The Resilience of the Electricity System - Science and Technology Committee Contents


CHAPTER 6: INTERCONNECTION


183.  Interconnectors are transmission cables which allow the transfer of electricity between countries. Electricity flows from the market with lower prices to the market with higher prices. Currently, Great Britain has four interconnectors providing 4 GW of capacity, representing around 5% of generation capacity.[230]

Figure 7: Interconnection Map

Source: Adapted from National Grid, Interconnectors (May 2014): http://investors.nationalgrid.com/~/media/Files/N/National-Grid-IR/factsheets/2014/interconnector.pdf and Ofgem, Electricity Interconnectors factsheet (May 2014): https://www.ofgem.gov.uk/ofgem-publications/87961/electricityinterconnectorsfactsheet.pdf [accessed February 2015].

184.  In 2002, the European Council set a target that all Member States should have electricity interconnections equal to at least 10% of their generation capacity by 2005.[231] Great Britain was not alone in failing to meet this target; five years after this deadline Great Britain and several other Member States still had less than 10% interconnection. In 2011, the European Council recognised the importance of "a fully functioning, interconnected and integrated internal energy market," to allow energy to flow freely and establish a more reliable and less costly energy system.[232] It was agreed that actions to enable the internal energy market should be completed by 2014. Increased interconnection was one priority in achieving an internal energy market. On 25 February 2015, the European Commission adopted its strategy for a European Energy Union. This included an Interconnection Communication,[233] which set out the measures needed to achieve a target of 10% electricity interconnection by 2020, the minimum necessary for electricity to flow and be traded between Member States. 12 EU Member States do not currently meet the EU's minimum interconnection target, including the UK.[234]

185.  Plans are now in place to increase interconnection between Great Britain and other countries. Dr Charlotte Ramsay, Project Director for NSN Link, National Grid, explained that there were plans for interconnection capacity to double over the next decade:

    "Things have been developing quite significantly over the last 12 months … we are relatively poorly interconnected at the moment in relation to other countries in Europe, but there are plans over the next 10 years to be seeing probably around a doubling of our interconnection capacity. There are a number of projects that are on the verge of their final investment decision, so moving from development into the delivery stage, and that has been brought forward by a step change in the regulatory framework for interconnection."[235]

186.  Increased interconnection, we were told, could bring significant benefits and enhance resilience. Ofgem stated that: "interconnectors play an important role in a resilient GB network as, in times of system stress, electricity can be imported from other markets. There are plans for a significant increase in new interconnection and this will help support future security of supply."[236] Professor Goran Strbac, Faculty of Engineering, Imperial College London, told us that analysis he had been involved in suggested that "the UK will benefit significantly from interconnection."[237]

187.  National Grid pointed to a range of potential benefits that could be realised:

    "National Grid's analysis shows that each 1GW of new interconnector capacity could reduce Britain's wholesale power prices up to 1-2%. In total 4-5GW of new links built to mainland Europe could unlock up to £1 billion of benefits to energy consumers per year, equating to nearly £3 million per day by 2020[238]. Greater electricity interconnection could yield a range of potential benefits to the UK economy and GDP. Through net imports, lower electricity prices to business consumers would reduce input costs, enhance competitiveness and boost household disposable incomes and domestic spending. Through net exports, there is also a significant opportunity for British generators in using interconnectors to access a much wider consumer base across mainland Europe and thus earn additional revenues."[239]

188.  Dr Konstantin Staschus, Secretary General, European Network of Transmission System Operators for Electricity, noted that interconnection would be important in helping to balance the system as the penetration of intermittent renewables extended:

    "[there is an] increasing importance of interconnectors for the future as more and more renewable energy comes into the system here and elsewhere in Europe, more interconnection will have to be built to keep the transition towards low-carbon resources affordable and as resilient as possible."[240]

189.  Dr Charlotte Ramsay put it to us that increased interconnection with countries, such as Norway, with its surplus of hydropower generation, could prove particularly beneficial:

    "… an interconnector to Norway, which is a predominantly hydro system, would have more capacity value than a connection to Ireland because, as has been pointed out, the Northern Irish system may be in more trouble than ours and the Irish system is much more similar to the UK system."[241]

