Examination of Witnesses (Questions 280
- 299)
TUESDAY 24 JUNE 2008
Mr Chris Bennett and Ms Nicola Pitts
Q280 Lord Lawson of Blaby:
The existing costing you gave us earlier is on the assumption
that there is nothing underground.
Mr Bennett: That is right; the exception
being the examples that were provided in our evidence. There are
the Scottish options that are being considered and you will see
that there are two options that are being considered there, one
is an onshore reinforcement that is overhead lines, the other
option that is being considered is actually cables offshore which
clearly is an alternative solution so we are looking at a range
of solutions offshore and onshore to get the power out of Scotland.
Q281 Lord Kingsdown:
In your written evidence you have said that you are committed
to developing new arrangements for access to the transmission
system. Do you have a preferred outcome from the Transmission
Access Review?
Mr Bennett: I suppose our preferred outcome
is a set of access arrangements which do facilitate the connection
of renewables so the role that we have been playing is very much
we have taken the work that BERR and Ofgem had instigated on the
transmission access reform and we have now proposed a suite of
modifications to the existing contractual arrangements to deliver
revised access arrangements. We believe the suite we put forward,
all of the options do better facilitate the connection of renewables
and we are currently going through with industry a process of
assessing all the various options and going through a cost-benefit
pros and cons analysis, and that is taking place this summer with
the aim that a final report with all the options fully costed,
with the pros and cons, will go to Ofgem by October/November of
this year so given the role that we are playing at the moment,
which is very much trying to facilitate a range of access arrangements,
all of which have the potential to facilitate the connection of
renewables, we would prefer to go through the assessment phase
and then having gone through the assessment that will then hopefully
give a steer in terms of which is the best model.
Q282 Lord Best:
You have partially answered my question but how much offshore
wind capacity did you include in your studies, how much would
it cost to connect this capacity to the grid and now a new dimension,
are the current rules governing offshore networks likely to lead
to an efficient pattern of investment or would you like to see
any changes?
Mr Bennett: As I mentioned earlier, our
assumptions in our studies at the moment for 2020 assume 19 gigawatts
of offshore wind connecting primarily on the east coast of England.
As I referred to earlier, if you look at the costs that are currently
being talked about for the Round 2 offshore regime, seven gigawatts
is estimated to be costing £2 billion, so our best estimate
at the moment for the offshore costs associated with connecting
19 gigawatts offshore would be anywhere up to £10 billion.
As far as the regime associated with the offshore networks is
concerned, it is difficult to say at the moment that the regime
as proposed will necessarily lead to an efficient level of investment.
Why do I say that? I say that for two reasons: one is you need
to ensure an optimal network design offshore and that then triggers
the question do you just build for piecemeal investment for each
gigawatt or do you oversize certain cables to think for the future
requirements of those cables? The second challenge is ensuring
that when we bring the offshore network together with the onshore
network the two map across in a fully efficient manner. We have
therefore got some concerns with the current approach of competitively
tendering for the offshore regime and there is a risk that we
will end up with piecemeal offshore investments and the onshore
transmission owner will not necessarily know where the network
is going to land. We think further debate is therefore required
on the optimal design to ensure that you get a fully co-ordinated
network both onshore and offshore, and we are currently having
those discussions with Ofgem and BERR.
Q283 Lord Griffiths of Fforestfach:
Given that planning permission is going to be difficult in extending
transmission lines onshore do you think that building a viable
offshore network is possible? If it is, how much more expensive
would it be compared to an onshore expansion?
Ms Pitts: The cabling offshore that would
be used to reinforce the network and the estimations that we have
made on the maps with the two lines coming down from Scotland,
the actual cabling is cheaper than it would be to do onshore overhead
lines; what is more expensive is the converter stations each side
so there is a scale issue here and once you get to a cable length
of around 250 kilometres then the economics are very similar so
it would be more advantageous to do that offshore but you do need
that length of cable to enable that, so it is not really possible
to do shorter versions of cable, that would be a more expensive
option.
Q284 Baroness Hamwee:
Lord Lawson referred to the scale of the engineering project;
what about capacity in the construction industry which is something
one worries about in other contexts. Is this likely to be an issue?
Ms Pitts: It is a big issue for us and
we are already investing a huge amount in the transmission system
which is reaching 40 years of age.
Q285 Baroness Hamwee:
The issue is the distinction between renewables and other investment.
