Memorandum from the National Grid Company
1. National Grid owns and operates the high
voltage transmission system comprising the 400kV and 275kV transmission
lines in England and Wales. Our network delivers electricity from
power stations connected to it to distribution companies and a
small number of large industrial customers. The distribution companies
then delivers it to the majority of customers through their 132kV
and lower voltage networks.
2. Our statutory duties are to develop and
maintain an efficient, co-ordinated and economical transmission
system and facilitate competition in the generation and supply
of electricity. Our licence prohibits us from discriminating between
parties who make use of the transmission network. To help meet
our responsibilities we provide transparent information on the
charges for using our network, its capability and characteristics,
including opportunities for future use, and guidance to anyone
who wishes to connect to our system.
3. As system operator we currently despatch
all generators over 100MW, whether they are directly connected
to our network or embedded in distribution networks, to meet the
national demand for electricity. Currently, there is approximately
63,000MW of such plant in England and Wales, more than 90 per
cent of which is directly connected to the high voltage transmission
network. All existing renewables in England and Wales are connected
to the lower voltage distribution networks and we expect the majority
of renewables energy developments, needed to meet the Government's
targets will also be connected to distribution networks. It is
important to note, however, that renewable energy sources in Scotland
and in Europe can be accessed by consumers in England and Wales
through the interconnections between the high voltage transmission
4. The New Electricity Trading Arrangements
(NETA), due to start in the spring, represent a significant change
for generators and electricity suppliers as well as for National
Grid as system operator. In the future, generators and suppliers
of electricity will enter bilateral contracts for energy and will
largely "self-despatch" to meet the terms of these contracts.
National Grid will be responsible for balancing the system, ensuring
secure supplies and achieving the required quality of supply.
We will do this by continuing to buy "ancillary services"
and by accepting bids and offers for electricity from generators
and suppliers (ie bids for demand) in the NETA Balancing Mechanism.
5. We are pleased to take this opportunity
to provide information to the Select Committee on the implications
of renewable energy sources for transmission and to indicate how
our approach is dealing with these implications will help the
achievement of these targets and also accommodate further developments
of renewable energy in the longer-term.
CHP AND EMBEDDED
6. Most of the renewable energy developments
and much of the new CHP needed to meet the Government's targets
are likely to have small generating unit sizes and so will find
it most cost-effective to connect to low voltage distribution
networks. This trend towards having a larger proportion of "embedded"
generation will interact with the high voltage transmission network
in the following respects.
(i) Flows at the Transmission to Distribution
7. Generally, we expect an increasing proportion
of embedded generation to reduce the flow across the interfaces
between the transmission and distribution networks. This will
tend to delay the need for us to reinforce this part of our network
but it is unlikely to remove the need for the substations at these
interfaces. These will continue to be needed to balance the fluctuation
between generation and demand in specific parts of the distribution
network from minute to minute.
8. In a few areas it is possible that embedded
generation may increase to a level where there could be electricity
exports from distribution networks to the transmission system.
However, reinforcements would only be needed at these interfaces
if the level of exports to the transmission system were to rise
to a level that exceeded the existing capacity.
(ii) Bulk Power Transfers on the Transmission
9. The general reduction in the flow from
the transmission to distribution networks as a result of embedded
generation development does not necessarily lead to a similar
reduction in the bulk transfers across the transmission network.
This is because these transfers depend on the geographical location
of generation with respect to demand.
10. At present there is a substantial north
to south power transfer across our network of up to 10,000MW.
This arises because generation capacity located in the north near
coal and gas fuel supplies substantially exceeds demand in that
area, and it exports to meet demand in the south. These transfers
occur throughout the year because, as demand reduces from the
annual peak, the output of the more expensive generation in the
south reduces first.
11. Against this background, embedded generation
that connects in the north, displacing higher cost generation
in the south, will increase system transfers in just the same
way as any other new generator connecting directly to the transmission
system in the north. Embedded generation locating in the south
displaces older southern generation, and so leaves north to south
power flows unchanged.
12. For these reasons, bulk transfers on
the transmission system can be expected to continue unless there
is a significant overall shift towards an improved regional balance
between demand and generation, whether embedded or directly connected
to the transmission network. From the present situation, improved
regional balance will require a very significant increase in generation
in the south.
13. For some years, charges for use of the
transmission system have provided an incentive for generation
using the transmission system to locate in the south of the country.
Small embedded generators are not liable for these charges and
therefore do not receive a direct incentive to locate in the south.