Similarly interconnection with Iceland could be beneficial due to its geothermal energy sources. [242]

190.  The desirability of increased interconnection, however, was not a unanimously shared view. It was suggested to us by Energy UK and EDF Energy that not enough was known about how interconnectors will function, particularly in terms of what would happen if a number of interconnected countries experienced system stress at the same time:

    "Increased interconnection with the rest of Europe can improve resilience but as the flows are determined by market prices, there is a prospect of exports at time of system stress if it coincides with a similar situation in interconnected markets. These risks and the powers of Governments to restrict interconnector flows need to be better understood …

    For example, high pressure systems in winter, which can cover the whole of North-west Europe, could create widespread high demand for heating at the same time as significantly reducing wind output over periods of up to two weeks. Building interconnectors to a number of different countries could mitigate this risk. Nevertheless, there remains a question about whether the market can be circumvented to stop exports."[243]

    "… interconnection will only help to contribute to security of supply if there is spare capacity in neighbouring countries when it is needed. As the level of interconnection between GB and neighbouring systems grows, it will be increasingly important to consider what would happen in the event of a stress event affecting a number of interconnected countries simultaneously."[244]

191.  We were told, however, that in an emergency the interconnector could be manipulated so that electricity could flow in the right direction. Dr Charlotte Ramsay, Project Director for NSN Link, National Grid, stated:

    "In terms of emergency situations, let us say the flow is going in a different direction because prices up to real time have dictated flow in a different direction. Because of the arrangements that we have in place, because of the market arrangements that are in place, the interconnector can be turned round to be able to provide flow in the right direction, to be able to support the system."[245]

192.  Rachel Fletcher, Senior Partner for Markets, Ofgem, confirmed that such arrangements were in place:

    "… the system operator [National Grid] has contracted for what they call emergency services on the interconnector. So if we are in a particularly tight situation, National Grid can call on emergency interconnector support into Great Britain, but that would not be a normal functioning of the market; it would be National Grid intervening and taking emergency measures."[246]

193.  While we welcome these clear statements from National Grid, supported by Ofgem, it is a source of concern that there appears to be some confusion about what can be done if a number of interconnected countries experience system stress at the same time.

194.  Ofgem have made recent improvements to the regulations[247] in order to support investment in interconnectors: "We have developed a regulatory regime for new electricity interconnectors that will help to ensure that efficient levels of investment are brought forward in a timely way."[248] It appears that the new regulations have been successful in bringing forward investment. Dr Charlotte Ramsay told us that:

    "… the decision from Ofgem in the summer time to bring forward their innovative cap and floor regime for interconnection, [means] that there is now a clear pipeline of interconnector investment that is looking to come forward between now and 2020."[249]

195.  It seems, however, that there may still be limits to commercially optimal investment in interconnection. Professor Catherine Mitchell, University of Exeter, claimed that regulation was outdated and not fit for today's challenges:

    "One of the reasons why we have very high wholesale prices is that, I think, 2% of our total capacity is interconnected, and the Commission wants to have roughly 10%. In my view, and I am sure many people would say it is very simplistic, I think it has been in the interests of the large generators in Britain not to have interconnectors, because if you were to have interconnectors then cheaper electricity would come in from the continent. The regulation of the way that we fund our interconnectors has always been that it is a market system based on the interconnector itself, as compared to the whole of the rest of Europe, which sees interconnectors as part of the transmission system. So they go along to their regulator, their regulator says you can have the money to do that and then they socialise the cost of the interconnector over the cost of electricity. We have now been forced to go down a third way because our British system has not fitted with the European system, and now we have some fudge between a market and a regulated mechanism. Overall, this is part of the issue that I am talking about. We have a set of regulations that are based on older technologies and we need to move into regulations that fit the world that we live in."[250]

196.  Professor Goran Strbac put it to us that there was a problem insofar as "the offshore connection developments and interconnection are different businesses and they are not coordinated."[251] In his view, this left National Grid unable to make commercially optimal investments. For example, it could make sense, commercially, to route the planned GB-Norway interconnector via Dogger Bank in the North Sea in order to take advantage of the offshore wind farms developed there. Professor Strbac also expressed concern that interconnection was not initially included in the Capacity Market:

