Select Committee on Science and Technology Appendices to the Minutes of Evidence


Memorandum submitted by the National Grid Company plc


  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 deliver it to the majority of customers through their 132kV and lower voltage networks.

  2.  We welcome this opportunity to provide information to the Science and Technology Committee on:

    (i)  how wave and tidal stream energy projects are likely to interact with the high voltage transmission network;

    (ii)  our approach to developers of these technologies, and renewables in general; and

    (iii)  how our role may help to achieve the Government's targets and accommodate further developments of renewable energy in the longer term.

  3.  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.

  4.  National Grid has contracts for use of our network with all generators over 1,000MW, whether they are directly connected to our network or embedded in distribution networks. Currently, there is approximately 67,000MW of such plant in England and Wales, about 94 per cent of which is directly connected to the high voltage transmission network. All existing renewables in England and Wales are "embedded", that is they are connected to the lower voltage distribution networks. We expect the majority of renewable energy developments needed to meet the Government's targets will also be connected to distribution networks. It is important to note, however, that consumers in England and Wales can access renewable energy sources in Scotland and in Europe through the interconnections between the high voltage transmission systems.

  5.  The New Electricity Trading Arrangements (NETA) introduced on 27 March 2001 represented a significant change for generators and electricity suppliers as well as for National Grid as system operator. Generators and suppliers of electricity now enter bilateral contracts for energy and largely "self-despatch" to meet the terms of these contracts. National Grid, in our system operator role, is responsible for balancing the system, ensuring secure supplies and achieving the required quality of supply. We will do this by purchasing "ancillary services"[6] and by accepting bids and offers for electricity from generators and suppliers (ie on behalf of demand) in NETA Balancing Mechanism.


  6.  In order to explain how National Grid could interact with new wave and tidal stream generation it may be helpful to set out in brief how we provide market participants non-discriminatory access to the national electricity market through our network. We provide services to customers who connect and/or use our system. For these services National Grid makes three types of transmission charge to cover the investment, maintenance and operational costs of our network as follows:

  7.  Connection charges—these reflect the cost of installing and maintaining the assets required for the connection of a generator or demand customer directly to our network. Transmission connection charges are "shallow", that is, they cover only those assets at or very near the connection site. Customers may vary the design of their connections (subject to safeguards), they can choose whether they incur National Grid's regulated rate of return or some other form of financing, and can choose whether to arrange for the construction of these assets themselves or whether National Grid makes these arrangements. Generators who connect to the distribution networks do not incur transmission connection charges but pay distribution connection charges to their host distribution company. In so far as the host distribution company considers such generators help reduce the demand on the transmission system, they help avoid the need to reinforce grid supply points and hence may reduce the charges levied on distribution companies.

  8.  Transmission Network Use of System (TNUoS) charges—these charges cover the regulated cost of the transmission network infrastructure assets and their maintenance. As such assets cannot in general be allocated to specific customers, the TNUoS charge shares the costs between all transmission customers who use the system in that year. The charges to individual customers reflect the marginal cost of reinforcement to meet increasing imports or exports from each area of the country. For generators larger than 100MW, these charges are positive (ie a payment from the generator to National Grid) in areas where reinforcements will be required to accommodate increased exports. The charges are negative (ie a payment to the generator by National Grid) in those areas of the country where generation offsets the need for transmission investment. Smaller generators are not subject to these charges (unless they choose to be). However, smaller generators reduce the liability of electricity suppliers to pay the TNUoS demand charge. By this means, embedded generators may receive an "embedded benefit" in all areas of the country, but the benefit tends to be significantly larger in those areas where generation or demand reduction offsets the need for transmission investment.

  9.  Balancing Services Use of System (BSUoS) charges—these charges are levied on generators and electricity suppliers participating in the national electricity market, and cover the costs of system operator actions to balance the system including the costs of ancillary services. Generators larger than 100MW are required to participate in the national electricity market, while smaller generators may choose to do so if they wish. Smaller generators also have available to them a number of options that permit them to participate in the national market without incurring transmission charges. Normally small generators will help an electricity supplier avoid BSUoS charges and so may be able to negotiate an embedded benefit.

  10.  National Grid's charges are published in a statement of charges which is available from our website. This statement includes indicative charges calculated for common connection arrangements. For example, to connect a generator directly to the 400kV transmission system with a new substation near an existing line may cost approximately £2,000,000 of connection charges for the first year (reducing in subsequent years due to depreciation). Typically, such a connection could accommodate up to 1,000MW of generation and so could represent a connection cost of approximately £2/kW per annum. The connection at 400kV for a smaller generator, however, would require similar assets in terms of a substation and line works, and so would cost more per kW of generation capacity. For this reason, we would expect generators smaller than around 300MW to find it more economic to connect at a lower voltage (on networks owned by distribution companies).

  11.  In terms of transmission network use of system charges, generators locating in the upper north of the country can expect to pay £8.34/kW per annum. In Greater London, we pay generators £0.13/kW. Our payment increases to £10.15/kW in Central London or £9.71/kW in the South West Peninsula as these areas would most benefit from new generation to avoid network reinforcements that would otherwise be needed.

  12.  As explained in paragraph 8, smaller generators help suppliers avoid the TNUoS demand charge. In the North East area, such a contribution is worth £1.00/kW but in London it is worth £13.17/kW and in the South West it is worth £15.05/kW. How such benefits are shared between the supplier and the embedded generator depends on the commercial agreement between them.

