Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Supplementary memorandum from Ofgem


1.  QQ 447-452: In what specific ways does Ofgem take account of the interests of "future customers"?

  1.1  Investment decisions made today can impose environmental costs on future generations or may result in limiting their options for development by the early depletion of scarce resources or by the locking in of particular technologies. The gas and electricity industries are characterised by the importance of investment in assets, such as pipelines and power stations, which have useful lives of a generation or more. Consequently, considering the needs of the present and the future is central to the operation and regulation of these industries.

  1.2  Over the next three years important work in this regard will be taken forward in the context of the next electricity distribution price control review, which will set the framework within which these companies will operate until 2010. An important element of this will look at the treatment of small-scale generation (typically renewable and CHP), which connects directly to the distribution network. A further important element will look at incentives to reduce losses from the network.

  1.3  In gas, agreement on a five-year price control was reached last year with the gas trasportation company, Transco. Ofgem has also recently reviewed options for managing and encouraging gas and electricity industry best practice in asset risk management, with a view to enhancing the industry's capacity to meet longer-term requirements. Ofgem has also reviewed options for promoting innovation throughout the industry, and will be taking this work forward over the coming years.

  1.4  In those areas open to competition, Ofgem works to ensure that markets are open and that they function as efficiently as possible. Ofgem acknowledges that efficiently functioning markets will not, of themselves, necessarily take account of the needs of future consumers. However, Ofgem's view is that it is for Government, not the regulator, to decide how best to incorporate environmental costs into market decisions.

  1.5  Further, Ofgem considers that it is not for the regulator to take a particular view of the future mix of generation, or to back particular technologies for the future. Rather, Ofgem considers that a well-functioning market should deliver durable solutions for the medium term and that a more diverse energy supply mix will help secure supply by preventing over-reliance on any one source. It would be for Government to take any decisions to promote individual technologies over and above others, as it has with its renewables policy for example.

  1.6  In carrying out a range of domestic energy efficiency programmes since 1994, Ofgem (and before that, Offer) has pioneered work to involve electricity and gas suppliers in improving the fabric or Britain's housing stock. This is a sustainable approach to reducing carbon emissions from domestic sources and to reducing fuel poverty.

2.  QQ 447-452: Does Ofgem consider that the "interests" of customers include the cost externalities involved in energy production, such as acid rain and global warming?

  2.1  The benefits of incorporating environmental costs into prices are that the consumers of products thus priced directly have to meet the costs of environmental damage caused by their consumption. However, the political unpopularity of incorporating such costs, and the impact of doing so on the disadvantaged, also need to be considered by Ministers. Under Ofgem's statutory framework, the role of charging for the environment falls to Ministers, to local authorities, or to agencies mandated by them. Since pollution does not respect national boundaries, Ministers will often be bound by international agreements to try to ensure that environmental costs are appropriately shared. This is a complex and difficult area, calling for delicate judgements to be made.

  2.2  Ofgem has also stressed that, so long as the correct value is placed on environmental costs and benefits, then environmental impacts will be neutralised, and consequently there will be no environmental "goods" or "bads".

  2.3  For example, it can be argued that CO2 taxes are an effective way to incorporate the costs of climate change into prices, since they have the advantage of relating the size of the penalty to the amount of pollution. They result in a continuous pressure to cut down on production or consumption of energy in order to save tax. However, the aim of a CO2 tax is not to reduce the consumption of energy to zero. If it were, it would be simpler to ban CO2-emitting activities. Rather it is argued that, once the tax is correctly incorporated into energy prices, decisions on the amount of CO2-emitting energy produced or consumed will be based on correct economic criteria.

  2.4  However, Ofgem recognises that there are often social and political reasons preventing Ministers from placing the full value on environmental costs. For example, if the costs are being borne directly by consumers (such as VAT on domestic fuel), they will tend to be regressive unless there are less polluting alternatives available at a reasonable cost, or unless poorer consumers are compensated by some other mechanism. Concerns about international competitiveness are another reason that Ministers can be reluctant to incorporate the full value of environmental costs into prices, if similar incorporation is not undertaken in other countries. This is the reason that there is so much emphasis on the need for a global response to climate change.

