The Economics of Renewable Energy - Economic Affairs Committee - Contents


The industry is currently assessing longer-term changes to the organisation of transmission access. National Grid told us that it is developing three proposals (p 129). The first is to move away from a philosophy of "invest then connect" to one of "connect and manage". Rather than waiting for distant reinforcements to the grid to be completed, the transmission companies would connect a new generator as soon as the local system was capable of accepting its output. If constraints elsewhere on the system meant that from time to time the generator's output could not be accepted, the station would have to be "constrained off", and would be compensated for the fact that it could not sell its power.

The second proposal involves the short-term trading of access rights between generators. This would allow a wind farm to connect to the system with access rights to sell only a proportion of its potential output, if that was all that the grid could accept. If the wind is strong and the wind farm could generate more than this proportion, it would find another generator (which would probably have to be in the same area) that was not using all of its access rights, and buy the surplus. Since the conventional stations would not all be needed when the wind was strong, there should in principle be rights available, and this would allow stations to share transmission capacity.

The third proposal is to bring in a series of auctions for long-term capacity rights. Ofgem told us that if generators have to make a clearer financial commitment of their future demand for capacity, this would give National Grid a lot more information about generators' demand for access to the network (p 176).

A number of companies commented on this review. A key concern of EDF Energy is that the Transmission Access Review primarily introduces measures to improve short term allocation efficiency which could in turn increase long term uncertainty for market participants, and undermine long term investment in both generation and transmission. In the company's view, the core issue is the scarcity of transmission capacity, and so securing this capacity and utilising it well must remain the prime objective of the review (p 174).

Renewable Energy Systems UK and Ireland Ltd argued that "giving priority access for connection and production to renewable energy capacity means not doing so for centralised fossil plant. It is essential to overcome resistance from the affected incumbents. Renewables must have priority grid access and dispatch. Shared access rights and flexible security of supply rules need to be introduced" (p 436).

E.ON argued that the reform of transmission access arrangements will need to balance the need to connect new renewable generation and the need to avoid imposing additional costs on the system by constraining off thermal and fossil plant which National Grid then has to compensate (p 108). The Renewable Energy Association argued that renewable generators should be given priority access and dispatch rights, and that this was likely to become law under the forthcoming EU Renewable Energy Directive (Q 161).

At present, if National Grid cannot accept a station's output because of constraints on the transmission system, the generator is required to buy back its output in the Balancing and Settlement Mechanism, the short-term electricity market. A conventional generator would normally be willing to pay any price that is less than the costs it would save by not generating (which would be dominated by fuel costs) in order to buy back its power. A wind station, however, incurs very few variable costs when it generates, and gives up income from the sale of Renewables Obligation Certificates. It might therefore ask National Grid to be compensated for giving up this income, effectively offering to buy back its power only at a negative price. In other words, National Grid would be paying the wind farm not to generate. In such circumstances, it would obviously be more economic to find a conventional plant to constrain off instead, but this might not be possible, if none was in the same (constrained) part of the grid, or all the stations there were required for balancing purposes. We are therefore uncertain that priority dispatch rights would have a significant impact in practice, given the current system of constraint payments.

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