CHAPTER 6: interconnection and energy
161. In its November 2012 Communication on making
the internal energy market work, the European Commission re-iterated
the requirement that, by 2014, cross-border markets for gas and
electricity must be up and running across the EU and the implementation
of plans to modernise and smarten EU grids should be well under
way. The Commission
recognised, however, that Member States are not on track to meet
the 2014 deadline. An important way in which greater integration
of markets can be facilitated is by further developing energy
interconnection between Member States.
162. Most of the evidence that we received on
interconnection focused on electricity. The Commission highlighted
that, whilst levels of electricity interconnection are evolving,
the levels of interconnection between the UK and mainland Europe,
and between the Iberian Peninsula and mainland Europe, are much
more limited than, for example, the 20-30% of interconnection
between Belgium and the Netherlands.
163. Ofgem confirmed that it is seeking to facilitate
greater interconnection between the UK and other countries, noting
that it has "consulted on and developed a regime to try to
facilitate more interconnection".
We heard from ENTSO-E that, for interconnectors, there has been
a "soft target" of 10% for interconnectivity across
Member States for some time, on which it noted progress has been
made. It was noted
however, that there have been problems of interconnection within
some Member States as well as between them. Ofgem stated that
in some countries there are issues relating to congestion, such
as is the case in both the south of England and Norway,
where the existing onshore grid would need strengthening to accommodate
major trade flows.
The most commonly cited example of interconnection issues within
a Member State was Germany, whereby northern German wind energy
is transmitted to the south of Germany via neighbouring countries
(see paragraph 177).
164. Greater interconnection, it was argued,
could help with the reduction of costs, particularly by making
more efficient use of renewable energy. Mr Tindale claimed
that increased interconnection would enable the use of the intermittent
renewable energy sources that are currently being wasted due to
the lack of a grid to take them anywhere.
On an EU scale, Mr Tindale suggested that solar energy could
be transported from southern Europe to northern Europe, and wind
generation from northern Europe to southern Europe.
Other witnesses, such as WWF, agreed that increased interconnection
could reduce costs and provide opportunities.
165. The Committee explored the practicality
of transferring energy large distances across Europe, and was
informed that the current capacity of the EU grid is generally
at a maximum of 400 kilovolts (KV).
ENTSO-E noted that, in order to transport electricity at the extent
required to tackle renewable intermittency, higher voltages will
be necessary. National Grid explained that whilst the 400 KV was
deemed appropriate for the existing Alternating Current (AC) systemgiven
the size of the UK and other EU Member Stateshigher voltages
would be needed for much longer distances (such as is already
the case in countries such as the US or China).
If pursued, this would require significantly higher pylons than
are currently used.
166. National Grid noted that High Voltage Direct
Current (HVDC) lines can be used to transfer electricity efficiently
across such long distances without voltage restrictions. One such
example was the new 600 KV underwater HVDC line down the west
coast of the UK from Scotland to northern Wales.
ABB Limited informed us that it recently completed the East-West
interconnector project, enabling the transfer of power between
the UK and Ireland, which is the first such interconnector project
in the UK to use "innovative HVDC light technology to transfer
large amounts of power at low loss levels".
167. In terms of costs, National Grid informed
us that one kilometre of high-capacity 400 KV AC overhead line
costs approximately £1.5-2 million, while the cost for placing
them underground is around 10 times higher. HVDC, meanwhile, is
comparable to AC overground, and cheaper underground, but requires
converter stations at each end. A one GW HVDC link, for example,
would incur costs of approximately £200 million per station.
It was noted that, overall, HVDC was more economical over a long
168. It is cost-efficient and urgent to develop
electricity interconnections between Member States in order to
support both the further deployment of renewable energies and
attempts to secure the EU's energy supplies. We conclude that
the full benefits of interconnection will be derived only from
greater deployment of HVDC lines, allowing electricity to be transported
over a long distance at an economical cost.
Visions of the future grid
169. There were alternative visions for future
grid development. One suggestion was through a 'supergrid'. National
Grid's generic definition of a supergrid was: "a European
grid with much interconnection and much more capacity to move
power between countries".
Others envisioned a future supergrid allowing multiple different
energy sources to be drawn onfor example, balancing the
biomass in central Europe, hydro in the Nordic regions, offshore
wind in the North Sea and solar in southern Europe.
