74.Infrastructure and security of supply are two of the main challenges which need to be faced in order for Great Britain’s electricity supply to accommodate an increasing proportion of electricity from renewable generators. The main infrastructure challenge is connecting renewable generators—which need to be located where the natural resources they rely on to produce electricity are located—with the transmission network and electricity users. Security of supply is concerned with making sure electricity is available as and when it is needed, something which is complicated by the fact that many forms of renewable electricity generation produce electricity intermittently, and therefore cannot be relied upon to supply electricity on demand.
75.The UK Government is responsible for setting high level policy regarding Great Britain’s electricity market but the actual installation and maintenance of the GB transmission network—which transports electricity from where it is generated to where it is used—is managed by the National Grid and a number of companies which act as Distribution Network Operators. This is regulated by Ofgem, which is responsible for monitoring Great Britain’s gas and electricity networks.
76.The costs of building and maintaining the transmission network are, just like the costs of building power plants and generating electricity, borne by the consumer. National Grid aims to invest in transmission capacity where it will be most needed, and keep costs down. Similarly, Ofgem have chosen a system of transmission charging which is cost-reflective, so as to keep costs down and reduce consumer bills. The costs of transmitting and distributing electricity account for approximately 24% of the average consumer bill.
77.The costs of installing and maintaining the transmission network are met in part by electricity generators, and in part by electricity suppliers, although ultimately the full cost is accounted for in the bills of electricity consumers. The regime for transmission charging is cost-reflective, and this means that charges vary based on location—because power plants located in certain places will cost more to connect to the network than those located elsewhere. The purpose of the cost-reflective model is to signal to generators and electricity users the long-run costs of their decisions, and thereby help them to decide where to build and where to close, so as to keep the overall costs to the consumer down. Historically, there has been significant discontent from electricity generators located in Scotland because the distance of power plants, and particularly renewable generators, from population centres meant that transmission charges were significantly higher than in other parts of the UK. Because of their remoteness, transmission costs for the Scottish Islands are particularly high—with the local authority for the Outer Hebrides describing them as prohibitive to the deployment of renewable generators.
78.The Energy and Climate Change Committee recently reported on the UK’s low carbon network infrastructure, and recommended that Ofgem analyse the costs and benefits of levelling connection costs across Great Britain. Levelling connection costs, so that they did not reflect the additional costs associated with the location of a power plant, would mean that transmission charges were the same no matter where a generator chose to locate their plant. Ofgem has considered regional differences in network charges, and in October 2015 concluded that levelling network charges would raise bills for 16 million households while lowering them for 11 million, though “in most cases the increase or decrease would be small”. Kersti Berge, Head of Scotland for Ofgem, told us that the cost of levelling transmission charges would be around £7 billion. The then Minister of State for Energy and Climate Change told us that the charging system was governed by the principle that “the user pays”, and was designed to limit the overall costs to consumers across the country.
79.The Scottish Parliament’s Economy, Energy and Tourism Committee looked at transmission charging as part of its inquiry into the security of supply of electricity. That Committee noted the conflict between proponents of a flat-charging system and proponents of a cost-reflective system, and called for greater clarity when it comes to communicating the costs and benefits to customers and generators, and also explaining how the charging regime fits with other public policy aims. That Committee said it would welcome Ofgem’s suggestions on how this could be achieved.
80.In addition to the costs of maintaining the transmission network, there are also complaints that, because of inadequate transmission infrastructure, the electricity grid is sometimes unable to cope with distributing electricity generated by wind farms. This means that the wind farms have to be told to stop generating electricity—as it cannot be used—and the generators are eligible for compensation for lost income. Although it is obviously desirable in principle that all electricity produced by renewable generators is used, Dr John Constable, Director of the Renewable Energy Foundation, told us that the costs of improving transmission infrastructure meant that in some cases investing in improvements would actually be more expensive than paying wind farms to stop generating.
81.Transmission charging has been a source of discontent for Scottish electricity generators for many years, and particularly for renewable generators which are often located in remote areas and pay significantly higher transmission charges. We endorse the Energy and Climate Change Committee’s recommendation that Ofgem analyse the costs and benefits of levelling connection costs across Great Britain, and look forward to seeing their response.
82.Some of the best natural resources for generating renewable electricity are found on the Scottish Islands. However, adequacy of connections to the electricity grid, and costs for the same, is a particular issue for these islands. The costs to generators located in the Western Isles of maintaining the transmission infrastructure can be seven times higher than the costs for a generator located in North Scotland. This is significantly limiting the opportunities for further deployment of renewable technology. Given the excellent natural resources of the Scottish Islands, we have been told that supporting generation on the islands should be a high priority, and the deployment of additional onshore wind, combined with the improvements to transmission infrastructure this would require, would also unlock opportunities for the deployment of wave and tidal technology. With regard to marine technology, when we were in Orkney we visited the European Marine Energy Centre—a test centre for wave and tidal technologies—and we have since been told that developers of marine technology are being dissuaded from testing new technology in Orkney because of the limitations of the grid.