3.  Q 469: If the existing draft Environmental Guidance had been issued on a statutory basis, would it have made any difference to any aspect of Ofgem's work over the last year? If so, what?

  3.1  Had the draft Social and Environmental Guidance been issued on a statutory basis a year ago, Ofgem would have drawn the Guidance to the attention of the Authority members immediately, and there would have been a careful consideration of its implications at the next meeting of the Authority. The Authority would then have had regard to its contents in taking individual decisions, taking account of all the relevant circumstances. The Authority would have been mindful of the place that the Guidance has in the hierarchy of its statutory duties, and that it cannot constitute specific instructions to the Authority, but only advice that the Authority needs to consider within its overall statutory framework.

4.  Does Ofgem consider itself subject to the Greening Government initiative, including the commitments, objectives and targets that are set?

  4.1  As Ofgem is not a Ministerial department it is not formally a part of the Greening Government initiative. However, Ofgem's own programme of environmental improvement is in many respects consistent with the Government's "Greening Government" initiative. That initiative aims to promote the integration of sustainable development across government, to encourage the use of environmental appraisals as part of policy making and to improve the environmental performance of departments in managing their buildings and operations.

  4.2  Ofgem has implemented an internal environmental policy, which has been launched on the Ofgem intranet. This explains Ofgem's policies on:

    —  building management—eg heating, lighting

    —  IT—ie power saving, recycling

    —  recycling—paper, cans and toner, and

    —  other policies such as business travel and cycling to work.

  This policy is made available to all staff on the intranet, and is brought to the attention of all new starters through the induction process. Reference to Ofgem's internal environmental programme was included in our Environmental Action Plan, published in August 2001.

  4.3  Ofgem also committed to embarking on a programme of work with the aim of gaining ISO 14001accrediation. This work has progressed well and on 25 February 2002 Ofgem was awarded ISO 14001 accreditation.

  4.4  As part of the ISO 14001 process, Ofgem has set up an internal Environment Team who are responsible for defining and reviewing Ofgem's environmental impacts, objectives and targets. The team will be responsible for monitoring and reporting annually on Ofgem's environmental targets under the standard.

  4.5  Ofgem has contracted with a supplier to provide ten per cent of its electricity from green sources. This means that at Ofgem's head office at 9 Milbank there will be a reduction in CO2 emissions, for electricity use, of approximately 196 tonnes per year.

5.  Q 492-493: The Committee understood that the term "consolidation" referred to a specific arrangement under NETA whereby renewable generators could group together, under a "consolidator", to participate directly in NETA; and that such an arrangement is significantly different to the traditional situation where renewable generators contract with electricity suppliers. It is not misleading to suggest that almost all small generators are making use of consolidation services?

  5.1  Consolidation is a process whereby the output of any number of generators may be pooled together as if it came from a single source. It is not restricted to any specific generation source; it may be from a renewable or a non-renewable energy source. The main advantage for participants is that their individual exposure to imbalance prices is reduced, as the collective output is more likely to be close to the target output for the group and imbalance charges can be shared across the grouping. This aggregation of variable energy is not limited to generation; it applies equally to demand. Small generators (Licence Exempt Generators) can combine their variability with the variability of customers and achieve a similar effect. This is the provision of a consolidation service and is being utilised by almost all smaller generators. Many smaller generators constitute but a tiny fraction of the variability of the larger Supply portfolios. The fact that this has been a traditional route to market for many smaller generators does not diminish the fact that they are receiving this consolidation service, hence our previous statement that almost all smaller generators are making use of this service. The concern is whether smaller generators are receiving an appropriate price in their contracts.

The Ofgem website originally listed various companies which were planning to provide consolidation services. How many of these companies are actually providing them? Does Ofgem consider that there is adequate competition in this area?