This position was recognised by the Commission, who commented
that "the bigger the grid, the more likely it is you will
be able to manage diversified sources of energy across that grid
by different technologies".
Although acknowledging political consensus would be required,
Mr Zenghelis commented that an integrated and efficient supergrid
could allow for more efficient investment.
170. There was, however, a view expressed that
the European grid should be developed incrementally, rather than
on the basis of a defined plan, with the proviso that the different
spokes could be linked together in the future. The Commission
referred to this as being "grid-ready", with the different
elements capable of being part of something bigger.
There was some support for this option. National Grid mentioned
the idea of an 'overlay grid', which it described as a "step
along the way" to a supergrid, potentially starting off with
one or two large HVDC links.
Ofgem also noted that its initial studies suggested that a "radial"
(that is, incremental) system would be more effective than "meshing
the grid", citing the connection of nine offshore wind farms
in 2012, of which six were in the UK.
171. A different vision was outlined by Mr Froggatt
who described a "much more distributed system"
that involved more local balancing.
National Grid also alluded to similar systems, suggesting a future
that might include micro production and domestic generation, indicating
less need for a supergrid and more need for "micro-grids",
a prospect that was supported by Ofgem.
The IET considered that an energy market in distributed generation
connected at distribution level "is conceivable" but
would require considerable work given the small scale of such
generation and the burden of complexity for very small players
to engage in a market-based system. Developments in storage and
aggregation services could, however, assist with this process.
172. Several witnesses also discussed the development
of a North Sea grid, which is evolving through the North Seas
Countries Offshore Grid Initiative and of which Ofgem and the
Agency for the Cooperation of Energy Regulators (ACER) (the pan-EU
body for energy regulators) were involved in the establishment.
National Grid explained that there was significant potential in
the North Sea to develop a grid that will allow maximum benefit
to be derived from offshore wind.
An existing challenge, however, is that interconnectors have onecurrently
evolvingregulatory regime, whereas offshore transmission
has another. Ofgem cited their Integrated Transmission, Planning
and Regulation (ITPR) project, which is currently looking at "all
of these challenges about how different bits of transmission and
interconnection could be co-ordinated".
173. We agree with our witnesses that an increasingly
interconnected grid will need to be developed incrementally, rather
than on the basis of a top-down grand plan. Nevertheless a stronger
element of network planningnationally and regionallycould
be very beneficial in the transition to a more renewable-based
and secure system. The move to greater interconnection is not
incompatible with the development of distributed generation, but
the potential offered by distributed generation must be recognised
more clearly in energy strategies.
Energy Infrastructure Regulation
174. An important recent development has been
the agreement on a new trans-European Energy Infrastructure Regulation,
which has three key aims: to identify major strategic lines of
interconnection (Projects of Common Interest (PCIs)); to reduce
planning procedures to three and a half years with a possible
extension to four years and three months; and to ensure that national
regulators act together to create favourable conditions for
PCIs to be financed (through the new Connecting Europe Facility
(CEF) and private finance).
Several witnesses, including Mr Tindale, Mr Froggatt,
Professor Peter Cameron and the Commission, agreed that the
proposed planning procedure deadline was a particularly helpful
proposal to prevent long delays.
The issue of financing was explored in Chapter 2, including through
the EIB. We heard support for the use of the new CEF to help finance
the PCIs, and witnesses were agreed that overcoming permitting
delays was very important.
175. We welcome recent agreement on the trans-European
Energy Infrastructure Regulation, which identifies PCIs and establishes
common rules on permit granting procedures. The Regulation must
now be implemented with urgency.
176. Public acceptance is a major determinant
of existing policies and proposals. The Committee noted the abrupt
reversal of policy to nuclear production in Germany in line with
public concern. Public acceptance can be particularly problematic
in relation to the development of infrastructure. The Commission
named an example of this as the construction of overland electricity
link across the Pyrenees, which has been under discussion and
delayed for over 30 years.
