National Grid – Written evidence
National Grid’s job is to connect people to the energy they use, safely. In providing this vital service we are acutely aware of the importance of delivering reliability and value for money for consumers. A focus on driving down costs whilst continuing to deliver greater service reliability sits at the heart of our business model.
National Grid owns and operates the high voltage electricity transmission system in England and Wales, which at 99.99995% is the most reliable network in Europe. Through a well planned development and maintenance programme, our network continues to be extremely resilient to peaks in consumer demand and sudden shocks. Over the next decade, we are investing around £20 billion to ensure that our electricity and gas networks continue to provide safe and reliable energy supplies to customers, as well as future-proofing against significant security and weather events. Working closely with DECC and UK security agencies we have identified various assets that are deemed to be Critical National Infrastructure (CNI)- where any supply loss could have a substantial material effect on the public, commerce and industry- and ensured there are sufficient measures in place to enhance the resilience of these assets.
In addition, as the National Electricity Transmission System Operator (NETSO), we operate the whole electricity transmission system in Great Britain and are responsible for co-ordinating and directing power flows across the high voltage network. In the event of a sudden shock, such as an instantaneous loss of generation, we have thoroughly tested plans and procedures in place to ensure the network balancing frequency does not fall outside of the statutory limits stipulated in our licence and industry operating codes. To effectively manage unforeseen demand increases or generation unavailability, National Grid needs access to rapid sources of extra capacity in the form of either generation or demand reduction.
In response to Ofgem’s 2013 Capacity Assessment Report, which highlighted a narrowing of capacity mid-decade, National Grid has developed two additional system balancing tools (Demand Side Balancing Reserve and Supplementary Balancing Reserve). These balancing tools will only be used as a last resort in the unlikely event of a shortfall of generating capacity in the electricity market and allow us to procure additional capacity over the winters of 2014/15 and 2015/16. To address longer term capacity needs, the government has introduced Electricity Market Reform to encourage low-carbon generation and ensure the continued security of supply.
Developing an energy system to support our economic prosperity in the 21st century is one of the greatest challenges that National Grid faces. Shifts in the way energy is used, the need to manage ageing infrastructure and a changing energy supply mix all drive a need for urgent investment. In particular, investment in networks to connect new sources of power and gas is a priority for ensuring security of supply as the country moves towards a low carbon economy. Part of that challenge is ensuring that new power sources, whether from nuclear, wind and other renewables are connected to the electricity transmission network in order to carry the electricity to where it is needed. In England and Wales, much of the new electricity generation will be in the coastal areas, or offshore, where there is currently very little existing transmission infrastructure. A stable investment framework is essential for minimising the costs of financing these investments.
Energy efficiency should be a core part of long term infrastructure planning, as domestic and wider energy efficient measures require effective planning. An active demand side will play an important role in meeting the challenge of delivering energy affordably and sustainably, and will reduce the need for investment in generation and networks. In order to successfully encourage greater demand side participation there needs to be a clear, stably policy framework that is supported by delivery mechanisms that enable smart technology and initiatives to drive greater consumer awareness and participation.
1.1 As the NETSO, we co-ordinate and direct power flows across the transmission system in accordance with strict security standards - balancing the system in the final hour before real-time to maintain system frequency. This role is called residual balancing and occurs after the market has closed (known as gate closure). It accounts for less than 3% of energy transactions in the market. National Grid does not generate power - neither do we sell it to consumers. Customers pay their bills to energy suppliers, who buy enough electricity to meet their customers’ needs from electricity producers. Once that electricity enters our network, our job is to ‘fine tune’ the system to make sure supply and demand match second by second. For the last hour leading up to real-time, we operate the system in real time, balancing supply and demand to deliver electricity securely to customers via the transmission network. We do this through a market tool called the balancing mechanism.
1.2 Historically, the UK’s electricity transmission system has been very resilient to peaks in consumer demand and sudden shocks. National Grid’s electricity transmission network in England and Wales has a reliability standard of 99.99995%, which is the most reliable network in Europe[1]. The high voltage electricity transmission network forms part of the UK’s Critical National Infrastructure and as such National Grid must ensure that our facilities and processes are resilient.
1.3 Using a variety of data including historical demand statistics, weather forecasts and knowledge of any significant media events, such as national football games, National Grid’s Energy Forecasting Team can closely predict the overall national electricity demand for a given day. An Operating Plan is produced a day ahead which brings together forecast generation and demand with the network information, and identifies any potential issues. In addition, the team must also ensure that there is sufficient STOR and response available to manage any unexpected events.