However, as small embedded generators can enable suppliers to
avoid payments of National Grid demand-related use of system charges,
and because these charges are higher in the south than in the
north, an indirect incentive remains for small embedded generators
to locate in the south. Nevertheless, and despite of this incentive,
generation continues to locate in the north, reflecting other
advantages of such siting.
(iii) Value of the Transmission Network for
Security of Supply
14. As well as ensuring efficiency in bulk
electricity flows, the transmission system also provides security.
The system contributes to security of supply by ensuring that
demand in a specific part of the country is not solely dependent
on the availability of generating plant located in that area.
It means that any available generation wherever located can be
utilised to meet demand.
15. For these reasons, the transmission
system will continue to play an important role in the future electricity
market even with higher penetration of renewables, CHP and embedded
generation. Accordingly, we see it as a priority to achieve solutions
to the technical and market issues that we can foresee, thereby
ensuring that we play our part as effectively as possible in facilitating
the change to these technologies.
16. In developing our approach to renewables,
CHP and other embedded generation we have examined their likely
interaction with our transmission network and system operation
activities. We have also identified areas where our activities
may affect development of such projects. More recently, through
our participation in the DTI/Ofgem Embedded Generation Working
Group (autumn/winter 2000), we have actively worked to ensure
that our approaches to these issues fit with the actions and options
identified by the Working Group for ensuring that renewables and
CHP are treated on an equitable basis compared to other users
of distribution and transmission networks.
17. A summary of the transmission issues
identified by the Embedded Generation Working Group and National
Grid's approach to them is contained in Table 1. From this work
we are confident that transmission related issues will not become
a barrier to accommodating the amount of renewables or combined
heat and power generation necessary to meet the Government's targets.
Depending on the location and type of technology that enters the
market, we also expect that we will be able to accommodate more
renewables, CHP or other embedded generation than is needed to
meet the 2010 targets.
Recognising the Benefits of Embedded Generation
and Co-ordinating Developments
18. The Transmission Network Use of System
charging arrangements that we currently have in place will continue
to provide locational signals as to the most economic areas for
development from a transmission system point of view. Small embedded
generators, as described in paragraph 12, can also receive the
benefit of the avoided demand charges when meeting demand of local
suppliers. Such benefits exist at all locations but are greatest
in the south of the country.
19. The potential for improving the economic
efficiency of locational signals to users of the transmission
system that are provided by transmission charges is currently
being undertaken as part of a wider review of transmission access
arrangements. Currently led by Ofgem.
Minimising Red Tape on Small Embedded Generation
20. Embedded generators understandably seek
simple contractual arrangements with respect to network issues.
Following on from our discussions at the Embedded Generation Working
Group, we are working to adapt National Grid's contractual agreements
with Distribution Network Operators (DNOs) so that embedded generators
can choose to have a single point of contact with their host DNO
and any agreement with us would become optional.
Network Access Arrangements and Processes
21. The DTI/Ofgem Embedded Generation Working
Group highlighted that effective information flows, accessible
processes for market entry and transparent terms for connection
and use of networks are all key factors in facilitating the development
of embedded generation. In these respects we were pleased that
National Grid's approaches to providing information on system
opportunities through our Seven Year Statement, our policies on
connection and use of system charging, and our general approach
to facilitating new entry were cited by the Working Group as best
practice and worthy of consideration for addressing the issues
that are emerging at the distribution level with respect to embedded
generation. We look forward to continuing to contribute our experience
in the developments needed to meet the new challenges. In addition,
we are seeking more opportunities to respond to the needs of renewables
IV. LONGER TERM
Actions to Address Longer-Term Transmission Issues
Associated with Renewables
22. To address longer-term technical issues
that may arise from a larger proportion of wind and other intermittent
renewables, we are actively facilitating and encouraging the further
development of open ancillary service markets. We have already
established arrangements through which we can use small and decentralised
providers for reserve and frequency response through the use of
aggregating agents. Further developments to the market arrangements
for frequency control are planned once NETA has been introduced.
We see benefits in the DTI/Ofgem Embedded Generation Working Group
suggestions that distribution network operators should facilitate
local markets in ancillary services and we look forward to working
with them in this area.
23. These developments should encourage
the most cost-effective provision of frequency control and reserves
that are needed nationally. They should ensure that any additional
requirements can be provided in respect of reserve and response
that may be needed to accommodate large amounts of wind generation.
