY
In common with most industrialised countries,
UK electricity networks were significantly expanded after World
War II to support the economic growth of the country, utilising
the developments in large scale generation technology of that
time. This system now faces challenges of unprecedented proportions.
By 2020, according to the Government Renewable Energy Strategy
(RES), it is expected that 40% of the UK electricity demand will
be met by renewable generation (an order of magnitude increase
from the present levels). In the context of the targets proposed
by the UK Climate Change Committee (greenhouse gas emission reductions
of at least 80% in 2050) it is expected that the electricity sector
would be almost entirely decarbonised by 2030, with potentially
significantly increased levels of electricity production and demand
driven by the incorporation of heat and transport sectors into
the electricity system. Delivering these targets cost effectively
will require not only an appropriate investment in electricity
infrastructure, but also fundamental changes in the philosophy
of network operation and development enabled by the application
of information, communication and control infrastructure to enhance
the utilisation of the existing networks. This requires urgent
development of a new technical, commercial and regulatory frameworks
associated with the operation and development transmission and
distribution networks to support the new network operation paradigm
in order to facilitate timely and efficient connection of new
forms of generation. In this context, this contribution deals
with the following four topics:
(i) Transmission network operation and design
standards (GB Security and Quality of Supply Standards)
Given the pressing need to provide additional
transmission capacity to accommodate renewable generation, our
major concern is that the outdated GB SQSS (philosophy developed
in 1948 and unchanged since) presents a potential barrier for
the application of a range of advanced technically effective and
economically efficient non-network solutions that can release
latent network capacity of the existing network. Rules that are
used to determine the amount of capacity that should be released
to network users may be inefficient and limited to the application
of asset heavy network solutions to network problems. If updated
within a true cost-benefit framework, this would result in a reduction
of costs of network constraints and facilitate faster and cheaper
connection for renewable generation. We are concerned that the
significance of the development of new standards for future transmission
network operation and development has not been fully recognised
by Ofgem and Government.
(ii) Network regulatory framework
Similarly, present network regulatory approach
heavily incentivises investment over operational alternatives,
which is a significant barrier to the application of innovative
technically effective and economically efficient solutions that
can enhance the utilisation of the existing network. Network designers
and operators are incentivised to consider asset heavy solutions
and are not rewarded adequately for releasing network through
potentially more efficient non-asset solutions. If the present
regulatory approach is urgently updated to incentivise network
operators to maximise the benefit of the network to network users,
this will facilitate faster and more efficient connection of renewable
generation.
(iii) Network access regime
Present commercial access arrangements associated
with access to transmission network are inefficient due to the
absence of locational cost signal associated with the use of transmission
network in the short term (the reason for Transmission Access
Review started in 2007). The present access arrangements have
contributed to the large increase in the cost of network constraints
that have recently been a subject of very serious concerns by
industry, government and the regulator (costs of constraints increased
by a factor of three in the last three years). It is important
to recognise that this significant increase in network constraint
costs was not driven by changes in generation background or reductions
in available network physical capacity, but primarily by the design
of the present transmission access regime. If an efficient location
specific allocation of constraint costs is introduced, this would
result in a reduction of constraint costs and facilitate faster
and more efficient connection of new renewable generation. We
fully support efforts of Ofgem and National Grid that suggest
that cost of short term network operation should be allocated
on a location specific basis, following the principles of cost
reflectivity and economic efficiency. However, there are a number
of remaining concerns we have with the future access regime: demand
is excluded from participation in short term access, which is
inefficient, discriminatory and contradicts the development of
Smart Grids; the spread in imbalance prices is above efficient
levels which artificially increases network constraint costs and
inflates the need for transmission investment and we are concerned
that this issue has not been considered by the regulator; Network
charging mechanism is not fully cost reflective, and as such may
be a contributor to increasing cost of constraints and if unchanged,
could lead to inefficient network investment; Our work demonstrated
that wind generation tends to drive less transmission network
capacity than conventional plant but network charges do not reflect
this, and hence discriminate against wind; There is a serious
case of undue discrimination in the network regulation between
on- and offshore generation: onshore wind is entitled to receive
compensation due to unavailability of the onshore transmission
network but offshore wind is not.