1.4 Demand side products are an important tool in balancing supply and demand, enabling the deferral of network investment on the part of network owners, meeting power requirements of suppliers in the wholesale market and/or balancing national demand in real time. We regularly contract with a number of demand service providers to deliver balancing services as part of our SO responsibilities. This includes contracts to reduce demand at short notice under our Short Term Operating Reserve (STOR) or those aimed at solving specific events on the transmission system such as frequency response services. Our transmission licence obliges us to do this in a manner which represents the best value for money for consumers.
1.5 In the event of a sudden shock, such as a generator unexpectedly tripping off the system, National Grid has to cater for the instantaneous loss of 1200MW of generation, without the frequency going outside of statutory limits stipulated in our licence and industry operating codes. To manage this, National Grid needs access to rapid sources of extra power in the form of either generation or demand reduction, to be able to deal with unforeseen demand increase or generation unavailability. We do this by holding reserve and response; mainly power stations which are willing to increase their output in response to a frequency drop due to loss of generation on the system. Generators can sign up to a contract to be paid to provide these services. As we go forward and as in-feed losses increase, for example as larger nuclear units are built, then greater levels of reserve and response will be needed.
1.6 If the operating plan identifies any potential shortfall in generation, or an unexpected spike in consumer demand, we can notify the market players using a number of mechanisms, such as;
1.7 The evidence base relies on system modelling and analysis by National Grid and other parties to best predict how new technologies and customer behaviour will impact the system. Along with National Grid’s investment and commitment to maintaining our electricity infrastructure assets, the reliability of the system is a testament to the forecasting work to balance supply and demand.
2.1 It is National Grid's job to ensure that we continue to provide safe, reliable and cost efficient energy across our electricity transmission system, which not only meets the needs of our customers now but also in the future. To ensure that we maintain these standards and that there is sufficient transmission infrastructure to support future energy demand we are investing around £20 billion in extending and strengthening our networks over the course of our 8 year RIIO price control.
2.2 We ensure that our networks continue to be safe and reliable through our on-going commitment to the highest standards of network development and maintenance. Over time the transmission network requires maintenance, upgrades and new connections to ensure its reliability and flexibility. Over the next decade we will be spending around £90 million a year and 774,483 man-hours maintaining the UK’s transmission network to ensure that it remains resilient and reliable.
2.3 Developing energy infrastructure that can underpin our economic prosperity in the 21st century and connecting new technologies up to the Grid is one of the greatest challenges that National Grid faces. Part of that challenge is ensuring that new power sources, whether from nuclear, wind and other renewables are connected to the electricity transmission network in order to carry the electricity to where it is needed. In England and Wales, much of the new electricity generation will be sited on the coast, or offshore, where there is currently very little existing transmission infrastructure. New electricity transmission lines will therefore be required in these areas. We will also need to carry out work on existing areas of the network to upgrade and reinforce it to make it fit for these new low carbon sources of electricity.
2.4 National Grid is also investing in future-proofing our assets by working to protect all our sites to the standard of a 1 in a 1000 year flood event. We have invested £20 million in flood defence since 2008 and we estimate a total spend by the end of 2018 will be £70 million.
2.5 We continue to improve our network resilience capacity across all of our UK operations by rigorously testing our recovery plans with electricity generators, other industry partners, and government. We continue to work closely with DECC and the security agencies to identify assets within our gas and electricity network that are deemed to be Critical National Infrastructure- where any supply loss could have a substantial material effect on the public, commerce and industry- and ensure there are sufficient measures in place to enhance the resilience of these assets. A close working relationship with government agencies and other UK energy network owners has allowed us to provide enhanced security of supply for the nation using the latest technologies whilst delivering value for money for consumers.
2.6 In addition to maintaining the resilience of our network, National Grid is working with DECC and Ofgem to secure additional capacity for the energy system. In response to Ofgem’s 2013 Capacity Assessment Report which highlighted a narrowing of capacity margins in the mid-decade period, National Grid has developed two additional system balancing tools (Demand Side Balancing Reserve and Supplementary Balancing Reserve) that could be used as a last resort in the unlikely event of a shortfall of generating capacity in the electricity market. These balancing tools will procure additional capacity support over the winters of 2014/15 and 2015/16.