83.As part of our inquiry we took evidence from the various organisations involved in installing and maintaining Scotland’s distribution and transmission network. Andrew Huthwaite, Director of Commercial and Connections at SSEPD—the network operator and owner of the distribution network for the north of Scotland, including the islands—told us that there was a desire to provide improved connections to the islands, and it was just a question of how these investments would be funded and costs to the consumer kept down. Mr Huthwaite recognised that a lot of work had been done on the social and economic benefits of improving transmission links to the islands, but said that as a networks company, they had to “present a fully justified needs case for those investments and that sits within the regulatory framework”. Assuming regulatory approval was given, and there were enough developers coming forward to justify the connection, we were told that an improved connection to the Western Isles could be in place in 2020, one to Shetland in 2021, and improved connections to Orkney in 2022.
84.Approval for significant investments in transmission infrastructure is given by Ofgem, the regulator of the GB electricity system, following the submission of a needs case by the system operator. Kersti Berge, Head of Scotland at Ofgem, said that whether or not improved transmission connections to the islands were justified came down to whether there was going to be generation coming online there, and this would be determined by the level of support the Government intended to provide to renewable deployment on the islands. Ms Berge told us that “transmission links and subsea links are very expensive, so you need to have a critical mass of plant coming on to justify that”.
85.Improving connections to the Scottish Islands is something the UK and Scottish governments have been collaborating on. In June 2014 a Scottish Island Renewables Delivery Forum was established to look at connecting the islands to the mainland transmission grid, and is jointly chaired by the UK Government’s Secretary of State for Energy and the Scottish Government Minister for Business, Energy and Tourism. However, little progress on this issue has been made following the establishment of the group, and in March 2016 the then Scottish Government Minister for Business, Energy and Tourism and Council leaders from the islands wrote to the then Secretary of State for Energy and Climate Change urging her Department to make progress on supporting grid connections to the Scottish Islands. The Scottish Government Minister for Business, Energy and Tourism told us that no response to that letter had been received, and questioned the UK Government’s investment in this issue, telling us:
Even in areas where we have worked closely together over many years to pursue a common agenda, for instance grid connections to the Scottish islands and support for renewables development, we have cause to pause and consider the strength or otherwise of the UK Government’s commitment.
The Minister raised particular concerns that uncertainties about future support under CfDs for marine technology, which has particular opportunities on the islands, could damage the long-term prospects of this sector. The then Minister of State for Energy and Climate Change told us that the then Secretary of State had spoken with the Scottish Government Minister regarding future rounds of CfDs and support for island renewables, and said that a response to the former Scottish minister’s letter would be issued shortly.
86.In terms of the prospects for future support of renewables on the Scottish Islands, the UK Government is currently considering whether Remote Island technologies will be included in the list of “less established technologies” which will be able to apply for Contracts for Difference later this year. The Scottish Parliament’s Economy, Energy and Tourism Committee was told by Kersti Berge, the Head of Scotland at Ofgem, that a decision about CfDs and the islands was essential to informing what progress would be made on improving transmission links to the islands. Chris Stark, Director of Energy and Climate Change for the Scottish Government, said that there had been several calls on this issue between the then Secretary of State for Energy and Climate Change and the former Scottish Government Minister for Business Energy and Tourism, but the Secretary of State had “refused to be drawn on her intentions for the Contract for Difference.”
87.Inadequate connections between the Scottish Islands and the mainland are a significant barrier to the growth of the renewables sector based there, including the development of emerging technologies. Given the excellent opportunities for wind, wave and tidal technology on the Scottish Islands, it is essential that infrastructure be improved to enable these sectors to meet their full potential. We understand that this will only happen if there is sufficient generating capacity coming online to justify the link, which requires a clear signal from the Government that it will support renewable projects located on the islands.
88.We recommend that the UK Government include Remote Island technology in the list of less established technologies which will be eligible to bid for funding in the next round of Contracts for Difference. Strike prices for this category should be set at a rate which will enable sufficient deployment to allow for improved transmission infrastructure to be installed between the Scottish Islands and the mainland.
89.Most renewable technologies only produce electricity under the right conditions—wind turbines only generate electricity when the wind is blowing, solar cells only generate electricity when the sun is shining, and tidal installations only generate electricity when the tide comes in or goes out. This means that the supply of electricity from these technologies is intermittent, and cannot be relied upon to supply electricity at the moment it is required. Several submissions to the Committee have raised concerns about the limitations of intermittent generators when it comes to providing a secure electricity supply.
90.The National Grid is responsible for making the necessary arrangements which ensure that electricity demand can be met by supply. This involves securing agreements with generators about producing electricity as needed, and stopping generation if supply is going to exceed demand. In terms of the impact renewable electricity generators have had on the UK’s security of supply, Kersti Berge, Head of Scotland at Ofgem, told us that the risks for security of supply were slightly higher than they had been in the past. She said that there had historically been very high margins, and the currents risks were within the Government’s targets for what was acceptable. National Grid told us that they were confident in the process they were following to achieve security of supply, and Ofgem were also comfortable that National Grid had the tools at its disposal to manage security of supply.
