The Electricity Transmission
Grid and Distribution Systems
33. Historically, the electricity transmission network
has been developed around large scale fossil fuel-fired or nuclear
generating stations, usually of more than 1000MW generating capacity.
These power stations were sited either close to fuel sources,
for example on coal fields, or with deep-water access to allow
fuel delivery by sea. Additionally, coastal siting gave easy access
to adequate cooling water for all types for power station, notably
34. The national electricity grid system is designed
to accommodate large injections of electrical energy from these
power stations and is operated at very high transmission voltages
(275kV and 400kV) for reasons of efficiency. Large amounts of
electricity are moved around the country using the transmission
system for delivery to 'bulk supply points'. Here, electricity
is transformed down in voltage for onward movement via distribution
networks to commercial, industrial and domestic customers, each
category operating at lower voltages.
35. The operation and control of the grid is the
responsibility of a grid operator (the National Grid Company (NGC)
in England and Wales, for example). The operator ensures that
generating companies have access to the transmission network and
that the level of supply balances the level of demand on an instant-to-instant
basis. Stations are 'despatched', that is they are instructed
to produce electricity in order to help the operator maintain
the demand/supply balance. With conventional power stations, despatch
is reasonably straightforward since they hold stocks of fuel and
can generate at will, but small-scale generation (for example,
from renewable sources such as wind power) is often available
only on an intermittent basis and consequently is not deemed despatchable.
Instead, a scaled value of the rating of the plant is taken to
be equivalent to despatchable plant, so-called declared net capacity
(DNC). For example, for wind energy, DNC is around 35%, so, basically,
a 100MW wind farm is regarded by a network operator in the same
light as a 35MW conventional station. However, some renewable
sources are more predictable than others and some can be despatched.
With the current low level of penetration of renewable energy
into the network, the operators can cope with the intermittence
of generation. Some commentators believe that if renewable energy
developed to the point where it was supplying 20% or so to the
grid, system operation might become a matter of concern. Others
believe that new methods of system operation will be developed
and that effective operation will be possible.
36. The distribution network was not designed in
the same rigorous way as the transmission network. Rather it grew
as demand presented itself. For example, a small industrial estate
might be built outside a town and would have to be supplied with
electricity, so the distribution network would be extended to
accommodate the new demand. It is at this level in the electricity
network that small-scale generators are connected since connection
at transmission level cannot usually be justified either economically
or technically. Connections made at distribution voltage are known
as 'embedded generation'.
37. While small-scale generators are not usually
connected directly to the transmission network, they may use that
network to move power around. For this, they incur 'use-of-system'
charges which are based on the degree to which they place a burden
on the network.
38. The current design of the electricity grid
presents several challenges to the renewable energy and combined
heat and power industries.
The existing networks were designed for tapered voltages,
reducing from the very high voltage of the transmission network
through the distribution system down to the domestic consumer's
voltage. Voltage levels depend partly on the settings of equipment
on the network and partly on the direction of the flow of current
in the network. If current flows are reversed, which happens when
power flows are reversed, voltage tapering will be reversed. This
can have a significant and detrimental effect on the protection
systems of the network and on the continued stable operation of
the network. Embedded generators provide electricity into the
system at distribution level, where it was not originally expected.
Protection systems on the distribution network have to be reassessed
and, in most cases, redesigned. This problem is most difficult
with intermittent energy sources, such as wind energy: when no
power is generated during flat calm the direction of power flow
will be the 'conventional' direction; when the wind blows, it
can be opposite to that.
39. There are statutory limits for voltage, frequency
and availability for the network. The system operator maintains
these by despatching plant and by controlling power flow. When
a perturbation occurs to the network there will be a momentary
mismatch between supply and demand. If this mismatch continues
the resultant network frequency change will be detected by automatic
protection devices. Such devices will disconnect sections of demand
until a balance has been achieved. In the most extreme case where
no balance could be achieved, the fault would cascade through
the entire network causing it to shut down. In the present UK
network, this is extremely unlikely.