2.7 National Grid has identified a need for up to 330MW of additional reserves for this winter and up to 1,800MW for the winter of 2015/16. These values are kept under review as the projected availability of power generation is a constantly changing landscape. We have also identified a requirement for 2016/17 and 2017/18. These volumes are based on ensuring sufficient capacity is available to meet the reliability standard set by government in terms of generation availability, continental imports and demand.
2.8 Based on our experience of running the system and on current information about plant availability and demand, with these additional balancing measures we expect the upcoming winters to be manageable. To address the longer term capacity needs, the government has introduced Electricity Market Reform to complement existing arrangements, encourage low-carbon generation and ensure security of supply.
2.9 National Grid is involved in administering EMR and is closely involved with the Contracts for Difference and the Capacity Mechanism. Our role is to assess how much capacity is required to meet the reliability standard set by government. The Government will then use this information to determine how much capacity to procure, and instruct us to run the Capacity Mechanism auctions and administer the successful capacity agreements as they come into force. The first Capacity Mechanism auctions will run in winter 2014, to provide capacity for 2018/2019.
3.1 Ofgem’s recent development of the network regulatory regime has culminated in the new RIIO regime (Revenue = Incentives + Innovation + Outputs). This framework builds on 20 years’ experience of effective incentive regulation and is now being emulated by others. The regime demonstrates best practice in balancing stakeholder priorities, including delivering required outputs at the most affordable prices. Network companies are strongly incentivised to drive efficiencies throughout the business to deliver lower costs for consumers.
3.2 The RIIO price control regime ensures significant levels of scrutiny and transparency are applied to our investment plans and the charges that we pass on to consumers. Stakeholders are engaged throughout the process and network businesses are required to develop business plans which demonstrably reflect our customers, consumers and other stakeholders’ requirements.
3.3 Our investment in the electricity network is strongly influenced by our customers and stakeholders. As part of the RIIO price control process we engaged extensively with our customers and stakeholders on our business plan to 2021, to understand their priorities and requirements for our network against the cost of delivering different levels of service and investment. Our customers and stakeholders made it very clear that they want National Grid to prioritise safety, resilience, innovation and customer service and our investment decisions in our infrastructure will reflect this.
3.4 In response to our RIIO business plan, network outputs such as reliability, customer connections and new capacity were set for us together with incentives to deliver these outputs in the most efficient way for customers. So our revenue is ultimately dependent on our performance. We provide a comprehensive annual report to Ofgem which allows our performance to be checked against the agreed outputs. In addition, we continue to ask our stakeholders what they want us to deliver.
3.5 In planning and operating the UK’s electricity transmission system, including decisions on investment, National Grid and other transmission licensees in Great Britain apply the National Electricity Transmission System Security and Quality of Supply Standard (NETS SQSS). This standard has been developed with our customers. Any changes to the NETS SQSS are consulted on widely and ultimately reviewed and agreed by Ofgem to help ensure that they are in the interest of consumers.
3.6 A key objective of the NETS SQSS is to ensure that the electricity transmission system is reliable and that an appropriate level of security and quality of supply is available for electricity transmission. Other objectives include the facilitation of an efficient, co-ordinated and economical system of electricity transmission, the facilitation of effective competition in generation and supply and compliance with our legal obligations.
3.7 In practice, we use the NETS SQSS to determine the minimum requirements for connecting generation and demand and the optimum levels of transmission capacity between different parts of the network to facilitate an efficient energy market whilst maintaining a high level of system security. The NETS SQSS includes criteria to determine transmission capacity and ensures that an efficient level of redundancy is built into the network. As well as considering the requirements of the transmission system to meet different generation and demand conditions, the NETS SQSS ensures that there would not be a wide scale loss of demand in the event of unplanned or unexpected problems, for example the loss of a transmission line or part of an electricity substation due to third party interference or during a storm.
3.8 In making decisions about investment in our transmission system, where there are different options to connect customers or to provide additional transmission capacity, the costs and benefits associated with different options are compared. These costs and benefits include the capital costs of the investment, any impacts on transmission operating costs such as transmission losses or constraints and any impacts on the energy not supplied to consumers.
3.9 In an industry where technology is evolving so quickly, one of our challenges is to achieve the correct balance and timing of investment. Investing too early could lead to costly under-used capacity. Delaying investment risks not having enough capacity where there are inefficient constraints on the system and we limit access to the network. The costs of either investing too early or late ultimately end up in consumer’s bills so an important part of our role is to work with our industry partners to minimise these costs to consumers. To make our investment plans more rigorous and transparent we have developed a Network Development Policy with Ofgem which sets out the network capacity required and the possible options for network development.