91.Dr John Constable, representing the Renewable Energy Foundation, told us that it was always going to be possible to guarantee secure supply, but the relevant issue was the cost of doing so. He noted that these costs had increased significantly over the past decade, as the deployment of intermittent generators had increased. He went on to say that because of these additional costs, the true cost to the consumer of electricity generated by renewable technology was higher than the costs of generation itself. Professor Iain McLeod, from the Institution of Engineers and Shipbuilders in Scotland, told us that there was a need to develop a clear plan for how the GB electricity system would accommodate the electricity mix which is expected in the future, and that supporting the deployment of renewable electricity generators in the absence of such a plan was unwise.
92.One of the key technologies which could mitigate the intermittency of renewable generators is electricity storage, as this allows electricity generated by renewable technology to be stored until it is needed. We have heard that the costs of this technology are at a level which most investors would find “prohibitive”, but that it is expected these will come down. National Grid has found there is significant interest in energy storage from potential investors, and Ofgem are working with the UK and Scottish governments to make sure that the regulatory regimes facilitate storage. The Scottish Minister for Business, Innovation and Energy recognised the opportunities for increased investment in storage, and said he looked forward to discussing the potential of this technology with UK ministers.
93.The Government has signalled that it intends to support innovation to strengthen the future security of supply, reduce the costs of decarbonisation and boost industrial and research capabilities. The 2015 Autumn Statement announced that funding for DECC’s innovation programme would be doubled to £500 million, although it is still not clear how this will be disbursed. Niall Stuart welcomed the Government’s focus on innovation, and the then Secretary of State’s “commitment to put significant financial investment into research and development in clean energy”, and noted that funding would be available to technologies in the renewables sector or for supporting storage, which created an opportunity to increase the levels of research and development in these areas.
94.In addition to the development of technologies, such as storage, which will support the increased deployment of renewable electricity generators, National Grid has also been looking at ways of influencing demand for electricity, so that large commercial electricity users can match their energy use to when electricity is cheapest, and so reduce the burden on the system during periods of peak demand. This would mean that less investment was needed in order to secure peak electricity demand, and has been recognised by the Committee on Climate Change as an important element of the UK’s response to meeting carbon emission targets.
95.We have also heard that increased integration with the European electricity network could help mitigate the costs of increased deployment of renewable electricity generators. Phil Sheppard, Director of System Operator Operations at National Grid, told us that access to a bigger electricity market meant it was less influenced by disturbances in generation. This reflects the views of the Energy and Climate Change Committee, which recently concluded that “interconnector expansion will help balance a low-carbon network”. The then Minister of State for Energy and Climate Change also acknowledged that “having access to other countries’ electricity is a good thing”, but stated that the UK still needed to secure its own energy supplies. The Minister told us that interconnections with the European electricity network would not necessarily be affected by the UK’s withdrawal from the EU, as the interconnections are commercial arrangements.
96.Increasing the proportion of Great Britain’s electricity which is supplied by intermittent renewable technology necessarily creates additional challenges for balancing supply and demand of electricity. However, these challenges are not new, and the operators involved are developing increasingly sophisticated means of balancing supply and demand whilst also accommodating an increasing proportion of renewable electricity. There is a lot more to be done to ensure that decarbonising Great Britain’s electricity generation mix does not jeopardise security of supply. Nevertheless, there is no reason that this cannot be achieved, with the right long-term strategy and policy framework.
126 Comhairle nan Eilean Siar ()
127 Energy and Climate Change Committee, , 1st Report of Session 2016–17, HC 267
128 Ofgem, , October 2015
130 Department of Energy and Climate Change ()
131 Scottish Parliament, Economy, Energy and Tourism Committee, , October 2015
132 Endrick Valley Action Group (), Lyndsey Ward (), ABO Wind UK Limited (), Mrs Pat Wells (), Hoolan Energy Ltd (), Scientific Alliance Scotland (), Renewable Energy Foundation (), Scotland Against Spin ()
134 Comhairle nan Eilean Siar (), Comhairle nan Eilean Siar (), Scottish Council for Development and Industry (), RSPB Scotland (), Hoolan Energy Ltd ()
135 WWF Scotland ()
137 Orkney Renewable Energy Forum ()
143 Scottish Government, , January 2015
144 Scottish Government, , March 2016
148 Department of Energy and Climate Change ()
149 Scottish Parliament, Economy, Energy and Tourism Committee, Renewable energy in Scotland,
151 Q250, Institution of Engineers and Shipbuilders in Scotland (), Scientific Alliance Scotland (), Scotland Against Spin (), Alison Chapman (), Brian Smart ()
158 ScottishPower ()
162 HM Treasury, , November 2015
165 Committee on Climate Change, , November 2015
166 Q365, Statkraft UK Ltd (), Vattenfall ()
168 Energy and Climate Change Committee, , First Report of Session 2016–17, HC 267
20 July 2016