(iv) Smart Grids: Opportunities for UK
The decarbonisation of electricity and energy
systems beyond 2020 with the present operating paradigm would
require a very significant capital investment in primary generation
and network assets while simultaneously degrading the utilisation
of these assets. An alternative solution, involving innovations
in ICT technology and active network management, would be potentially
cheaper, faster to implement and more commercially adaptable than
simply building more primary assets. The core issue facing the
network in the future is not only to make our grids larger, but
much more importantly to make them more intelligent. Development
of a Smart Grid technology strategy is of considerable relevance
to the UK, given its weak interconnections with other systems
and the need to balance demand and supply largely within the GB
Island. These challenges could be turned into an important commercial
opportunity for the UK to gain early experiences and lead the
worldwide system integration of advanced future grid technologies
at the international level.
The importance of the above issues is in our
view very significant. This present GB SQSS, the present regulatory
regime and the present network access arrangements formed the
basis for the transmission network reinforcements recently presented
by Energy Network Strategy Group (ENSG), needed to accommodate
renewable generation to meet 2020 target.[116]
This involves a single, business as usual, asset heavy solution,
constrained by the present regulatory incentive approach and inefficiencies
in network access arrangements. Although it is clear that some
significant network reinforcements will be needed, complementary
and alternative solutions based on more sophisticated network
management techniques (such as dynamic line rating, wider application
of advanced special protection schemes, coordinated control, application
of advanced maintenance techniques, application of advanced decision
making tools etc) and application of non-network solutions particularly
demand and generation solutions that can substitute for network
reinforcements, were not considered. Furthermore, in this exercise
the justification for network investment was based on observed
inefficient constraints costs.
Network assets have a lifetime of 50+ years
and if the questions of network operation and design standard,
network regulation and access regime are not addressed with some
urgency, a major opportunity for the development of 21st century
GB transmission network may be significantly slowed down and we
may be locked into potentially costly investment strategy driven
by outdated network design standards and inappropriate regulatory
and commercial frameworks. The incumbent UK network regulation
framework and network operation and design standards favour the
release of new network capacity through network asset reinforcements
and this is incompatible with the concept of Smart Grid. Under
the Smart Grid vision, non-network solutions, particularly demand
side participation are expected to play a vital role in enhancing
transmission and distribution network utilisation and hence facilitating
an efficient delivery of low carbon future; this future will not
be realised if the current network technical, regulatory and commercial
approaches are not urgently changed.
A key opportunity to facilitate efficient operation
and development of smarter transmission network in support of
the UK low carbon energy policy is presented by the Fundamental
Review of GB Supply Quality and Security Standards, Ofgem's Review
of RPI-X, Transmission Access Review and Smart Grid initiative.
1. FRAMEWORK
FOR FUTURE
NETWORK OPERATION
AND DESIGN
STANDARDS
1.1 In the context of the RES, wind energy is
the principal commercially available and scalable renewable energy
technology, and is expected to deliver the majority of the required
growth in renewable energy, continuing to be the dominant renewable
technology out to 2020. Recent ENSG Report showed that the cost
of on-shore transmission network reinforcements needed to accommodate
on and off-shore wind generation will be very significant. This
work however was based on the outdated approach to network planning
and network control, cost of transmission network constraints
based on inefficient network access arrangements within the regulatory
regime that is known to incentivise assets heavy network solutions
to delivery of additional network capacity. Within 2020 and beyond,
a complementary approach that involves a departure from the current
practice should be urgently considered, as it could deliver significant
increases in network assets utilisations and hence a significant
reduction in cost relative to this baseline and facilitate faster
connection of renewable, without unduly compromising on network
security.
1.2 Such an approach, based on a cost benefit
framework rather than on the present deterministic standards that
exclude potentially technically effective and cost efficient operational
solutions from being considered, would require:
(i) a shift in the source of the system control
and flexibility from physical assets to more sophisticated system
management, through wider deployment and application of appropriate
control, information and communication technologies, and
(ii) a re-allocation of the duties and opportunities
for the provision of system control services to include demand
side, wind generation technologies that use power electronics
interfaces and modern network technologies, in addition to network
primary assets.