  5.2  Ofgem anticipated that there would be opportunities for specialised "Consolidators" to compete with traditional suppliers in offering this service along with other specialist market trading services. In promoting this competition, Ofgem listed any company that wished to offer this service on its website. Six companies are currently listed of which at least three are actively engaged in consolidation without being active Suppliers. These independent companies are competing with established Supply companies for the consolidation business. Ofgem has also approved a number of proposals that will further facilitate competition in this area.

6.  Q 515-524: Ofgem agreed to set out, for the benefit of the Committee, what progress has been made against the individual milestones set by the Embedded Generation Working Group (and summarised in Ofgem's response to that report). It would also be helpful if Ofgem could clarify what targets and deadlines the DTI/Ofgem Distributed Generation Co-ordinating Group has set itself (or been set) for its own work, and when it intends to issue its first monitoring report.


DGCG/Technical Steering Group (TSG) work programme

  6.1  The DGCG was established to implement EGWG's recommendations. Its work programme therefore derives from the suggested dates set out in the EGWG report. Much of the detailed work will be taken forward in projects managed by the TSG, which reports to the DGCG. The six TSG workstreams have been finalising plans for their initial projects. A full DGCG/TSG work programme will be available for publication in mid-June.

  6.2  The TSG's workstreams are:

NoWorkstream Area of work
1Distributed Generation Status and Projections —Current status of connected and planned distributed generation.
—Likely future distributed generation mix.
2Standardisation of Information and Solutions —Relevant and accessible standards for the industry, reflecting current developments.
—Appropriate categorising, or banding, of distributed generation types.
—EGWG recommendations on information and guidance documents.
3Short-term Network Solutions —Technical, regulatory and commercial issues relevant to the development of basic active management of distribution networks.
—Identification of short-term measures to allow fuller recognition of the contribution of distributed generation to network security and performance.
4Micro-generation Solutions —Removal of barriers to micro-generation.

—Simple, standard solutions for connection of micro-generation.

—To advise on micro-generation in the context of the next distribution price control review.
5Long-term Network Concepts and Options —Technical, regulatory and commercial issues pertaining to the longer-term transformation of distribution networks in order to facilitate distributed generation.
6Industry Skills and Resources —To help ensure that future skills and human resource requirements of DNOs and other organisations do not present barriers to the implementation of EGWG recommendations.

First monitoring report

  6.3  The DGCG's first meeting was held in November 2001. It is anticipated that the group will make its first annual monitoring report to the DTI and Ofgem early in 2003. In the meantime, a website is disseminating information about the issues being considered by the DGCG.


  6.4  The original milestones listed in the table below have been subject to modification in the light of subsequent work. We have, therefore, indicated what progress has been made and what work is currently planned in respect of each milestone. A fully revised work programme for the Distributed Generation Co-ordinating Group (DGCG) and its Technical Steering Group (TSG) should be available by the end of June.

Target Date
1Review of options for future network design
Autumn 2001
2Connection process guide
January 2002
3Review of Engineering Recommendation P2/5
January 2002
4Identification of any short-term changes to price controls
January 2002
5Format for provision of information by distributors
January 2002
6Studies related to power quality and the technical contribution of embedded generation
January 2003
7Development of "information packages" for potential distributed generators
June 2003
8Work on "islanded operation" of distributed generation
January 2003
9Review of options for control and management of networks
January 2003
10Review of options for domestic and micro generation
January 2003
11Analysis of network design practice
January 2004
12Review of incentives in price controls
April 2005
13Implementation of revised charging principles
June 2005
14Implementation of revised network design package
After 2005

Review of options for future network design

  6.5  This is a major subject area. Some of the major issues were scoped during a preliminary Ofgem seminar in October 2001. Currently, the TSG's Workstream three (Short-term Network Solutions) is considering how networks might move to basic active management. Workstream five is taking forward work on long-term network concepts and options.