4.1 Legislation at both UK and EU level forms the policy landscape which has a significant impact on the future energy system. The passing of the Energy Act 2013 is a significant step towards providing greater clarity on the future UK electricity market, both through the introduction of Contracts for Difference to support low carbon generation and a Capacity Market to ensure security of supply. The successful implementation of Electricity Market Reform is a key step towards securing adequate capacity from 2018-19 and to ensuring that the UK’s electricity system is resilient, affordable and on a trajectory to decarbonisation.
4.2 Each year, National Grid publishes a document called UK Future Energy Scenarios (FES)[2]. This sets out our analysis of credible future energy scenarios to 2035 and 2050. National Grid has generated four scenarios in our 2014 FES for what the UK’s future energy landscape might look like based on the dynamics of affordability and sustainability. They are Gone Green, Slow Progression, No Progression and Low Carbon Life. All of the scenarios assume that the government defined security of supply standards will be met.
4.3 Guided by FES we believe that a number of steps need to be taken to ensure that the UK is on a trajectory to decarbonisation by 2020 and meets the targets set out by Government:
4.4 As the UK transitions to a low carbon economy, electricity supply and demand variability will increase. This will be driven by changes in the electricity generation mix; an increased in the proportion of variable renewable generation such as wind, solar and tidal, and a decrease in the proportion of flexible, conventional generation likely to be fuelled by gas. Other changes such as access to new system balancing tools, a large increase in demand side response and changes to the time of electricity use, storage and interconnection are likely to increase as the proportion of flexible generation declines. The new balancing services (NBS) are a precursor to the Capacity Market; and amongst the items they look to facilitate is allowance for greater DSR participation whether through the NBS or aggregators participating in the Capacity Market.
4.5 At National Grid we are assessing the impact of these changes and the resulting challenges and opportunities both for energy consumers and for future grid operation. Through our RIIO price controls, we are focused on identifying robust, cost effective solutions to these challenges to ensure we can support delivery of a secure, low-carbon future as economically and efficiently as possible. Our focus is on enabling an orderly, economic transition to 2020 that maintains security of supply, facilitates the achievement of climate change targets and provides a good foundation for further change required in the period to 2050 and beyond.
4.6 From our perspective as electricity System Operator the challenges include implications for reserve, system frequency managements and inertia as well as the impact on the physical transmission network on power flows, voltage management and fault levels. The transition must be done in a way that minimises consumer bills, and so the increased supply and demand variability will need to be matched with an equivalent level of supply and demand flexibility and responsiveness. National Grid has recently published its System Operability Framework report which provides further analysis on these challenges and starts to lay out some approaches to addressing them[3].
4.7 In the medium term it is important that industry works together to develop ways to effectively incentivise and enable demand side response including where consumers ‘time shift’ non time-critical demand to when generation and/or network capacity is available.
4.8 An active demand side will play an important role in meeting the challenge of delivering energy affordably and sustainably, and will reduce the need for investment in generation and networks. As System Operator and EMR delivery body we are enabling greater demand side participation in the energy market. Although the direct impact we can have is limited, suppliers through their relationships with consumers have the opportunity to drive more substantial participation. There have been recent positive developments in demand side but we recognise that more needs to be done. In order to successfully encourage greater demand side participation there needs to be a clear, stable policy framework that is supported by delivery mechanisms that enable smart technology and initiatives to drive greater consumer awareness and participation.
5.1 There are a number of developments expected in the years to 2020 which should help us understand the future investment landscape better. Over the next few years we are likely to get an insight into future developments into Carbon Capture and Storage (CCS) as demonstration projects progress. The picture should also become clearer on the number of new nuclear plants that may be built as decisions on their development are made. Shale Gas test wells should give us greater insight to the role shale gas might play in our future gas supply. These new technologies, assessed alongside existing technologies, data from our stakeholders, political and economic changes in the UK and Europe, as well as market developments such as the Capacity Market, allow us to create a this holistic, plausible set of future scenarios on which to base our investment decisions.
5.2 We use these scenarios internally as a reference point for a range of our modelling activities including network analysis that enables National Grid to identity potential electricity network investment requirements in the future. In addition the scenarios feed into a range of other outputs including those for security of supply, Europe and shorter-term supply demand analyses. National Grid uses the FES to develop our Electricity Ten Year Statement, Network Development Policy and System Operability Framework to inform future decisions on investment in our electricity infrastructure.