Given the public opposition, it seems likely that an underground
link will now be constructed instead, but at a significantly greater
also recognised that public acceptance was one of the main obstacles
to making progress with physical assets, particularly compared
to the past, noting that there is perhaps "not the same consensus
around the public acceptability of what benefits the investments
177. It was therefore considered imperative by
witnesses to demonstrate to the public that failure to undertake
certain projects would have significantly high costs, highlighting
in particular the difference in costs between overground and underground
cables. One way suggested to achieve more effective communication
was through a long-term strategic plan demonstrating that new
lines were linked to overall energy policy goalsnamely,
climate protection, renewable energy integration, security of
supply and market integration.
Public resistance could also pose a problem from within Member
States. In Germany, for example, more than 30 GW of wind energy
from northern Germany must be transported to southern Germany
by utilising surrounding networks of neighbouring countries to
the east (such as in Poland and the Czech Republic). Despite plans
to build north-south lines within the German grid to retain more
of that power, public opposition "has delayed this for many
In another example of attempts to overcome the issue of public
resistance, WWF referred to its involvement in the Renewables
Grid Initiative, in which it works with 14 non-governmental organisations
and 11 Transmission System Operators (TSOs) (organisations equivalent
to the UK's National Grid) to examine ways of overcoming "bottlenecks"
in infrastructure development that are also acceptable to the
178. We acknowledge that public concerns can
be a significant obstacle to the development of interconnections.
In that context, the public awareness dimension of EU energy policy
becomes pivotal: a local decision can have significant pan-European
implications in terms of energy cost and energy security. The
Commission must consider as part of its future policy framework
how it and Member States can work together to communicate effectively
the benefits of cross-border energy connections. We agree that
providing a clear indication that a project is part of a strategic
transition towards an increasingly interconnected grid could help
overcome local objections to projects. Early engagement and consultation
with the public and other interest groups is similarly important.
The Renewables Grid Initiative, involving environmental NGOs and
TSOs, is a welcome attempt to tackle the public awareness issue.
179. The Committee received mixed messages on
the extent of regulatory obstacles to the further development
and effective management of an interconnected grid. The Commission
observed that national regulators can, in some instances, act
as an obstacle. Although ACER exists to coordinate national regulators,
there are instances where they disagree on the amount of money
operators can earn on interconnections. For example, the transfer
of cheap gas from Germany to Denmark was restricted by the German
regulator because there was insufficient analysis on the impact
of such projects on German consumers.
There is a need, therefore, for a combined analysis of the costs
and benefits to both sides of borders. A further obstacle identified
by ENTSO-E related to commercial tensions as, in some Member States,
interconnections are the role of national TSOs, whereas the UK
regulatory approach is designed for competitive 'merchant' investors,
meaning that compatibility between the regulatory systems needs
to be found.
180. ACER, National Grid and Ofgem argued that
they were all working to overcome these obstacles. Ofgem pointed
to the swifter development of offshore wind in the UK compared
to Germany as evidence of the emerging success of a streamlined
system. Despite huge ambitions, Germany only had one offshore
wind farm fully connected to the grid in 2012, which Ofgem claimed
was because of "delays from the incumbent TSOs".
ACER, however, observed that whilst its tasks and responsibilities
have already been expanded on a number of occasions by the EU
institutions, this has occurred without a similar expansion in
its budget, leaving ACER insufficiently financed to fulfil all
of its tasks effectively.
181. In line with the third internal energy market
package, under which ENTSO-E was created, network codes have been
developed to assist the management of interconnection. Network
codes are now being applied. These codes will establish common
rules to enable network operators, generators, suppliers and consumers
to operate more effectively within the market. A further challenge
will be the effective integration of retail and wholesale markets,
with a smart grid approach.
182. There remain economic and regulatory
obstacles to integrated interconnection and transmission, which
are crucial to the completion of the internal energy market. We
encourage Member States to support regulators, through ACER, and
TSOs, through ENTSO-E, in their efforts to overcome those obstacles.
A review of budgetary support to ACER in particular would be helpful
to ensure that it has a sufficient budget to allow it to deliver
its important role. The ultimate goal of more effective regulatory
cooperation must be a pan-EU energy market, working for the benefit
of EU consumers.
183. Interconnection of gas supplies is an important
consideration in relation to both Member State and EU energy security.
Energy companies using gas pipelines to transport gas often use
much less capacity than they have reserved, preventing other parties
from using the pipelines efficiently. As a consequence, in 2012,
the Commission adopted Congestion Management Procedures to ensure
increased efficiency in gas pipeline capacity.