Ms Pitts: One of the things that we have
had to do is create partnerships with our supply chain so that
we can ensure that we have got the materials and the labour in
place, so some of those arrangements mean that we have to contract
quite far ahead to enable us to secure the resources that we need
and when you look at a situation where the whole of Europe is
obviously trying to get to an increased renewables target then
we very much will be competing with the rest of Europe so the
sooner that we have certainty around the scale of the challenge
that we have to face and what proportion the Government is going
to incentivise offshore the better we can make those plans.
Q286 Baroness Hamwee:
Are there distinctions we should be aware about as to whether
if you are creating an offshore wind farm in the north of Scotland
or further south in the North Sea or whatever there is a loss
in transmission the further the distance from concentrations of
population, or is that just an irrelevance?
Ms Pitts: Because the transmission system
is there to bulk transfer it is actually a fairly efficient way
of doing it and so the losses are only about 1.5 per cent, so
the smaller the lines the more losses you get. On the distribution
system they are around five per cent.
Q287 Lord MacGregor of Pulham Market:
How much allowance have you taken in that £3.5 billion estimate
for increased costs because I quite take the point that costs
are rising all the time.
Mr Bennett: It is fair to say that that
£3.5 billion at the moment is a pretty rough estimate. I
referred earlier to the work we are doing with the Scottish transmission
owners to really look at both the deliverability issues, the supply
chain issues, some of the other things that have been mentioned
and the cost. £3.5 billion is our best estimate at the moment
with the costs that we are aware of, but clearly there are uncertainties
around the costs at the moment.
Q288 Lord Paul:
How serious are the constraints on the transmission system likely
to be as shown by your studies? How often would you have to reduce
output at some stations in order to keep the power flows within
safe limits and how much would it cost you? Would you ever have
to "spill" wind energy because of transmission constraints?
Mr Bennett: The studies that we are undertaking
try to develop a transmission system to ensure that there is not
a huge increase in transmission constraints, so we are trying
to design a network and the investment that we have spoken about
is to try and avoid a massive increase in constraints. On the
basis of the investment that we have talked about we would not
expect a massive increase in transmission constraints. Just to
put it in context, if you however decided that no reinforcement
was required out of Scotland and we would cope with the current
system capability, also include in that assumption plans in place
at the moment to allow a transfer capability from Scotland into
England of 3.3 gigawatts. If no investment was undertaken and
you assumed the 10 gigawatts of renewables did connect in Scotland
you could get to constraint figures of between 500 million a billion
per year if you did not do the reinforcement, so we are trying
to design a system that has sufficient investment there such that
the wind can generate. Our view is that if you did not do the
investment there are real risks of having to constrain off plant
and there is a question then whether you constrain off renewable
plant or whether you constrain off the conventional plant, but
our analysis at the moment tries to keep transmission constraints
at the moment on the system around about £100 million. We
would foresee, even with putting the investment in place, transmission
constraints probably going up a bit because it is more difficult
to co-ordinate outages with wind farms than with conventional
plants, so we would expect to see an increase in transmission
constraints but there would be a large increase in transmission
constraints if we did not undertake the investment in our view.
Q289 Lord Paul:
What is the confidence level of this study?
Mr Bennett: As far as the constraint
costs are concerned, reasonably confident. As I say, at the moment
we are currently incurring costs of around about £100 million
a year, primarily in Scotland because we are currently taking
out part of the transmission system to reinforce it to enable
the renewables to connect, so the capability of the system is
temporarily reduced while you are taking outages to actually do
the system reinforcement, so we have got a reasonable history
of costing constraints and seeing what the costs of constraints
are over the last few years.
Q290 Chairman:
Can I take you back to the point about the loss of power over
a distance as I would like to understand that 1.5 per cent. If
we were talking about taking power from the north of Scotland
with the big wind farms there down to London, would you expect
a 1.5 per cent loss or would it be greater?
Ms Pitts: That is the average loss on
the system and you have to remember that there is quite a lot
of investment that will be happening in the south of the country
as well. It is not that all the power will be in the North.
Q291 Chairman:
I know what you mean; you were talking about an average and that
is what I was trying to get at. Is power loss not a function of
distance?
Mr Bennett: Yes. As a supplementary question
it is probably fair that we follow it up: if the average is one
per cent what are the differences in terms of the north of Scotland.
We could happily follow that up.
Chairman: That would be very useful.
Q292 Lord Macdonald of Tradeston:
On that is there a choice then between a DC-based system and an
AC-based system in terms of efficiencies? Are you looking at that
at all?
