Memorandum by National Grid
INTRODUCTION
1. National Grid plc owns and operates the
high voltage electricity transmission system in England and Wales,
and as Great Britain System Operator (GBSO), we operate the Scottish
high voltage transmission system. National Grid also owns and
operates the gas transmission system throughout Great Britain
and through our low pressure gas distribution business; we distribute
gas in the heart of England, to approximately 11 million offices,
schools and homes. In addition National Grid owns and operates
significant electricity and gas assets in the US, operating in
the states of New England and the state of New York.
2. In the UK, our primary duties under the
Electricity and Gas Acts are to develop and maintain efficient
networks and also facilitate competition in the generation and
supply of electricity and the supply of gas. Our activities include
the residual balancing in close to real time of the electricity
and gas markets.
3. Through our subsidiaries, National Grid
also owns and maintains around 18 million domestic and commercial
meters, the electricity Interconnector between England and France,
and a Liquid Natural Gas importation terminal at the Isle of Grain.
4. National Grid is pleased to have the
opportunity to contribute to this inquiry. Our submission will
deal with:
— the ability of changes to the transmission
access regime to increase the amount of renewables in the Great
Britain fuel mix;
— the need for planning reform to speed
up delivery of energy infrastructure; and
— issues with the current regulatory
regime.
BACKGROUND
5. The European Commission has outlined
in its package of measures to deliver a reduction in carbon emissions
of 20% and a 20% share of final energy consumption from renewable
sources by 2020. This target breaks down by Member State and by
sector. UK power generation is likely to have a target of around
40% of electricity produced from renewables.
6. Great Britain's current electricity generation
mix is heavily reliant on carbon based fuel. Coal and gas currently
provide over 70% of the primary fuel source for electricity generation,
with nuclear providing around 20%. Electricity generation from
renewables sources is currently around 2%.
7. Over the next 12 years to 2020, much
of this generation infrastructure will reach the end of its engineering
and economic life and will require replacement. The impact of
the Large Combustion Plant Directive will see much of the heavy
carbon based plant come off the system, while the case for replacement
of the current nuclear fleet has been made elsewhere; it is worth
reiterating that by 2020, even with life extensions, much of the
current nuclear plant will need to be replaced by new generation
plant.
CURRENT PROGRESS
AND EXISTING
OBSTACLES TO
THE INCREASED
USE OF
RENEWABLE ENERGY
SOURCES FOR
THE GENERATION
OF ELECTRICITY
8. The current installed electricity generation
capacity in Great Britain is around 77GW, with peak demand between
55GW and 60GW. Since the privatisation of the electricity industry
in the early 1990's over 22GW of new electricity generation has
connected to the high voltage transmission system. This is a significant
churn and compares especially well with other countries.
9. Since the introduction of the British
Electricity Transmission and Trading Arrangements (BETTA) in 2005,
unprecedented numbers of applications to connect to the system
have been processed. National Grid, as Great Britain System Operator
has made around 170 offers to connect to the transmission system,
with connection dates to 2015 and beyond. Throughout Great Britain,
we are currently managing 47GW of signed connection contracts
for new generation. 16GW of this is for renewable energy projects—7GW
of which is in England and Wales and 9GW is in Scotland.
10. Planning consent is the most significant
blocker to the timely connection of these projects and the development
of network capacity to accommodate the transfers around the system.
Of contracted wind projects in Scotland only 16% has consents
and only 23% across Great Britain. We fully support reform of
the planning regime and in particular the proposals that the Government
have come forwards with which will allow more certainty in shorter
timescales in the delivery of essential transmission infrastructure
to deliver power from point of production to end use.
TRANSMISSION ACCESS
REVIEW11. Changing the arrangements
for access to the transmission system is a key element of the
work National Grid is undertaking to increase the amounts of renewable
electricity in Great Britain. We are playing a pivotal role in
driving this forward with BERR and Ofgem within an industry wide
discussion on reform of the current transmission access arrangements.
