Memorandum submitted by the National Grid
1. National Grid owns and operates the high
voltage electricity transmission system in England and Wales and,
as Great Britain System Operator (GBSO), we operate the Scottish
high voltage transmission system. National Grid also owns and
operates the gas transmission system throughout Great Britain
and through our low pressure gas distribution business we distribute
gas in the heart of England to approximately 11 million offices,
schools and homes. In addition National Grid owns and operates
significant electricity and gas assets in the US, operating in
the states of New England and New York.
2. In the UK, our primary duties under the Electricity
and Gas Acts are to develop and maintain efficient networks and
also facilitate competition in the generation and supply of electricity
and the supply of gas. Our activities include the residual balancing
in close to real time of the electricity and gas markets.
3. Through our subsidiaries, National Grid also
own and maintain around 18 million domestic and commercial meters,
the electricity Interconnector between England and France, and
a liquid natural gas importation terminal at the Isle of Grain.
4. The Government's vision for 2020 must
be of a transmission system which evolves to connect extensive
renewable generation to achieve climate change objectives. This
sustainability objective must be achieved whilst maintaining a
diverse generation background and appropriate network standards
in order to maintain security of supply and to do so affordably.
5. We set out a blueprint for the evolution
and operation of the electricity transmission system, including
strategic investments in physical assets and the challenges in
operating a generation fleet with radically different operating
characteristics. The regulatory and market frameworks appropriate
to the incremental changes in generation of the past must now
be revised; National Grid is leading the way in the industry and
bringing forward proposals for change.
6. Since June 2008, we have worked with
other energy companies, Government and Ofgem within the Electricity
Networks Strategy Group (ENSG). Following extensive modelling
efforts by National Grid, in March 2009, ENSG published a vision
of the network reinforcements required to meet the 2020 renewable
7. Our vision, which is shared by ENSG,
was based on an energy scenario developed by National Grid and
tested within ENSG covering the UK's total energy demand across
the electricity, heat and transport sectors. This scenario set
out the requirement to connect circa 32 GW of renewable wind capacity;
around 20 GW offshore and 10 GW onshore by 2020, while accounting
for an unprecedented churn in the generation fleet due to the
closure of older coal and oil plant because of the Large Combustion
Plant Directive, and the retirement due to age of existing nuclear
capacity. It also recognises the connection of 12 GW of new gas-fired
generation in the same timescales.
8. Whilst further work is necessary to fully
cost the solutions, our current estimate is that onshore transmission
network investments will total £4.7 billion. We estimate
that this amounts to about £6 on domestic consumers' annual
9. This will result in a challenging investment
programme which we believe can be delivered providing a number
of policy and regulatory hurdles are overcome.
9.1 Effective implementation of National Policy
Statements recognising the investment in the transmission network
identified by ENSG and the establishment and maintenance of an
Independent Planning Commission as set out in the Planning Act
9.2 Timely changes to the current regulatory
framework to deliver the required network investment to allow
network companies to make strategic, rather than piecemeal investments.
9.3 Review the proposed offshore transmission
arrangements in light of the 2020 targets such that offshore transmission
networks are delivered most effectively within a strategic plan
for offshore investments rather than ad hoc connection applications.
9.4 We have led the industry in putting forward
proposals for a root-and-branch reform of the regime prescribing
the use of the transmission network. Agreement within the industry
and with Ofgem is now key to the timely delivery of revised transmission
access arrangements and thereby the greater proliferation of renewable
10. Operating the system described by ENSG
poses significant challenges. Variable wind generation together
with larger and potentially more inflexible plant will require
additional balancing services. Yet much of the older, more flexible
fossil-fuelled plant that has traditionally provided these services
11. We expect the generation market to deliver
many of these services. However, we are working hard to develop
new providers. Smart metering may unlock a new source of these
services from households and from distributed generation. It may
also provide increasing energy efficiency, improved demand forecasting
and facilitate electric vehicle adoption. We will be consulting
on our need for greater volumes of balancing services in April
2009. However, given the potential that smart metering presents,
we advocate the efficient and rapid roll out of the technology
to capture the benefits as soon as possible.
12. Distributed generation and smart technologies
are likely to play a significant role in meeting the UK's renewable
energy targets. Our scenario for 2020 includes contributions from
embedded biomass CHP, solar thermal and solar photovoltaic technologies.
The transmission system must work alongside small scale generation
and demand technologies to maintain historical levels of security
of supply and to achieve our renewable energy ambitions.