Mr Bennett: We are. One of the options
of the reinforcements from Scotland at the moment is looking at
DC links so we are looking at those areas.
Q293 Baroness Hamwee:
How much short-term reserve capacity do you normally require for
fluctuations and failures—outages—and so on and can
you tell us what the costs are associated with that, how much
you have to pay for that and how much reserve you would require
if renewables were to provide 40 per cent of our supply?
Mr Bennett: In our role as residual balancer
we look to procure sufficient short-term reserve to cover the
period from real time to four hours out, and obviously, the market
itself is incentivised to balance in longer timescales. In our
role as residual balancer we currently hold approximately 3.5
gigawatts of reserve in this period from real time to four hours;
that is roughly broken down to about one gigawatt that deals with
immediate frequency response, which deals with the loss of a major
generator, and then 2.5 gigawatts of stand-in reserve that can
then be used to replace the energy lost by the generator. We currently
hold 3.5 gigawatts therefore and the combined cost at the moment
of the reserve that we hold and the frequency response that we
hold is about £300 million. If you now roll forward to a
world with perhaps 40 per cent renewables, the main area where
we would anticipate requiring additional costs is in this stand-in
reserve, it is in this period out to four hours the uncertainty
and unpredictability of wind would probably mean that we would
be looking to hold additional reserve. Our initial estimates have
suggested that we could be looking to hold between seven to ten
gigawatts of reserve. To put a cost on that, the overall additional
costs of balancing the system could be in the region of £500
million to £1 billion a year, but just to put that in the
context of a customer bill that probably equates to between £6
and £12 on the end consumer's bill because obviously transmission
is a small element of the final consumer bill.
Q294 Lord Lawson of Blaby:
How do you hold the reserve?
Mr Bennett: You hold it on generating
plant, partially from part-loaded generating plant but we also
do hold some reserve on the demand side, so the likes of Anglesey
Aluminium we hold demand on that. It is a mixture, therefore,
of part-loaded generating plant—
Q295 Lord Lawson of Blaby:
Do you have your own generating plant?
Mr Bennett: No, this is the market. We
procure with the market for them to effectively hold that capacity
ready for us to call them. As I say, there is also some demand
side response as well.
Q296 Baroness Hamwee:
Can I just pursue that, is the £500 million on top of the
£300 million?
Mr Bennett: Yes, it would be additional
costs of £500 million to £1 billion per annum.
Q297 Lord Lamont of Lerwick:
A similar question, how much capacity would you need in total
to meet peak demand and have an adequate plant margin if we assumed
40 per cent of electricity coming from wind power specifically.
What proportion of this would really be used and would you need
to make additional payments to ensure that the owners were willing
to keep it available in all circumstances?
Mr Bennett: It is not National Grid's
role to ensure that there is sufficient plant margin, it is for
the market to determine how much generation is required to balance
their end positions, but the studies that we have undertaken under
this 2020 scenario with a big penetration of wind has got an assumption
of total generation capacity of 99 gigawatts against a peak demand
of 61 gigawatts so that would give on the face of it a gross plant
margin of 62 per cent, but as I am sure you are aware there is
then a debate of what can you assume the contribution is of wind
on a peak day, so there have been various studies with the industry
about what contribution should you assume from wind which varies
anywhere from 60 per cent to 20 per cent. If you took a 20 per
cent contribution assumed by wind that would get you to probably
an effective plant margin of 22 or 23 per cent, and just to put
that in context, the current plant margin that we operate to is
26 per cent. In that world, in the study that we have done, there
is the question of other generation that is running. If you have
30 gigawatts of wind and you assume a load factor of, say, 35
per cent of that, you would have ten gigawatts of renewable wind
generating and there would still be a big percentage required
of conventional plant to meet the average demand which is, say,
39 gigawatts. We believe with that penetration of wind you have
still got a substantial need for conventional plant to meet the
overall demand requirement because of the load factor of wind.
Q298 Lord Lawson of Blaby:
When you say conventional plant do you mean either conventional
nuclear or do you mean conventional?
Mr Bennett: It is the combination of
gas, coal and nuclear. In our studies that we are starting to
do, rolling out to 2030, because of the broader CO2 ambitions
we are looking at increased nuclear capacity and therefore we
are looking at the combination of nuclear plant and renewables
and how you operate the system with a large degree of renewables
and nuclear.
Q299 Lord Griffiths of Fforestfach:
As we turn out these very large numbers of investment are we right
to assume that they will be entirely financed in the private sector?
Mr Bennett: That should be the working
assumption.
| 