40. The first responsibility of the network operator
is to protect the network. Any installation connected to the network
must not jeopardise its operation. The 'fault level' at a particular
point is the maximum power flow in the network as a consequence
of a failure in the equipment at that point. In many cases, the
fault level at an embedded generation site is well above the power
generation capability of the embedded station. To protect the
existing grid, equipment at the embedded power station must be
installed by the network operator to meet this more onerous (and
more expensive) rating. The owner of the embedded station will
normally be asked to bear the cost of upgrading immediately, rather
than being allowed to spread the cost over the lifetime of the
plant. The cost of both connecting the generating plant and dealing
with any consequent changes to the distribution network, we were
told, "can stop [renewables] projects in their tracks".
The Renewable Power Association explained that the charges could
reach anything up to £1 million per megawatt, which was often
more than the value of the renewable development itself.
We took evidence on the problems caused for renewable power by
the present arrangements for connecting to the distribution network.
The Association of Electricity Producers said that the real problem
was the fact that producers had to pay these 'deep connection'
charges immediately. An alternative would be to change to a system
of 'shallower connection', where the producer would pay a smaller
charge immediately, and the costs of the consequential changes
to the network would be recovered from the producer over a longer
period by means of charges for using the system.
Ofgem is at present undertaking a consultation on the whole issue
of connection charges.
A number of witnesses thought the timing of this very useful because
it would enable decisions to be taken well ahead of the next price
review for the distribution companies, which would be held in
charges represents a serious obstacle for small scale generators
which can affect the viability of developments which may otherwise
be financially sound.
41. The present network was designed to include points
where the network could accept and distribute large quantities
of electricity. With embedded generation, such points do not usually
exist and the construction of a new embedded generator will necessitate
a local upgrade of the distribution network. While this process
is not difficult technically, involving the 'restringing' or 'reconductoring'
of wooden poles or the introduction of new distribution lines,
it does incur significant cost. Since many new generators are
in remote areas, the cost of providing the necessary connection
and distribution infrastructure can be such that the expense will
preclude the building of one, or several, power stations.
42. The present transmission network and distribution
networks are, understandably, strong near the main centres of
population. While embedded generation, such as CHP schemes, can
often (but not always) be installed at suitable places in the
existing electricity network, the probable location of a significant
proportion of the UK renewable energy generation capacity is not
convenient. Renewable resources, predominantly in the North and
West of Great Britain, are far from the major electricity markets
of the Midlands and the South East of England and the transfer
of large quantities of energy presents a challenge to their exploitation.
The use of conventional overhead transmission (pylons) is the
cheapest and most technically-attractive solution, but major environmental
hurdles would have to be overcome to drive transmission lines
through areas like the Western Highlands, for example.
An existing transmission bottleneck in Yorkshire already makes
it difficult to export power from Scotland to England. Land cabling
over such distances would be extremely expensive (up to twenty
times the cost of overhead) and technically demanding, as well
as controversial environmentally. The Minister conceded that one
of the difficulties in the way of exploiting wind and wave power
fully was the immense and perhaps insuperable
objections to strengthening the transmission network on land to
the extent required.
Furthermore, proposals to make charges for the use of the transmission
network more cost-reflective (by, for example, increasing them
for electricity lost in transmission, which would penalise the
more distant electricity producers) would have a significant effect
on many existing and proposed renewable energy developments.
43. We have highlighted a number of areas where
the systems in place for electricity transmission and distribution
present technical and economic barriers to the future development
of renewable energy and embedded generation. It could be argued
that such obstacles will be overcome once the electricity market
conditions make it economically viable, but this would ignore
the rate at which such capacity must be developed if the Government's
targets of reduced reliance on carbon-based energy sources are
to be achieved in practice. The Government needs to take a strategic
view of what is required and to have a clear idea of what mechanisms
it could use to steer the market to provide the necessary infrastructure.
Future investment in transmission
44. The DTI recently announced a feasibility study
of proposals to run a submarine cable from North West Scotland
down the West coast of Great Britain to provide a transmission
system for offshore and other renewable energy generation. This
would appear to have great potential to alleviate the problems
caused by the North-South transmission bottleneck and would provide
a significant boost to the development of renewables such as offshore
wind and wavepower. It seems to us that the installation of
hundreds of kilometres of cable in areas of some of the most hostile
seabed and surface conditions around the UK would be a severe
engineering test and could prove to be very cost-intensive. The
identification of a suitable bulk injection point(s) to connect
to the existing network would be an important consideration. In
this regard, we were surprised to hear from NGC that the company
had not been involved in preliminary discussions during the development
of the project proposals.