Connection process guide

  6.6  The EGWG Rapporteur Contribution on Facilitation of Competition recommended that work should be done on "generic industry documentation for information that assists potential new connectees wherever they wish to connect". EGWG suggested building on "A Technical Guide to Connection of Embedded Generation to the Distribution Network", previously published by ETSU.

  6.7  This work is being taken forward by TSG Workstream two (Standardisation of Information and Solutions) as a discrete project, embracing work that DTI continues to fund. It is anticipated that the project will be completed by September 2002, and that it will result in the publication of a revised guide.

Review of Engineering Recommendation P2/5[55]

  6.8  ER P2/5 was produced, before privatisation of the Electricity Supply Industry, under the aegis of former Electricity Council. Although hitherto of interest only to operators of distribution networks, it now has considerable significance to a wider community—notably including prospective distributed generators, because it helps to determine to what extent distribution network operators may use the contribution of such generators to justify offsetting network reinforcement. Accordingly, issues surrounding the governance of P2/5 needed to be addressed before progress can be made on detailed amendments. Indeed P2/5 is just one of a range of technical standards that are written by, or are adopted by, electricity companies and which can either constrain or facilitate developments of the sort necessary to accommodate increased numbers of distributed generators. On 30 April 2002 Ofgem issued a consultation paper[56] aimed at identifying and resolving wider issues governance of the governance of technical standards. Responses have been requested by 18 June.

  6.9  Concurrently, TSG workstreams are identifying the changes that will be required to P2/5. Changes to Table 2, which covers the contribution that distributed generation can make to network security, may be feasible in a relatively short timescale. A revision of the full document will probably follow later.

  6.10  TSG Workstream three (short-term Network Solutions) has formed a sub-group to review the principles and proposed methodologies in extending Table 2 to modern generation. It will take account of relevant work that UMIST[57] has already done for DTI.

  6.11  TSG Workstream two (Standardisation of Information and Solutions) will be working closely with Ofgem on its wider consultation on governance of technical standards. Additionally, it has the remit to formalise Workstream three's project on short-term changes to P2/5.

Identification of any short-term changes to price controls

  6.12  In September 2001, Ofgem consulted widely on the options for re-opening or early termination of the existing distribution price control to accommodate changes to the network changing regime for embedded generators. The consensus was overwhelmingly against making formal changes in advance of the distribution price control review scheduled for 2003/04. Ofgem concluded that modifying the price control would risk dislocation of DNOs' business plans and increase risk and uncertainty (with consequent upward pressure on prices to customers). Modification of the control would be likely to affect the assumptions underlying the price control and would be tantamount to reopening the control. Moreover, there was no evidence that short-term changes would have any significant effect on generators' long-term investment decisions. Ofgem's September paper also discussed the possibility of introducing some interim measures or guidance before the next review and, in its March 2002 document on distributed generation Ofgem was able to recommend the introduction of a series of such measures. Responses to that document are still being analysed, but it is clear that these interim recommendations have met with broad support.

  6.13  Ofgem's paper sets out some significant changes that can be introduced without delay. These include:

    —  giving distributed generators the choice of paying only a shallow connection charge up-front, with further costs being spread through an annualised connection charge—as opposed to paying a deep connection charge initially;

    —  reducing the time and cost of network studies for individual generation proposals;

    —  reimbursing "initial contributors" when other connections subsequently share connection assets for which they have paid;

    —  reducing connection charges where the new connection helps the DNO to avoid asset replacement or reinforcement costs;

    —  new standards for quotations for connection of distributed generators;

    —  ensuring that householders who purchase DCHP equipment will not be faced with burdensome procedures or unreasonable charges;

    —  appropriately metering imports and exports of active power, to ensure fair, cost-reflective charging;

    —  protecting the interests of existing distributed generators; and

    —  ensuring that accurate, comprehensible information is available to anyone interested in connecting distributed generation.

Format for provision of information by distributors

  6.14  EGWG's report contained a separate Rapporteur Contribution on Provision of Information. It identified the need for appropriate network information to be included in a system statement made available by each DNO. EGWG acknowledged that a "pragmatic and economic balance" would need to be struck between the value of information provided and the cost of providing it.