1.3 Although there are a number of drivers
for the Fundamental Review of the GB SQSS the key concerns are
that the present network standards:
— are potentially inefficient and do not
deliver value for money to network users, ie that the network
standards unduly restrict user's access to the system and hence
prevent optimal utilisation of the existing network infrastructure;
and
— impose barrier for innovation in network
operation and potentially prevent implementation of technically
effective and economically efficient solutions that enhance the
utilisation of the existing assets (ie present standard is based
on prescribed levels of asset redundancy and is clearly an obstacle
for the application of Smart Grid technologies).
1.4 The overarching concern is that the
historical approach to network planning and operation is inherently
inefficient and will adversely impact the development of the UK
low carbon future, both in terms of timing and costs. The work
carried out by SEDG and others (at the international level), points
out that the present standards are inadequate and that the philosophy
of the network standards should change from deterministic to a
cost-benefit approach. This change is necessary if the above concerns
are to be comprehensively addressed. There is a clear trend of
adopting cost-benefit framework as the basis for network operation
and investment (for example in Victoria in Australia, New Zealand,
Chile).
1.5 Establishing an optimal level of network
capacity that should be made available by network operators in
real time must appropriately balance (i) the value that users
attribute to the level of network capacity released, through being
able to access efficient generation resources, against (ii) cost
of this access, primarily driven by various forms of generation
reserves, losses and expected costs of interruptions (primarily
caused by forced outages of generation and network facilities)
that is associated with the released network capacity.
1.6 However, it is important to emphasise
that network operators should be appropriately incentivised to
provide additional network capacity through not only building
transmission circuits (asset based redundancy), but through non-network
solutions involving demand and generation and more sophisticated
network management, whichever is more efficient. The present deterministic
GB SQSS framework fundamentally prevents non-network solutions
to be adopted, even if these are technically effective and economically
efficient.
1.7 Cost-benefit based framework for network
operation and investment includes all key ingredients required
for the development of future network operation (and development)
standards to support efficient delivery of a low carbon electricity
system. Only cost-benefit based standards can be used for determining
the network capacity that should be released to network users
in real time that will maximise the value of network access to
all network users. Only cost-benefit framework can provide the
basis for risks of supply interruptions to be understood, quantified
and managed through optimising the amount the network capacity
that is released to network users.
1.8 Such a cost-benefit approach to network
operation would be fully consistent with the core objective of
Smart Grid concept, an integrated electricity and information
and communication system infrastructure that is intended to enhance
the utilisation of existing and future primary electricity assets.
The cost-benefit based network standard will assist both operational
and design engineers in delivering these objectives.
1.9 In this context, the ENSG 2020 transmission
reinforcement programme may need to be updated in the light of
future cost-benefit framework. A system based around advanced
information, communication and control technologies, as well as
incorporating demand-side management into the system control structure,
provides a way to maximise the utilisation of future networks,
preventing unnecessary and expensive overinvestment. This is the
essence of the concept of Smart Grids, which however cannot be
developed before the outdated network operation and design standards
are updated.
1.10 It is hence critical that the Fundamental
Review of GB SQSS delivers urgently a new technical framework
for future network operation, as this will speed up connection
of renewable generation, result in a reduction in network constraint
costs and reduce the need for network reinforcements, hence contributing
significantly to timely and efficient delivery of Government policy.
It is concerning that the significance of this important Review
has not been fully recognised by Ofgem and Government.
2. INADEQUACIES
OF THE
PRESENT NETWORK
REGULATION FRAMEWORK
2.1 The existing regulation heavily incentivises
investment over operational alternatives hence preventing the
implementation of technically effective and economically efficient
non-network solutions as an alternative to the conventional network
asset based solutions. This directly contradicts Smart Grid concept
that involves a shift to more sophisticated system management
through opening opportunities for demand side, generation and
advanced real time network control techniques. These are options
that contribute to the release of additional network capacity
and control services, and function as an economic alternative
to reinforcement of network infrastructure.