Given the misgivings that have been expressed we welcome the
feasibility study commissioned by the Government.
45. The costs of such a cable would be very high.
Greenpeace expressed the view that the cable should be paid for
by the Government, on the grounds that existing, land-based power
generating companies had benefited from the earlier creation of
the transmission/ distribution networks using public money, and
that providing offshore renewable power generators with a similar
infrastructure was only fair.
46. In general, the Government relies on the regulatory
regime to produce the right market signals to secure investment
to maintain and develop the distribution systems in both the gas
and electricity sectors, although different regulatory devices
are used in each case. For the electricity industry, planning
standards are used to maintain supply security. The NGC is required
to report on the state of the transmission network and to provide
forecasts of power flows and loading on all parts of its system,
by means of the Seven Year Statement that it produces as a condition
of its licence to operate. Distribution companies must meet minimum
supply security standards and publish five-year outlooks for investment
in their part of the infrastructure. Ofgem intends to introduce
new transmission access and pricing arrangements to ensure that
the true value of transmission access can be identified. This
could place a further hurdle in the way of the creation of a network
suitable for renewable energy generation.
47. For the gas sector, Ofgem has developed proposals
for long-term signals and incentives to investment by Transco.
Ofgem will provide for longer-term auctions of rights of entry
to the transmission system.
It is intended that these auctions, together with data on the
secondary trading of transmission capacity, will provide Transco
with signals about the need for new capacity and additional investment,
and that the new price proposals agreed with Transco will give
the company the financial capability to make such an investment.
48. Much of the concern about whether there will
be sufficient investment in future infrastructure needs focuses
on the operation of the "RPI - x" formula (Retail Price
Index minus a stated percentage) for energy pricing. The Regulator
has used this formula since privatisation to provide downward
pressure on prices for consumers, and it has clearly been very
effective; but it has been vigorously criticised both by energy
companies and by some other commentators on the grounds that it
encourages the 'squeezing' of existing assets without encouraging
companies to make necessary investment: in effect, companies are
using the over-capacity built into the system in the days of nationalisation
to meet demand without making provision for future needs.
Some critics even suggested that the formula, by encouraging short-term
exploitation of assets, not merely failed to encourage long-term
investment but actually discouraged it.
Mr Callum McCarthy, the Chief Executive of Ofgem, admitted to
us that RPI - x was "essentially a revenue cap and did not
do enough to define outputs" in terms of service standards;
but he said that Ofgem did not accept that the formula needed
to be scrapped: it would be adjusted, not thrown out of the window.
49. We are pleased that Ofgem is reviewing the
operation of RPI - x and is aware of the need to devise a formula
that will give clearer signals to the market about long-term investment.
We also note that, by the time we took oral evidence from them,
both NGC and Transco expressed themselves satisfied that their
concerns about investment needs would be taken into account.