184. Furthermore, gas corridors are critically
important with a view to energy security, as noted by the Commission,
which explained that there is continued emphasis "on the
development of a pipeline to the Caspian region: Azerbaijan, eventually
Turkmenistan, and perhaps southwards towards Iraq".
E.ON also pointed to the development of gas corridors to the EU
in order to improve security of supply.
185. In commenting on the role of gas in relation
to energy security, Professor Cameron noted how Bulgaria,
for example, is 100% dependent on Russia for its gas, and Mr Froggatt
agreed that Russian gas dependency was a key issue.
Although any suggestion that Russia might hold the EU to ransom
was rejected by Professor Stern,
such high levels of dependency leave countries vulnerable in the
event of other disruptions (such as the Russia-Ukraine dispute
over pricing in 2009). DECC noted that, following the disruption
of gas supplies from Russia to the EU in 2009 as a result of Russia's
dispute with Ukraine, investments in physical infrastructure were
being made to enable gas to flow more freely around the EU. This
would ensure that, in times of shortage, gas could flow where
it was most needed.
186. The development of liquid natural gas (LNG)
was highlighted as a potentially important method to help ensure
greater energy security. This technology allows gas to be transported
via tankers and does not rely on fixed pipelines, meaning that
it can be transported with greater ease; this could therefore
result in less dependency on individual countries. Mr Froggatt
stated that LNG "brings energy security in a way you do not
have just with pipelines", and further noted how the LNG
markets in the UK and the Netherlands, for example, were already
developing at a quick pace.
That said, a possible drawback of LNG is that as the fuel can
be transported with increased ease, it can be delivered (or diverted)
to countries where the price is more attractive. This is a particular
concern with regards to the Asian energy market, where gas commands
a higher price than Europe and where demand for gas increased
after the Fukushima incident in 2011.
187. The storage of gas plants was also highlighted
as a key issue, notably for the UK, which only has storage capacity
of "4% of average annual consumption".
This is of particular concern when the UK figure is compared with
the capacity of other European countries such as Germany and France,
which are 21% and 24% respectively.
This point was stressed by Professor Stern, who emphasised
"that we do not have nearly enough storage in the UK",
either for short-term disruptions or for strategic disruptions,
and especially for a market the size of the UK.
The House of Commons Energy and Climate Change Committee reported
in 2011 that increased storage capacity is necessary if gas is
to be used as a transitional fuel.
188. There are considerable financial and
political uncertainties as to the sources and costs of future
gas supply. It is clear that a range of sources and methods of
transportation are critical. We support the Commission's attempts
to improve efficiency in gas pipeline capacity. We urge the UK
Government to examine the potential for a regulatory framework
to increase gas storage.
189. The UK and other Member States are proposing
to introduce capacity mechanisms, whereby suppliers would be paid
(following a competitive tendering process) to assure a supply
of electricity. E.ON highlighted to us that, in addition to the
UK, France, Spain and Italy have all introduced (or are introducing)
capacity mechanisms of different types, to "ensure sufficient
fossil plant remains in operation or is built where generation
is increasingly taken up by intermittent wind generation".
In the UK case, this would largely be applied through gas-powered
generation, and has been proposed in the Energy Bill.
190. The Commission considered it understandable
that Member States would wish to protect their consumers and security
of supply, but argued this should be done in a way that takes
account of neighbouring countries and exploits the benefits of
cooperation with these neighbours.
We heard that capacity mechanisms should only be introduced after
the consideration of interconnection, storage, grid improvement
and policy developments in order to allow for demand-side response.
National Grid, for example, argued that interconnection "clearly"
has big security of supply benefits.
191. In their submission to the Commission's
consultation about capacity mechanisms, DECC acknowledged that
security of supply relates not only to domestic capacity but also
to demand-side response and to interconnection. Their view was
that capacity mechanisms should not be open-ended and should not,
ideally, be required in a functioning single energy market.
192. UK witnesses were largely convinced that,
for the moment, interconnection could not be relied upon to produce
power at times of UK shortage. ScottishPower, for example, pointed
out that there had been situations when the UK price signals did
not workwhen the price signals would have suggested import,
the interconnectors were exporting. It therefore saw it as "right
and proper" to consider a supply security mechanism, which
it believed would play a role in "keeping the lights on".