2.2 The present network regulation does
not explicitly consider and is unable to deal with the fundamental
question of whether the level of network capacity released to
network users in an operational time scale is delivering good
value for money to users. There are no mechanisms that provide
assurances to all parties (network users, network operators and
the regulator) that an appropriate balance is being struck between
costs and benefits in the decision making process associated with
the release of network capacity in real time and the provision
of additional infrastructure. Our recent analysis suggests that
the present practice in most cases significantly compromises the
economic efficiency of system operation. This practice may also
be a major barrier for innovation needed to enhance efficiency
of network operation and its development.
2.3 A cost-benefit framework for network
operation and planning (discussed in the section above) can explicitly
address the question of the (optimal) amount of capacity that
should be released to network users in real time (which should
be the key question of the review of the network standard too).
In this context it is concerning that the significance of this
has not been fully recognised by Ofgem.
2.4 The present regulatory approach, that
incentivises the enhancement of network flexibility through network
asset redundancy, may potentially undermine National Grid licence
obligation to carry out its duties in an economically efficient
fashion. There has been a clear trend at the international level
of growing use of advances in various technologies that can release
latent network capacity through more sophisticated system operation,
including application of coordinated special protection schemes,
coordinated corrective power flow and voltage control techniques
supported by wide area monitoring, protection and control systems,
application of advanced maintenance techniques, application of
advanced decision making tools etc, including the use of various
non-network solutions, particularly demand and generation. All
these technologies have the potential to increase utilisation
of existing network and substitute for network reinforcements.
Although some of these methods are applied by the GB System Operator,
the present deterministic standards and the regulatory framework
are a barrier for taking full advantage of such techniques given
the absence of incentives for network asset and alternative non-network
asset based solutions to be compared on equal footing.
2.5 In response to the challenge of connecting
new renewables, the ENSG Report involves an asset reinforcement
based solution. This is a business as usual response, constrained
by the present regulatory approach. Complementary and alternative
solutions based on more sophisticated control techniques that
would involve generation and demand participation in substituting
network reinforcements, were not considered in this exercise.
Only solutions based on asset reinforcements are identified, which
is a direct consequence of the limited remit allowed by the present
regulatory incentives framework.
2.6 By heavily incentivising investment
over operational alternatives, present network regulation, effectively
prevents Smart Grid concepts and technologies from providing an
economically efficient alternative to the conventional network
asset based solutions. The current regulatory framework needs
to change; it is no longer appropriate to restrict solutions to
those based only on network assets. Instead it must allow the
evaluation of all solutions, both network and non-network, particularly
those that involve responsive demand, generation and advanced
network management techniques. Otherwise, the development of Smart
Grid concepts and technologies will be undermined.
2.7 Clearly, one of the key challenges that
will need to be resolved is associated with the current separation
of networks from energy. Technologies such as demand-side participation,
where demand is responsive to changes in the supply of energy,
are beneficial to a range of different market participants. Hence,
the benefits of this technology can be associated with a number
of industry sectors operating as individual businesses that may
all be willing to reward specific aspects of this activity. Clearly,
no individual recipient of the services (for example, generating
companies or transmission/distribution network operators) is interested
in maximising the overall system benefits achieved by trading
off the benefits between individual segments of the industry.
In this context, the current regulatory arrangements present a
significant barrier to the introduction of these technologies.
2.8 Revised frameworks for network regulation
are essential for facilitating the delivery of a low carbon electricity
system based on 21st century smarter, more secure and more cost
effective transmission and distribution networks. The hope is
that the RPI-X@20 review will provide an environment where innovation
is rewarded and incentivised.
2.9 The overarching concern is that the
incumbent UK network regulation framework favours the release
of new network capacity through network asset reinforcements and
this is incompatible with the concept of Smart Grid. Under the
Smart Grid concept, non-network solutions, particularly demand
side participation are expected to play a vital role in enhancing
transmission and distribution network utilisation and hence facilitating
an efficient delivery of low carbon future; this future will not
be realised if network regulation remains unchanged.