However, even the most enthusiastic advocates of market forces
admitted that liberalised competitive markets did not necessarily
provide investment in areas like infrastructure,
and that state intervention might be necessary. We concur in this
view, and therefore urge the Department and Ofgem to make it a
priority to ensure that companies are given sufficient leeway
to invest in maintaining and developing a robust energy infrastructure,
and to continue to keep under review all the mechanisms available
to ensure that there are no regulatory/fiscal disincentives to
21 A new compressor has to be installed at Zeebrugge
before the gas flow to the UK can be increased. The upgrading
should be completed in 2005-6: Q 668 (Lattice/Transco). Back
Transco noted that whereas "last winter" (ie 2000-01)
there were gas imports on peak days, by 2005 the UK was likely
to have to import in average winter conditions (Q 659). Centrica
estimates imports will run at about 20% in 2010, notwithstanding
further development of the UKCS (Appendix 27). Back
See, for example, Qq 90-2 (Gas Forum), 376 and 377 (Chemical
Industries Association), 461-3 (Electricity Association) and 667
(Lattice/Transco); Appendices 14 (Memorandum from Jonathan Stern)
and 30 (Memorandum from Total Fina Elf Holdings UK Ltd). Back
See the concerns expressed, for example, by the Gas Forum (Qq
92, 111, 120 and 137); UK Offshore Operators' Association (Qq
206 and 233); Chemical Industries Association (Q 377); Lattice/Transco
(Qq 667 and 668); Centrica (Appendix 27, paragraphs 23-24); and
Total Fina Elf (Appendix 30). Back
Appendix 14 (Jonathan Stern). Back
Paragraphs 48 and 49 below. Back
Q 642 (Energywatch). Back
For a description of CHP, see the annex to this Report, p.77. Back
Qq 121 and 128-131 (Gas Forum), 218 and 222 (UK Offshore Operators'
Association), 663 (Lattice/Transco). Back
Q 123 (Gas Forum). Back
Qq 122 and 128-31 (Gas Forum), 218-221 and 226 (UKOOA), 674-7
Standards may have to be set at a European level: see Qq 663-4
(Lattice/Transco) and also the interesting options put forward
by Lattice in Appendix 25. Back
As might be expected, the British Wind Energy Associations believes
any problems can be overcome (Appendix 11). The potential problems
caused by intermittency are discussed further in paragraphs 38-40
Larger renewable energy generators, such as some offshore wind
farms, might, however, be connected directly to the transmission
system: Qq 710 and 711 (NGC). Back
See the comments of Northern Electric (Appendix 10) and British
Wind Energy Association (Appendix 11). Back
Q 349 (AEP). Back
Q 358. Back
Q 349. The National Grid Company told us that its approach for
renewables projects large enough to connect directly to the transmission
network, was to charge on a 'shallow' basis, recovering the other
costs by means of a location-based tariff which imposed higher
costs the further the generators were from their customers (in
order to reflect transmission losses): Qq 710 and 711. Back
Ofgem recognises the great importance of this work to the development
of renewable energy in the UK: Qq 527 and 528. Back
Qq 349 (AEP) and 602 (Energy Saving Trust). Ofgem's consulation
document on this subject is entitled Embedded generation: price
controls, incentives and connection charging (September 2001)
and is available at www.ofgem.gov.uk/docs2001/58_embedded.pdf.
The deadline for responses was 16 November 2001. Back
The National Grid Company told us that, because of cost and planning
difficulties, "We try to avoid building any new [transmission
lines] at all costs." (Q 688) Back
Q 299. Back
Appendix 38 (Ofgem's Supplementary Memorandum). See the views
of the Electricity Association, Qq 466 and 467, 469 and 470.
For a description of the problem of transmission losses, see Qq
707-9 (NGC). Back
Qq 712 and 713. Back
Q 542. Back
See paragraphs 71 to 73 below on gas auctions. Back
Qq 139 and 140 (Gas Forum), 461-3 (Electricity Association),
705 and 706 (NGC). Lattice/Transco and UKOOA argued that even
the service requirements (for example, to meet a peak demand for
a 1 in 20 winter) did not give sufficient flexibility, and Ofgem
should recognise the need of the transmission companies to invest
in extra capacity: Qq 233 and 679. Ofgem suggested that there
were differences between the gas and electricity networks: although
little extra infrastructure might have been provided for the electricity
network, the gas network had expanded significantly since privatisation:
Qq 529 and 30. Back
See, for example, the comments made by the Electricity Association
(Q 461), pointing out that with a price review period of five
years, it is very difficult for Ofgem to take into account the
sort of long-term investments needed to be made now in order to
ensure security in 15 or 20 years' time. Lattice (Q 679 and 683)
complained that, in fixing transmission companies' prices and
terms, Ofgem disallowed investment in necessary extra infrastructure
capacity on the grounds that it was too expensive to the consumer.
See also Appendix 10 (Northern Electric). Back
Qq 497 and 498. Back
Although some reservations were expressed by Transco: see, especially,
, Qq 683 and 684. For NGC see Qq 705 and 706. Back
Appendix 16 (John Mitchell, paragraph 7). See also Q 669, where
Lattice/Transco describes how upgrading the Zeebrugge compressor
would significantly increase security of gas supplies for UK consumers
but, because it would be used only a few days per year, might
not be worth the extra investment to the owners of the compressor. Back