  6.15  Ofgem's work on the development of Long Term Development Statements (arising from the requirements under standard licence condition 25 in the new Distribution Licence) will deliver the improved information that EGWG identified as desirable. In June 2001, a consultation document[58] sought views on the possible content of the statements. Responses were summarised in a follow-up document in August 2001[59] and discussed at a subsequent workshop. It is anticipated that the direction bringing licence condition 25 into force will be made in August 2002. DNOs will then have three months to publish their statements. However, some DNOs have already issued draft or summary statements.

  6.16  TSG Workstream two (Standardisation of Information and Solutions) has established a project to monitor the statements and to review the cost/benefit of any proposed changes. This project is expected to extend to March 2003.

Studies related to power quality and the technical contribution of distributed generation

  6.17  This covers a wide range of work that will be taken forward by the TSG. The milestone date of January 2003 is not a realistic target for completion of all this work. Indeed it will continue over a period of years as experience with increased numbers of distributed generators develops. However, the TSG anticipates making significant progress in these areas by early 2003. The DGCG/TSG workplan will shortly be made publicly available on a new website. The workplan will be regularly updated.

Development of "information packages" for potential distributed generators

  6.18  Ofgem's papers of September 2001 and March 2002 stressed the importance of accessible and comprehensible information for potential distributed generators, and particularly for those contemplating micro-generation and DCHP installations. Responses from DNOs almost universally recognise the need for the development of "plain English" information packages—and signal an intention to produce them. Ofgem will be taking a close interest in the development of this information material. June 2003 is a realistic date for completion of this work.

Work on "islanded operation" of distributed generation

  6.19  Ofgem's Distributed Generation Project envisages completion of some preliminary work on islanded operation by early 2003. This is, however, a challenging technical area in which developments may be expected over a number of years. Work on the prospects fro islanding can proceed in parallel with the connection of increased amounts of distributed generation.

Review of options for control and management of networks

  6.20  TSG Workstream three has started work on network control and management.

Review of options for domestic and micro-generation

  6.21  TSG Workstream four (Micro-generation Solutions) is responsible for this work and is currently finalising its plan. Its objectives are to:

    —  work remove the main regulatory and institutional barriers to the introduction of micro-generation;

    —  develop simple, standardised solutions for the connection of micro-generation to distribution systems;

    —  implement short-term solutions that can be effected within the existing regulatory and legislative framework;

    —  identify necessary changes to policy, regulation and legislation in order to bring about a more favourable general regulatory framework for micro-generation; and to

    —  advise on the next distribution price control review, identifying mechanisms to incentivise DNOs to encourage the early adoption by consumers of micro-generation.

Analysis of network design practice

  6.22  TSG Workstream five (Long-term Network Concepts and Options) will take this work forward.

Review of incentives in price controls

  6.23  On 28 May 2002, Ofgem held a preliminary seminar on the development of price controls. A consultation on the principles underlying the price control of networks will follow shortly. The issue of incentives for the connection of distributed generation will be an important factor in the next distribution price control review.


  6.24  It is too early to comment on the last two milestones, which relate to implementation of new arrangements, in and after 2005.

7.  Q 534-537: Ofgem agreed to provide a paper to the Committee on the inconsistency which currently exists, whereby "deep" charges are levied on embedded generators connecting to distribution networks but not on major generators connecting to the transmission network.

Connection charging: Introduction

  7.1  Distributed generators, unlike demand customers and unlike generators wishing to connect to the transmission system, have in the past paid "deep" connection charges, but no Use-of-System (UoS) charges, to the distribution network operator (DNO). Generators connected to transmission networks pay "shallow" connection charges, and also pay UoS charges to the transmission network operator. The principal difficulty with this situation is not that distributed generators are necessarily disadvantaged in comparison with those connected to transmission systems, but rather that the "up-front" payment of "deep" connection charges can sometimes constitute a barrier to development of distributed generation schemes. The Embedded Generation Working Group (EGWG) paper on charging principles notes that the key concern in respect of charging for distributed generation is to ensure that DNOs receive appropriate remuneration for distributed generation, while at the same time removing barriers inherent in the existing charging mechanism. In essence, this is a question of achieving an appropriate balance in the proportion of distribution costs recovered from up-front connection charges and UoS charges.