They will also ensure that the displacement of some of the large
grid-connected power stations that currently provide these services
can take place without any effect on system security. Such markets
would also provide embedded generation with the capability to
provide such services with an additional income stream.
Longer-Term Network Requirements
24. Looking to the longer-term future, there
are some technology trends that may tend to bring generation and
demand more into regional balance. Fuel cells, micro-CHP and CHP
district heating systems would be expected to bring electricity
generation very much closer to where it is consumed in all areas
of the country by transmitting energy by gas pipeline.
25. On the other hand, other technologies
may be expected to maintain or perhaps even increase the need
for bulk electricity transfers. Many renewable resources, such
as wind and wave power, are most abundant in the north and west.
Biomass power stations will be located near their agricultural
or forestry fuel sources. New hydro and geothermal resources may
be brought to the UK by interconnector.
26. Overall, we therefore expect bulk transfers
to continue on the transmission network for the foreseeable future.
Reinforcements at pinch points in our network are likely to be
required, depending on the location of new generation and the
closure of existing plant. Through the technology at our disposal,
we will always exploit the scope for improving the capability
of our network before needing to construct new lines.
27. We hope that this information helps
to explain the issues relating to the high voltage transmission
system with respect to the development of renewable generation
and the approaches which we at National Grid are taking to ensure
we play our part in facilitating the development of this and other
embedded generation. In so doing, we do not wish to downplay the
challenges that will be faced by the networks, principally those
at lower voltages, in addressing the issues that form the major
part of the report from the DTI/Ofgem Embedded Generation Working
28. However, for transmission, we do not
foresee any specific issues that would impose a barrier to meeting
the government's 2010 targets for renewable generation. We also
believe the actions we are taking now will ensure that there are
no barriers for much larger renewable developments in the longer-term.
TRANSMISSION ISSUES WITH RESPECT TO EMBEDDED
GENERATION AND NATIONAL GRID'S APPROACH
|Issue for National Grid
|In the longer term renewables may require the purchase of additional reserves and frequency response ancillary services to ensure security and quality of supply.
||Encourage development and facilitate national ancillary service markets that are open to all potential providers (including embedded generators).
||Reserve market in operation with successful contracts with demand side and embedded generation service providers.
|Ensure continuing availability of ancillary services in longer-term as embedded generators progressively displace present providers.
||Encourage aggregator agents to assist smaller participants to provide services in required sizes and dependability. (* This role may in future be performed by distribution network operators either as facilitator of markets to obtain services for distribution network or to sell on to transmission).
||Reactive market in operation with centrally despatched embedded providers but no agreements with smaller power stations yet.Frequency response market awaiting NETA introduction.Some aggregator agents for reserve and frequency response established.
|Potential need for transmission reinforcements from northern generation developments.
||Provide market information through Seven Year Statement and provide financial signals through cost-reflective locational transmission charges.
||Seven Year Statement under continuing development from customer feedback.Locational transmission charges in place. Further review underway as part of review of transmission access.
|Co-ordinate transmission developments with embedded generation developments (mainly affecting our interface with distribution networks).
||Obtain information on developments that may have material impact on transmission system as early as possible to minimise need for project delays.
||** Change contractual arrangements to meet requirements of embedded generators and distribution network operators.
|Minimise red tape from National Grid for embedded generation developers.
||Revise contractual arrangements so that embedded generators can have single point of contact with their host distribution network operator.
||Discussions with Distribution Network Operators underway to prepare contractual change as soon as possible.
|Fully recognise benefits brought by embedded generators to transmission system.
||Embedded benefit recognised by reduction in supplier demand charges relating to transmission network and balancing costs.
||100% allowance provided by arrangements that net embedded generation from supplier's chargeable demand.
| ||Benefit from location recognised in use of system tariffs.
||See items isted above.|
| ||Benefits from ancillary and balancing service provision recognised in ancillary service markets.
|Network management issues arising from new generation technologies and actively managed distribution networks.
||Maintain active participation in these developments at industry forums.
||Grid Code Review Panel, Charging Principles Forum established. Connection and Use of System Code Panel to be established shortly.
* The benefits that would arise from increased participation
of distribution network operators in activities concerning the
aggregation and facilitation of local service markets was identified
in the DTI/Ofgem Embedded Generation Working Group.
** The benefit of this change to contractual arrangements
was highlighted in the DTI/Ofgem Embedded Generation Working Group.
Frequency response and reserve, which are needed to balance demand
and supply for electricity second by second and reactive power
for voltage control. Back