3. INADEQUACIES
OF NETWORK
ACCESS ARRANGEMENTS
3.1 The UK market model has historically
separated energy and networks. However, it has been demonstrated
that an efficient network congestion management (relevant for
transmission in the short term and distribution in the medium
term) will be a key requirement in a lower carbon future (hence
Transmission Access Review). The need for closer integration of
networks and energy is fully consistent with Smart Grid concepts
where both network and non-network based solutions compete in
order to ensure efficient network operation and future investment.
The key challenge for the regulatory and commercial framework
here is to design efficient network access arrangements (ie efficient
access pricing).
3.2 Increased constraint costs have concerned
Ofgem, Government and industry. In response to these concerns,
National Grid developed a more cost reflective allocation of network
constraint costs which would effectively make generators in Scotland
more responsible for constraint costs caused. This approach would
incentivise conventional generators in Scotland to reduce their
output on windy days, and hence facilitate the sharing of network
capacity. We welcome and support this initiative as this would
reduce network constraint costs and could also remove the need
for some of the transmission network reinforcements.
3.3 We are also concerned that the present
practice and thinking in the area of network access excludes demand.
The role of demand in defining short and long access is not considered
in any of Ofgem consultation papers. This is not only discriminatory
(leading to both inefficient system operation and inefficient
network investment), but it may be fundamentally incompatible
with the Smart Grid concept as demand is not given the opportunity
to compete for the provision of access with transmission based
solutions.
3.4 Furthermore, we are concerned with the
basis of Transmission Network Use of System charges. TNUoS charging
mechanism is not fully efficient (not cost reflective enough),
and as such may be a contributor to increasing cost of constraints
and if unchanged, could lead to inefficient network investment.
In the existing TNUoS mechanism, the locational charge, the charge
paid depending on the location of the generator/demand, is too
small. The mechanism is dominated by a non-locational charge that
is paid by demand.
3.5 Our work demonstrated that wind generation
tends to drive less transmission network capacity than conventional
plant. However, network charges do not reflect this, and hence
discriminate against wind. If the TNUoS charge were to reflect
the network costs that different generation technologies drive,
wind generators in Scotland would pay significantly lower charges
than conventional generators. All recent UK work in this area
suggests that wind generation drives less transmission investment
than conventional generation. We note that the latest consultation
document on the TNUoS residual charge states that wind generation
drives the same transmission investment as conventional plant.
However, no analysis is provided to support this finding.
3.6 There is a serious case of discrimination
in the regulations between on- and offshore generation. In the
case that an onshore wind farm connection design complies with
the onshore network standard, the wind farm is entitled to receive
compensation due to unavailability of the onshore transmission
network; however, in case that an offshore wind connection design
is compliant to the offshore network design standard, the wind
farm is not entitled for compensation when the offshore transmission
network is unavailable.
3.7 We are concerned that the spread of
imbalance prices is above efficient levels and this will increase
network constraint costs and inflate the need for transmission.
A simple measure, such as post settlement trading could mitigate
this to some extent and increase the liquidity of trading within
the Balancing mechanism. Furthermore, using our network operation
and investment models we simulated efficient market operation
for the present BETTA system and a market where constraint costs
are driven solely by the cost of fuel. In a perfectly competitive
market, annual constraint costs under BETTA could be about £240
million higher than the most efficient constraint costs based
on fuel costs only (which, for the background considered, would
amount to about £10 million per annum). This analysis demonstrates
that the design of BETTA may inherently lead to higher constraint
costs and hence drive larger and (inefficient) network investment
when compared to a traditional vertically integrated utility or
the previous pool regime. Most importantly however, under BETTA,
prices of short-term access, which will depend on the difference
between offers and bids in importing and exporting areas respectively,
will be above efficient levels. The sharing of network capacity
between conventional and renewable generation will hence be reduced
below efficient levels. We are concerned that the question of
the ability of BETTA to provide efficient network investment signals
has not been fully considered.