    "… the Panel of Technical Experts for DECC that is scrutinising the implementation of electricity market reform and the capacity mechanism […] expressed a concern that interconnection has not been included in this."[252]

197.  Although interconnectors were not included in the first Capacity Market auctions, the Government announced on 2 December 2014 that interconnectors would be eligible to participate in the Capacity Market from 2015—for the second four year ahead auction. There is concern, however, that over procurement of generation capacity could inhibit investment in interconnectors. Professor Strbac asserted:

    "… another concern we have is that we might in fact potentially buy too much generation, in which case we may not necessarily benefit from interconnection—the benefits may not be possible to realise because we will have already spent the money, which should not have been spent."[253]

198.  Professor David Newbery, Cambridge University, and Professor Michael Grubb, University College London, warned that:

    "The risk of over-procurement [in the Capacity Mechanism], particularly of new conventional capacity on long-term contracts, is that it drives up the costs to consumers; undermines renewable energy by implicitly transferring financial support from renewables to conventional generators; and impedes the European Single Market's aim at a single pan-EU electricity market, including by weakening the business case for other options, including future interconnectors that are widely agreed to be increasingly important as the share of intermittent electricity rises."[254]

199.  In summary, interconnection seems to have an important role to play in resilience. There is, however, at least a perception that the evidence base for how interconnectors will behave is lacking. In addition, although Ofgem has taken steps to improve the regulatory environment, more could be done to enable effective commercial decisions to be made.

200.  There is a worrying lack of clarity about what options exist if a number of interconnected countries experience system stress simultaneously. We recommend that the Government publishes an analysis of the effects of interconnectors on UK electricity resilience under a broad range of scenarios. This analysis should include an assessment of how interconnectors might be used at times when the system is under stress. It should specifically assess the case for restrictions / agreements to be put in place with other countries at times of system stress if there is evidence that resilience could be compromised.


230   Ofgem, Electricity Interconnectors factsheet (May 2014): https://www.ofgem.gov.uk/ofgem-publications/87961/ electricityinterconnectorsfactsheet.pdf [accessed February 2015] Back

231   Energy and Climate Change Committee, A European Supergrid (Seventh Report, Session 2010-12, HC 1040) Back

232   European Council, Conclusions on Energy (February 2011): https://www.consilium.europa.eu/uedocs/ cms_data/docs/pressdata/en/trans/119253.pdf (accessed February 2015) Back

233   Energy Union Package: Communication from the Commission to the European Parliament and the Council: Achieving the 10% electricity interconnection target, COM(2015) 82 final Back

234   Cyprus, Estonia, Ireland, Italy, Lithuania, Latvia, Malta, Poland, Portugal, Romania, Spain, United Kingdom. Back

235    Q111 (Dr Charlotte Ramsay) Back

236   Written evidence from Ofgem (REI0044) Back

237    Q111 (Professor Goran Strbac) Back

238   National Grid, Getting More Connected (March 2014): http://www2.nationalgrid.com/WorkArea/ DownloadAsset.aspx?id=32371 [accessed February 2015] Back

239   Written evidence from National Grid (REI0017) Back

240    Q140 (Dr Konstantin Staschus) Back

241    Q104 Back

242   Iceland has both geothermal and hydro resources. We were told that interconnection with Iceland was "forbidding but not impossible." ( Q86, Professor Gordon Hughes) Back

243   Written evidence from Energy UK (REI0034) Back

244   Written evidence from EDF Energy (REI0030) Back

245    Q105 Back

246    Q181 Back

247   Known as the 'cap and floor' approach: https://www.ofgem.gov.uk/publications-and-updates/decision-roll-out-cap-and-floor-regime-near-term-electricity-interconnectors  Back

248   Written evidence from Ofgem (REI0044) Back

249    Q111 (Dr Charlotte Ramsay) Back

250    Q145 (Professor Catherine Mitchell) Back

251    Q112 (Professor Goran Strbac) Back

252    Q111 (Professor Goran Strbac) Back

253    Q111 (Professor Goran Strbac) Back

254   Written evidence from Professor David Newbery and Professor Michael Grubb (REI0026) Back


 
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