  13.  Through our participation in the DTI/Ofgem Embedded Generation Working Group we are aware that the connection and use of system charges levied by distribution companies on embedded generators differ significantly in form from those described here for transmission. In particular, we understand that distribution connnection charges for generators are "deep" and so cover all reinforcements throughout the distribution network needed to accommodate the new generator. This may be a significant cost for a generator who precipitates a major reinforcement. Such costs may then be difficult to recoup from subsequent generators who can take advantage of the completed reinforcement. An Embedded Generation Working Group recommendation is to review distribution charging methodology to see if an approach more akin to that used on the transmission system could remove the barriers that can be imposed by the deep connection methodology.


  14.  Under the terms of our licence we are required to provide any customer who seeks to connect to our network with a non-discriminatory offer of terms within three months. This offer will describe the connection works necessary to connect to the transmission system, set a date when the connection will be completed, calculate charges in accordance with our charging methodologies, and provide a draft contract.

  15.  For embedded power stations larger than 100MW we are also required to offer terms for the use of our network within 28 days. If works to reinforce our network are necessary to accommodate such a generator (for example, due to fault level considerations) the use of system offer will state when our network will be ready. The use of system offer will also set out the appropriate zonal TNUoS charge.

  16.  For embedded generators smaller than 100MW, as described above, National Grid does not generally levy charges and so agreements for connection and use of system are not required. However, National Grid is keen to receive information on any such embedded generators that may have a material impact on our system as soon as possible so that we can co-ordinate the developments to our network to best meet the needs of our customers and ensure it remains safe and secure at all times. It has been our practice to seek agreements with such generation to ensure they do not energise before any reinforcements needed on our network are complete and safe. As a result of discussions with embedded generator representatives at the Embedded Generation Working Group, however, we will be modifying our contractual arrangements so that embedded generators can choose to have a single point of contact with their host distribution network. In this way we will help reduce the red-tape on embedded generators.

  17.  For all sizes of generation, we interpret our duty to facilitate competition by seeking to connect market participants in accordance with their desired time scales as far as possible. To assist market participants in choosing advantageous sites we operate an open information policy under which all our network information, including the options for future network developments, are set out in our Seven Year Statement. This is available at nominal cost in paper and cd-rom form, and is available free of charge on our website. We were pleased that our approach to generation connections was considered by the Embedded Generation Working Group as worth of emulation in the distribution context, albeit with adaptations for the particular circumstances there.


  18.  As noted above, 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. We expect that most individual tidal stream and wave power installations are likely to be smaller than the 300MW approximate break-even threshold for direct connection to our network. The trend towards having a larger proportion of "embedded" generation will interact with the high voltage transmission network as follows:

(i)  Flows at the transmission to distribution network interfaces

  19.  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 in generation and demand in specific parts of the distribution network from minute to minute.

  20.  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 capability.

(ii)  Bulk power transfers on the transmission network

  21.  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.

  22.  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 generally more expensive generation in the south reduces first.

  23.  Against this background, embedded generation that connects in the north, and displaces the higher cost generation which is predominantly in the south, will tend to 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, also displacing the older southern generation, would tend to leave north to south power flows unchanged.

  24.  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.

  25.  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.

  26.  However, there are other trends that may be expected to maintain or perhaps increase bulk transfers. For example, due to the distribution of wind resources, on-shore and off-shore wind power would be expected to increase north to south transfers. Given the areas of highest wave concentrations, wave technology can be expected generally to contribute to the North to South bulk power transfer pattern. Tidal stream may have a different distribution but would not be expected to reduce the North South flow.

  27.  Given this and other future trends we expect reinforcements at pinch points in our network will be 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 seeking to construct new transmission lines.

  28.  The Transmission Network Use of System charging arrangements that we currently have in place 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.

  29.  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 considered as part of a wider review of transmission access arrangements, currently led by Ofgem.

(iii)  Security of supply issues

  30.  As well as ensuring efficiency in bulk electricity flows, the transmission system also provides security 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 it is located can be utilised to meet demand, control frequency and provide reserves to meet fluctuations in demand or generation output.

  31.  The development of generation technologies that may fluctuate more, or are to some extent less predictable than existing generation, could bring some challenges to balancing generation and demand and hence maintaining security. However, this issue can be easily overstated. The transmission system is operated with reserves to cope with fluctuations in existing generation and demand and, together with the ability of the network to diversify variations across the country, there is a large capability to accommodate new generation sources. On the basis of our assessments we do not foresee any difficulties in accommodating the renewables required to meet the Government's targets for 2010, even if the majority of the target was met with wind power.

  32.  Beyond 2010, with further major tranches of renewable and CHP generation entering the market, it is probable that the large coal-fired units which currently provide a major proportion of the balancing services may close. This together with a potential need for additional balancing capability may pose an issue.

  33.  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.

  34.  These market 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 enable embedded generation with the capability to provide such services with an additional income stream.


  35.  For the reasons described above, we would expect most wave and tidal stream energy developments to be connected to distribution systems rather than directly to the transmission system. As such, the issues associated with the cost of such connections and recovery of such costs through charges to the generators are primarily issues for distribution companies.

  36.  Nevertheless 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, to the extent that such developments impinge on us, we see it as a priority to achieve solutions to the technical and market issues that we foresee, thereby ensuring that we play our part as effectively as possible in facilitating the change to these technologies.

  37.  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 distribution networks in addressing the issues that form the major part of the report from the DTI/Ofgem Embedded Generation Working Group.

  38.  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.

April 2001

6   Frequency response and reserve, which are needed to balance demand and supply for electricity second by second and reactive power for voltage control. Back

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