193. Furthermore, concerns were expressed that
current gas prices, compared to those of coal, did not make gas
an attractive investment, thus requiring a capacity mechanism.
ScottishPower stressed that capacity mechanisms "of one sort
or another" have been embedded in the UK privatised electricity
market for most of its historysuch as free carbon allowances
under Phases I and II of the EU Emissions Trading System (ETS)
(between January 2005 and December 2012)and that during
the only four year period in which such a system did not exist,
a number of power stations hit financial difficulties.
ScottishPower observed that despite having planning permission
for a number of new gas plants, they were unlikely to continue
to invest unless a capacity mechanism was introduced.
SSE noted its agreement with ScottishPower, and criticised the
timing of the first capacity payments from 2018, which it argued
was "rather later" than its (or Ofgem's) analysis suggests
would be appropriate.
194. Whilst generally accepting that there may
be a case in support of a capacity mechanism, both National Grid
and Ofgem warned that "The devil is in the detail",
and checks must be in place to ensure that there was no distortion,
a position with which ENTSO-E and E.ON agreed.
Professor Stern insisted that there was substantial unused
gas capacity. He pointed to the fact that, in 2012, UK Combined
Cycle Gas Turbines (CCGTs) were running at 40% load factor. Furthermore,
4 GW of CCGTs are currently mothballed and 10 GW are fully permitted,
but not yet built.
195. In the short-term, we accept the need
to introduce legislative powers for a capacity mechanism that
seeks to ensure domestic security of energy supply, whether in
the UK or elsewhere. The issue will be particularly acute after
2015, as more coal plants are retired under the Large Combustion
Plant and Industrial Emissions Directives.
196. We are concerned that excessive reliance
by large numbers of Member States on capacity mechanisms designed
to support fossil fuel power station investment will add costs
to electricity and may exacerbate the risk of fossil fuel 'lock-in'.
For this reason, we consider it important that any capacity mechanism
gives at least equal weight, and potentially should prefer, the
inclusion of interconnection and of active demand-side response
measures as alternate or additional ways of ensuring security
300 COM(2012) 663 Back
See Map of interconnection between EU Member States on
provided by ENTSO-E (http://www.entsoe.eu) Back
Q 27 Back
Q 341 Back
Q 278 Back
Norway is not an EU Member State but is a member of the European
Economic Area to which the EU's internal energy market legislation
Q 20 Back
Q 20 Back
Q 331 Back
Q 296 Back
Q 352 Back
ABB Limited Back
Q 346 Back
Q 353 Back
Q 49 Back
Q 62 Back
Q 211 Back
Q 273 Back
Q 353 Back
Q 345. See also, The European Offshore Wind Industry-key trends
and statistics 2012, European Wind Energy Association, January
Distributed energy resource systems are small-scale power generation
technologies used to provide an alternative to or an enhancement
of the traditional electric power system. It is also known as
Q 49 Back
Q 353 Back
Q 344 Back
COM(2011) 658. At the time of publication, a text had been agreed
but was yet to be adopted Back
Q 62 Back
Q 21, Q 55, Q 62, Q 86 Back
Q 20 Back
Q 272 Back
QQ 278-279 Back
Q 280 Back
Q 284 Back
Q 332 Back
Q 62 Back
Q 344 Back
Q 350 Back
Decision 2012/490 Back
Q 60 Back
Q 51, Q 188 Back
Q 144 Back
DECC, EDF Back
Q 50 Back
Gas Tanker Takes Shortcut to Asia, Wall Street Journal,
3 December 2012 Back
Plans to increase Britain's gas storage capacity left in tatters
by credit crunch, The Guardian, 12 January 2009 Back
Plans to increase Britain's gas storage capacity left in tatters
by credit crunch, The Guardian, 12 January 2009 Back
Q 148 Back
Energy and Climate Change Committee, 8th Report (2010-12): The
UK's Energy Supply: Security or Independence? (HC 1065) Back
Q 60 Back
Q 68 Back
Q 340 Back
Q 192 Back
Dr Karsten Neuhoff, ScottishPower Back
Q 196 Back
QQ 201-202 Back
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Q 300, E.ON Back
Q 153 Back