Investment in the Electrical
121. National Grid told us that capital investment
to reinforce the onshore transmission networksthe wires
and pylons that carry electricity over long distancesto
accommodate 40% of renewable generation would cost around £3.5
billion. This included reinforcements to the transmission network
to accommodate an additional 10 GW of renewable generation in
Scotland, developments in Eastern England to accommodate up to
19 GW of offshore wind generation in the North Sea and an overhead
line in mid-Wales to accommodate an extra 1 GW of onshore wind
generation (p 127 and appendix 2; Q 267).
122. These figures cover only the cost of upgrading
the onshore transmission system. Laying cables along the sea bed
to connect offshore wind farms will be expensive. National Grid
expected the cost for the 19 GW of offshore windwhich it
views as necessary if the EU 2020 targets are to be reachedto
be in the region of £6-10 billion (Q 271). To connect
33 GW of offshore capacity to the Grid, Ofgem expected a cost
of around £10 billion which is at the more optimistic end
of National Grid's range of costs. Any of these figures would
be well above the amounts for local connection costs included
in the estimates of power station costs presented in Chapter 3.
123. National Grid's figures did not include
the costs of improving local distribution networks that may be
necessary in some areas to connect up the new generators. In areas
where renewable resources are plentiful, the distribution system
is often sparse, and new generation will trigger significant infrastructure
investment, in many cases including the construction of new overhead
lines. The Energy Networks Association described the provision
of infrastructure to accommodate 2020 targets as challenging (p 285).
124. The SKM study cited by the Government estimated
£10.2 billion would need to be spent in total on the transmission
and distribution networks. That is at the low end of National
Grid's range of estimates, despite the fact that SKM have included
distribution costs. But SKM's figures apply to 34% of electricity
coming from renewables while National Grid's are estimated for
a 40% share.
125. SKM calculated these transmission and distribution
costs would add a further 0.34 pence per kWh to the cost of the
renewable scenario, or 1.25 pence per kWh of wind generation.
Added to the other costs outlined earlier for balancing and security
of supply the renewable scenario would be 27% more expensive than
the conventional scenario, at 6.17 pence per kWh as opposed to
4.86 pence per kWh.
126. Table 4 gives our own estimates of the total
cost of moving to a high level of renewable electricity generation
in 2020. The top line of the table gives the predicted base cost
of generation in 2020, on the assumption that there is no further
increase in the share of renewable generation, taken from Table
3. The second line includes the cost of system balancing and consumers'
payments for the existing transmission network. The third line
gives our prediction for the total costs of generation and transmission
in 2020, with 6% of renewable power.
127. The rest of the table considers the additional
costs imposed by increasing the share of renewable generation.
First, there is the higher base cost of renewable generation,
from Table 3, which would add £4.3 billion. Second, there
are the costs of system integrationadditional balancing
and reserve costs, and extra investment in the onshore and offshore
transmission networks. We use the middle of the ranges given to
us by National Grid for balancing and transmission costs, and
the upper end of the UKERC range for reserve costs. These add
£2.5 billion to the predicted cost. In total, increasing
the share of renewable generation to 34% would raise the annual
cost of generation and transmission by £7.5 billion. In other
words, the cost of generation and transmission would rise from
4.7 pence per kWh of total output to 6.7 pence per kWh.
Predicted total costs in 2020 of electricity
generation and transmission with 34% of generation from renewables,
including allowance for back-up and grid integration