Guiding principles: "deep" v "shallow" connection charging

  7.2  Up-front charges for connection to transmission networks (in England and Wales) and to gas transportation networks are "shallow" or "shallowish", in that they recover the costs only of local reinforcement. In principle, Ofgem considers that connection charges for embedded generators should also be "shallow", unless there are genuine, practical reasons indicating the contrary.

  7.3  Treating transmission and distribution connections in the same way might tend to reduce perverse incentives for marginal generators choosing between connection above or below the transmission/distribution boundary. Ofgem's September 2001 consultation sought views on whether it might be possible to move towards shallower connection charging, as an interim measure. Some progress was made in Ofgem's March 2002 decision document. The issue will, however, need to be looked at again as part of the next distribution price control review.

Distribution in Comparison with Transmission

  7.4  Although some have suggested that prospective distributed generators are at a relative disadvantage in having to pay "deep" connection charges, it has not been conclusively proved that this is the case. On the face of it, the one-off, "up-front" connection charge paid by distributed generators looks more likely to constitute a deterrent than do "shallow charges" and on-going UoS payments. However, to compare transmission and distribution networks is hardly to compare like with like. It is not self-evident that the connection policies of the two types of network operator should necessarily be the same.

  7.5  Transmission networks have been designed and developed to accept generation connections. Distribution networks, in contrast, are frequently radial and "tapered". They are designed to meet minimum voltage requirements for customers at the end of circuits furthest from substations, but will frequently lack the capacity to export significant amounts of distally-connected distributed generation.

  7.6  Transmission systems are actively managed, having the appropriate control systems in place. Few distribution systems have anything that could be described as active management. There are no control or monitoring systems at low voltage, where it now seems that micro-generation and domestic combined heat and power (DCHP) installations may be connected in significant numbers.

  7.7  It may prove difficult for DNOs accurately to attribute the reinforcement costs associated with micro-generation and CHP. Although this is not a problem faced by transmission operators, it may indicate that shallower charges for embedded generation connections could be appropriate. The "deeper" costs of reinforcement could then be spread over all demand customers or, if such connections were treated as excluded services, over all distributed generation connections.

Connection requirements

  7.8  It is not necessarily true that generators seeking transmission connections enjoy any real advantage. Transmission connections are made in accordance with strict standards. The generator is required to pay a security deposit, and would expect to be liable for termination payments. The requirements of distribution connection are such that the prospective distributed generator can choose between quality and cost of connection, while not being subject to a deposit or termination payment.

  7.9  Distribution connections may also allow more scope for choice in respect of access to higher voltage networks, including (for higher voltage connections) access to the transmission network. Prospective distributed generators will often have the option of negotiating lower connection charges by accepting non-firm connection and the possibility of being constrained off for restricted periods.

Principles for connection charging

  7.10  The policy for connection charging is for the individual DNOs to set, subject to the licence requirement for Ofgem's approval of the form of the statements in which DNOs must set out their connection charging policies ("Condition 4 statements") However, in protecting customers, Ofgem considers that connection charges for distributed generators, as for other parties seeking connection, should be efficient, equitable and comprehensible.

  7.11  Charges should be efficient in that they give appropriate cost signals to prospective generators. If charges do not reflect costs, they may lead to connections at inappropriate points on the network. In the longer term, this could result in further investment for reinforcement that could have been used more efficiently elsewhere.