4. RESEARCH,
INNOVATION AND
BUSINESS OPPORTUNITIES
ASSOCIATED WITH
FUTURE GRIDS
4.1 It is widely recognised that there has
been little technical innovation in network operation, planning
and investment over the last twenty years. In this context, the
introductions of the Innovation Funding Initiative (IFI) and Registered
Power Zones (RPZ) by Ofgem have been critically important in incentivising
distribution and transmission network operators to engage in innovation.
We fully support OFGEM in their intention to provide a step change
in the investment in RD&D as well as broader and deeper engagement
of wider communities and organisations involved in the innovation
chain, through the Low Carbon Network Funding.
4.2 As stated above, the decarbonisation
of electricity and energy systems beyond 2020 with the present
operating paradigm would require a very significant capital investment
in primary generation and network assets while simultaneously
degrading the utilisation of these assets. This may lead to inefficient
and costly overinvestment, and an alternative solution, involving
innovations in ICT technology and active network management, would
be potentially cheaper, more successful and more commercially
adaptable than simply building more primary assets. We believe
that the core issue facing the network in the future is not only
to make grids larger, but to make them more intelligent.
4.3 This approach will require two major
departures from the current philosophy. Such an approach would
require (i) a radical shift in the source of the system control
and flexibility from physical assets to more sophisticated system
management through the deployment of appropriate ICT solutions,
and (ii) a major re-allocation of the provision of system control
services to include demand and networks in addition to generators.
Most of the key individual technologies are already available
or well under way to demonstration and deployment, as there is
considerable research in plant and equipment based technologies
and the Energy Technologies Institute is playing a very important
role here.
4.4 Implementation of ICT for monitoring
and control of the electricity system (including demand, networks
and generation) will lead to the development of a Smart Grid,
an integrated energy and information and communication system
architecture that is intended to bring together two elements of
the power industry: the electrical delivery system and the information
system that controls it. Maximising the utilisation of the primary
electricity assets and infrastructure, by deploying and utilising
smart information and communication technologies and developing
effective energy system integration strategies is the core objective
of the concept of Smart Grids.
4.5 This requires the development of more
sophisticated network control, operation and investment strategies,
for which new tools and methodologies are yet to be developed.
The proliferation of energy storage, distributed generation, solid-state
equipment (converters, switches and transformers to name a few)
and greater demand-side participation are not addressed well in
today's analysis and decision making tools and applications from
a whole systems approach. To enable power system analysts and
planners to evaluate new technologies and recommend effective
and efficient applications to power systems requires a rethink
of the analysis tools that provide the foundation for a whole
systems approach to decision-making.
4.6 Furthermore, information management,
wide-area measurement, disturbance recognition, and visualisation
tools will be needed by grid operators to process real-time information,
accelerate response times to problems in system voltage and frequency
levels, and achieve compliance with reliability and criteria.
These are considered to be critical to ensure that appropriate
responses to disturbances are created before widespread blackouts
can occur. This also includes the development of interface technologies
and standards to enable seamless integration of distributed energy
and loads with the local distribution system.
4.7 Although the key ingredients of this
technology exist, targeted trials are required to gain more experience
within the context of a functioning energy network. Hence, the
key unresolved challenge is in the development and demonstration
of effective energy system integration, showing that Smart Grid
can deliver the functionality and performance needed for real
time control of the power system. This is an area that the UK
is well positioned to lead. Development of a Smart Grids technology
strategy is of considerable relevance to the UK, given its weak
interconnections with other systems and the need to balance demand
and supply largely within the GB Island. Furthermore, the UK has
significant resources and interest in offshore wind power (and
other marine technologies) and development of offshore grids and
their efficient integration in the GB network will be a significant
challenge. These challenges could be turned into an important
commercial opportunity for the UK to gain early experiences and
lead the worldwide system integration of advanced future grid
technologies at the international level.
April 2009
116 Our Electricity Transmission Network: A Vision
For 2020, A Report by the Electricity Networks Strategy Group,
March 2009; http://www.ensg.gov.uk/assets/1696-01-ensg_vision2020.pdf
(this is referred to as ENSG Report in this document). Back
| 