13. We are active in working with partners
to understand and exploit these new technologies. R&D funding
through Ofgem's Innovation Funding Incentive is welcomed, although
our potential involvement and development of new technologies
is limited to a narrow scope within the existing remit of our
licence. We advocate extending the criteria and increasing funding
to allow us to consider innovation and R&D on a much wider
What should the Government's vision be for Britain's
electricity networks, if it is to meet the EU 2020 renewables
target, and longer-term security of energy supply and climate
1. National Grid supports Government in
addressing climate change. We welcome the commitment to sustainability
by agreeing the EU 2020 renewables target and setting a greenhouse
gas reduction trajectory towards meeting the 2050 target. The
electricity transmission network of the future must connect renewable
and low carbon generation to the country's demand centres. However,
it must also provide security of energy supply and do so at an
2. It is our view that the electricity, heat
and transport sectors must significantly contribute to carbon
emissions reductions to meet all climate change objectives up
to the year 2050. Our scenario modelling of the country's future
sources of power generation suggests three key strategies are
Use less energy through simple and economic
efficiency measures across the heat, transport and electricity
Decarbonise electricity through renewable
wind deployment and low-carbon technology. Wind generation offers
huge near term potential combined with a mature and economic technology
platform. Electricity decarbonisation also unlocks the long-term
potential for eliminating emissions from the transport sector
through the gradual electrification of the vehicle and rail fleet.
Reduce the carbon content of heat. This
can be achieved by increasing the use of renewable heat sources
or by substituting carbon-intense incumbent fuel with a cleaner
3. Based on an energy scenario which meets
climate change objectives, a UK "map" of windfarms power
stations was generated. National Grid, working within the Electricity
Networks Strategy Group (ENSG)
then determined a blueprint for the future electricity transmission
system. ENSG is a collaboration which includes Government, Ofgem,
National Grid and the Scottish Transmission Owners. The National
Grid vision which is shared by ENSG, meets the renewables and
carbon reduction targets whilst facilitating the connection of
other generation that is required to maintain security of supply.
4. Our vision economically facilitates 32
GW of transmission connected offshore and onshore wind generation
by 2020. We must also connect new carbon capture and nuclear technologies
which will provide base-load and /or mitigate the effects of intermittent
5. A map of the strategic investments is
provided in appendix 1.
How do we ensure the regulatory framework is flexible
enough to cope with uncertainty over the future generation mix?
How can the regulatory framework ensure adequate
network investment in light of the current credit crunch and recession?
6. A more flexible mechanism is required
to deliver the infrastructure investment in our vision. These
are "strategic investments", because they are undertaken
prior to specific connection signals from generators. Moreover,
strategic investment ensures that the construction programmes
of the transmission companies and (particularly) the wind farm
developers are aligned. This strategic approach underpinning our
vision avoids the inefficient and piecemeal connections that would
have been driven by an approach based on individual applications.
7. Strategic investment requires changes
to the current regulatory regime and National Grid is in discussions
with Ofgem on this matter. Assuming the license changes, currently
being consulted upon to provide funding for preliminary engineering
in 2009/10, are approved, the key issue will be to agree a regulatory
model for strategic investment as soon as possible. Agreeing an
appropriate regulatory regime in a timely manor will be particularly
appropriate in light of the current credit crunch and recession.
What are the technical, commercial and regulatory
barriers that need to be overcome to ensure sufficient network
capacity is in place to connect a large increase in onshore renewables,
particularly wind power, as well as new nuclear build in the future?
For example issues may include the use of locational pricing,
or the availability of skills.
8. Our vision comprises of some technologies
which have yet to be employed in the UK energy system i.e. HVDC
and Series Compensation. Despite this, we believe that there were
no technical barriers, including supply chain issues, to the incorporation
onto the system of the level of wind required to meet targets.
9. Further operational challenges are posed by
the increase in wind powered, nuclear and carbon capture-ready
generation. This is exacerbated by the closure of older, conventional
fossil-fired generators as European Directives come into effect.
Each challenge requires additional balancing services and can
be described thus:
reserve required to complement intermittent
reserve/response that may be required
against the potential for new generation plant to be delivered
without the required flexibility; and
fast-acting reserve (called response)
against the expectation that larger plant will increase the maximum
potential instantaneous loss of generation from its present level
of 1320 MW.
10. These additional balancing services
may derive from generation or from new and existing demand side
players. In order to explore the potential for new services, National
Grid will initiate a major consultation process in April 2009.
This will seek views on the extent of the challenges, and the
strategies that we need to adopt in order to address them.
11. There are three major commercial/regulatory
challenges to be overcome in order to deliver the networks in
the ENSG. The first is strategic investment, to which we have
12. The second is to optimise new and existing
transmission capacity through reform of the Transmission Access
Regime (TAR) and optimisation of the generation "queue":
In respect of TAR, National Grid has
led the industry debate by raising Connection and Use of System
Code (CUSC) amendment proposals and proposing modifications to
the charging methodologies. We anticipate that this process will
conclude by 2010-11 dependent on which modification proposal is
chosen to be progressed.