  7.12  Connection charges should be equitable in that they do not create cross-subsidies between customer groups and do not recover network costs (such as general reinforcement, betterment or asset-replacement costs) that should properly be met from that part of Distribution UoS revenue that is price-controlled. In this context the comparability of transmission and distribution connection charging is relevant, in that the combined effect should not be skewed in favour of either distributed or non-distributed schemes. Consideration should also be given to equity as between generation customers and load customers. These complex issues of perceived discrimination will have to be considered in the light of Ofgem's statutory duties under the Electricity Act 1989.

  7.13  In March 2002 Ofgem issued a paper (Distributed generation: price controls, incentives and connection charging—Further discussion, recommendations and future action) which detailed some recommended interim measures that could be implemented immediately. One of these was that generators connecting to a distribution network be offered a choice of how they pay for their connection. They could either pay the full "deep" connection charge up-front or opt to pay a "shallow" connection charge up-front, with the further costs being spread through an annualised charge negotiated with the DNO.

  7.14  These interim measures address some of the issues and perceived barriers in the short-term, however, connection charging will be considered further as part of the work on the 2005 distribution price control review.

8.  Wind Energy in Denmark

The points below have been obtained by Ofgem from speakers at recent conferences. We believe they are fair and accurate.

  8.1  The Danish system has some 5,000 wind turbines totalling 1,900 MW capacity. We understand that wind and CHP have been encouraged to such an extent that they have, in effect, been given unfettered access to the grid. This is now resulting in serious operational difficulties for Eltra, the grid operating company.

  8.2  The wind generation capability now exceeds the Danish minimum demand (1,200MW). If the wind is blowing at the time of minimum demand this results in a very serious situation for the integrity of any electrical grid. It is not possible to store the excess energy and, on the occasions this has happened to date, the operational difficulties have been overcome only by spilling the surplus energy into their interconnectors to Norway, Sweden and Germany. These were emergency actions and it was fortunate that there was available capacity on the cables at the time.

  8.3  Eltra report a lower quality of supply being experienced by customers. This is likely to be because a large proportion of wind generators will result in an electrically "weak" system. (Wind turbines use induction generators that have no sustained fault infeed capability.) In this situation, faults on the network, for example due to lightning strikes, will be seen as dips on the lights over a very much larger area. Weak systems also suffer waveform distortion and restrict the operation of HV DC interconnectors.

  8.4  The Danish conference speaker remarked that "the rules for wind and CHP were too simple, too cheap and now we are living to regret it". It has been politically unacceptable to constrain the operation of wind generators and the grid operator has no more then a telephone number for them. There are no operational control systems available to the grid operator for managing emergency situations.

  8.5  A separate Danish commentator, from the Elkraft distribution company, has remarked that there are economic issues to be addressed in Denmark: excess production from wind and CHP at times of low electricity prices results in their marginal costs not being covered during these periods. This speaker also noted that Germany is likely to have an excess wind capacity problem and will be limited in its ability to provide an export opportunity for Denmark.

  8.6  The position in Britain must of course be considered in its own context. It is advantageous from the wind energy perspective that our minimum demand is substantially greater (demand in GB is some 20 times larger); on the other hand, we have very much less interconnection capability to our neighbours (less than 5 per cent of peak demand, compared with 75 per cent in Denmark). We have the further challenge that our operational management of minimum demand also needs to accommodate the nuclear generators which, for different reasons, also cannot readily have their output reduced. National Grid would be better placed to comment on this in detail.

9.  Ofgem response to DTI's consultation on draft social and environmental guidance to Ofgem

  9.1  Ofgem's short response to DTI's consultation of May 2001 is attached.

June 2002

55   In order to meet consumer demand, DNOs are required to develop their networks in accordance with the security requirements of ER P2/5. Back

56   "Governance of Electrical Standards: Consultation paper", Ofgem, April 2002. ( Back

57   University of Manchester Institute of Science and Technology. Back

58   "Proposed Electricity Distribution Licence Condition 25-Form of Long Term Development Statement: Consultation Paper", Ofgem, June 2001 ( Back

59   "Proposed Electricity Distribution Licence Condition 25-Form of Long Term Development Statement: Summary of responses", Ofgem, August 2001 ( Back

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