There are currently three proposals; "Connect and Manage"
(whereby the user pays for additional system management costs)
"Connect and Socialise" (whereby the costs of connecting
are spread across all industry participants) or an auction of
existing rights. Two of the most significant issues are: Who pays
the cost of the connection, and; who owns the property rights
in the existing capacity? This is an issue that all of the industry
as well as National Grid and Ofgem need to consider and so consideration
through the appropriate governance arrangements is essential.
We have put forward modifications to the industry code and these
modifications proceed according to plan changes to the access
system could be delivered by the end of 2008.
REGULATORY REGIME
12. The change in fuel mix to accommodate
40% of renewables by 2020 will mean a locational and geographic
shift in where electricity is generated and where it needs to
be transported from. The network in areas where renewables, especially
wind, are most abundant either does not exist, such as offshore,
or has only been built to serve small amounts of demand, such
as in the Highlands and Islands of Scotland. This will require
significant investment in the transmission system to both connect
locally and to upgrade the wider system to accommodate larger
flows.
13. One of the major issues that National
Grid is concerned with is whether the current regulatory regime
will facilitate the scale of investment in the timescale required.
The regulatory regime currently requires firm financial commitments
from users who trigger infrastructure investment before National
Grid can effectively start construction work. This regime has
served Great Britain's energy markets well since privatisation
where there has been relatively little need to increase transmission
capacity on a large sale basis, and an incremental approach has
been fit for purpose.
14. This transmission investment still needs
to be carried out in the most economically efficient way to ensure
consumers are protected, given that other factors within the market
are increasing the wholesale energy prices are rising. However,
given the scale of the challenge and the short time that the industry
has to deliver solutions, new approaches need to be harnessed.
One example could be "no regrets investment", whereby
the regulator and network companies consider what network developments
are likely to be required ahead of definite and confirmed customer
needs to upgrade and reinforce the network. Such an approach is
rare but not without precedent. National Grid is in active discussions
with Ofgem around different regulatory models to ensure that the
required investment is made in order to help deliver renewables
and ensure security of supply is maintained. One key issue to
be worked through is the effect any changes may have on the risk
and reward profile under new regulatory models and how this impacts
upon the wider market and upon consumers.
OFFSHORE TRANSMISSION
REGIME
15. Due to limited space and planning considerations
onshore, the bulk of the renewables needed to meet the EU target
will need to be accommodated offshore. It is, therefore, critical
that the Government get the offshore regime right. Ofgem and BERR
have proposed a competitive tender approach to appoint Offshore
Transmission Owners, ie the companies that will make investments
and build transmission infrastructure to connect offshore windfarms,
in order to deliver a regulated solution that introduces competitive
benefits to end consumers. This will encourage single radial links
for windfarms, rather than co-ordinated offshore networks to develop.
While at the time this decision was made this was an appropriate
solution and fit for purpose, clearly the picture has changed
significantly since then, most significantly with the EU targets
for c.40% renewable generation by 2020 and BERR's announcement
of their aspiration for around 30GW of offshore renewables to
be in place by 2020.
16. However, National Grid does not believe
that the proposed regulatory regime for offshore transmission
can deliver the UK Government's aspirations. The proposed regime
is overly complex with many areas of the regulatory arrangements
still uncertain and undecided. Further, we do not share the Ofgem/BERR
view on the consumer benefits in terms of cost reductions that
this regime will produce. In National Grid's view, the deployment
of simple, co-ordinated, regulated transmission build is a more
effective approach to help meet the significant challenge which
is ahead of us in the next 12 years. The quickest, simplest and
most effective option is to extend the current regulated onshore
transmission franchises offshore, but other options are available.
17. That said, National Grid has a key role
to play as Great Britain System Operator and has a significant
responsibility in delivering any offshore transmission regime,
as well as many other key programmes which will be critical to
the delivery of renewables. We are absolutely committed to supporting
the Government and BERR in the delivery of any regime that they
choose.
23 April 2008
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