The management of our existing network
capacity is no less important to efficient capacity allocation.
Unused long term access capacity available on the GB Transmission
System can be utilised by those projects that are able to take
advantage of this capacity. Where long term capacity is not available,
we examine alternatives that may still provide options for connection.
13. Thirdly, in respect of planning, we
require the effective implementation of National Policy Statements
recognising the investment in the transmission network identified
by ENSG. We also require the establishment and maintenance of
an Independent Planning Commission as set out in the Planning
14. National Grid's transmission licence
obligations require us to charge our customers cost-reflectively.
However, we recognise that some key stakeholders believe that
this acts as a disincentive for renewable generators to locate
in Scotland. We are currently seeking industry views on potential
changes to the charging regime which might address these concerns
and which can be assessed against our current licence obligations.
What are the issues the Government and regulator
must address to establish a cost-effective offshore transmission
15. We believe that the regulatory regime
currently being developed could lead to sub-optimal network design,
higher costs to consumers and delays to the connection of offshore
generation. No organisation has certainty that it will be required
to deliver offshore transmission. There is little incentive on
potential Offshore Transmission Owners (OFTOs) to develop the
capability to deliver offshore transmission infrastructure. Ultimately,
we believe that the proposed regime threatens the ability of the
UK to meet the 2020 renewables target.
16. Ensuring some certainty for the various organisations
to deliver offshore transmission could be achieved by extending
the onshore regime offshore. Alternatively, the following generic
process could be envisaged.
A Transmission Design Authority (TDA)
develops a coordinated and strategic plan.
A body is charged with approving the
physical/engineering activities within a defined zone.
The enduring regime is advanced in a
coordinated way through the early appointment of regional OFTOs,
which enables early and co-ordinated planning activity. This process
forces windfarm developers proactively to coordinate amongst themselves
to avoid the risk that early developments interfere with, or worse
sterilise, the effective and efficient rollout of the latter (significantly
17. Whilst more complex than an extension
of the onshore regime, the alternative proposal is likely to deliver
strategic reinforcement in a timely manner, in contrast to the
piecemeal and inefficient approach of the currently envisaged
What are the benefits and risks associated with
greater interconnection with other countries, and the proposed
18. Interconnectors provide access to the
European electricity markets so increasing competition in electricity
supply. The UK already benefits from interconnection to the European
mainland, through the England-France interconnector and there
is also an interconnector to Ireland. An interconnector from the
UK to Netherlands is currently under construction.
19. Interconnectors are also capable of providing
a range of balancing services, including response and reserve;
which aids liquidity and competition in the market. Indeed, the
unpredictable nature of electricity from renewable energy sources
means that firmness and duration of balancing services from providers
such as interconnectors will be of greater importance. Of course,
interconnectors impact upon the transmission system and can cause
constraints on our network and those of our European neighbours.
These effects are generally considered in the business case for
20. Renewable wind projects are likely to
be developed further from the European mainland and the UK. Consequently,
the future case for interconnection between projects might become
more compelling. However, technical, commercial and regulatory
challenges remain, including greater harmonisation of regulation
across the EU.
What are the estimated costs of upgrading our
electricity networks, and how will these be met?
21. Whilst there is further work necessary
fully to cost the solutions, our current estimate is that onshore
transmission network investments will total £4.7 billion.
This means that the end-consumer will see an additional circa
£6 annual charge on an electricity bill.
What challenges will higher levels of embedded
and distributed generation create for Britain's electricity networks?
22. Meeting the renewables target requires a
contribution from embedded generation. However, we regard embedded
generation as complementary to, not a substitute for, transmission
connected generation. It is the energy security delivered by the
interconnected national transmission system which provides intermittent
renewable energy with a platform for growth and to enjoy volume-driven
unit cost reductions.
23. Embedded generation technologies (including
micro generation) must contribute to, rather than detract from
power system security. Large power stations must comply with strict
technical connection standards (called the Grid Code) and appropriate
standards must also be developed for embedded generation of all
24. We believe that the funding level is
inadequate in the face of the significant technical challenges
ahead. We propose that our existing IFI funding should be doubled
and that the scope of the IFI funding rules are relaxed. This
would enable us to explore the network impact of a wider range
of emerging energy technologies such as carbon capture and storage,
energy storage and the downstream adoption of smart technologies.
What can the UK learn from the experience of other
countries' management of their electricity networks?
25. National Grid collaborates with other
TSOs within various European trade bodies and participates in
international benchmarking exercises. We collaborate on technical
standards, scenarios and models in order to further the integration
of renewable wind and support energy security.
84 For non transitional projects including later round
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