5.3 The Electricity Ten Year Statement[4] is produced by National Grid in our role as National Electricity Transmission System Operator and aims to provide clarity and transparency on the potential development of the Great Britain transmission system for a range of scenarios. The document considers this development through strategic network modelling and design capability, while trying to capture future uncertainty with regards to the generation mix, operation of the network and technology development. In last year’s publication, we outlined our proposed Network Development Policy (NDP). This defines how we will assess the need to progress wider transmission system reinforcements to meet the requirements of our customers economically and efficiently, taking in to account the risk to consumers.
6.1 The decarbonisation of electricity production will increase the challenge of operating the electricity transmission system in a number of ways. In our recent FES publication, our “Gone Green” scenario shows 26GW of wind and 7.5GW of solar in 2020, rising to 51GW and 15.6GW respectively in 2030. As the volume of renewable generation continues to grow three challenges will emerge.
6.2 The first challenge is that many of the new energy sources are remote, such as offshore wind, onshore wind in sparsely populated areas and coastal nuclear stations, so additional transmission capacity will be required to transport the energy to the main centres of population. The current works to provide additional capacity between Scotland and England are a good example of this. The visual impact of this work is being minimised by the use of a sub-sea cable and SMART technology to make the best use of existing assets.
6.3 The second challenge relates to the uncertain and variable output from wind and solar generation. To ensure a reliable supply of electricity, reserves must be held to cover for this uncertainty. In the past these reserves have been provided by part loaded generation that can be increased if needed. This approach has its limitations as power plant can typically operate between 50 and 100% output. Hence, for every megawatt of reserve, it is necessary to have a megawatt of generation operating. It can be seen that. This could limit the potential penetration of wind and solar. National Grid is currently investigating the following ways of mitigating this issue:
6.4 The third challenge is that even if there is sufficient reserve, the total renewable output plus the ‘must run’ generation such as nuclear cannot exceed the demand on the system. This is most likely to occur overnight when demands are low. Potential mitigating actions include:
6.5 A further challenge going forwards is around operating the system during periods of low demand when it may become more difficult to source response services. As an example, existing nuclear plant is relatively inflexible, however we can manage this at present as we are able to obtain frequency response services from other generation such as gas and coal fired synchronous plant. However, this may not be the case going forward, particularly when demand is low and only nuclear and renewables are running. As such, we would like to encourage all new generation, including new nuclear plant, to be flexible around the way in which it operates and to be capable of providing response services.
6.6 The closure of coal fired power stations presents another challenge. This is not simply a matter of replacing them with another technology, but also represents loss of fuel diversity and energy storage. As the demand for electricity reduces significantly overnight, many power stations can reduce load or shut down. The ability to take this reduction on either coal or gas fired plant gives flexibility between the national demand for coal and gas. Hence it has been possible to reduce demand for gas by burning extra coal which was already stored at the power stations. The closure of coal plant will remove both a major energy store from the power system and a means of responding to a shortage of gas.
6.7 Finally, towards the end of the 2020’s it is likely that the use of electric heat pumps and vehicles will become more common. However, as shown in our UK FES, we anticipate the resultant increase in demand being an issue for the 2030s rather than the 2020s.
6.8 The transmission system is changing to cater for the impact of the new generation that is being connected. National Grid considers system operability issues to the 2030s. In the short to medium term, the new Electricity Balancing System being commissioned in 2015 will provide a significant enhancement in National Grid’s capability to manage variable generation. Our forecasting models continue to be developed to account for embedded generation and we are working with Distribution Network Operators to obtain more real-time data on embedded generation.
7.1 National Grid’s modelling tells us that achieving a resilient, affordable and low carbon electricity infrastructure by 2030 is challenging but achievable. This year, our range of FES scenarios is based on the energy tri-lemma of security of supply, affordability and sustainability. The Government has set a standard for electricity security of supply and, through Electricity Market Reform, put in place the framework to deliver to this standard. Our scenarios therefore flex the two variables of affordability and sustainability.
7.2 We believe our modelling used for scenario development is appropriate and fit for this purpose, although we continually seek to review, benchmark and enhance our models as new information and data becomes available. The development of our FES scenarios is supported by a robust process of stakeholder engagement to ensure continual review and improvement in the quality of our analysis and enable the delivery of our data rich scenarios. To improve future modelling and access to data, National Grid supports the continued commitment to greater transparency of information.
8.1 We recognise in our FES publication that the future comes with uncertainty, and as we move further out into the future this uncertainty increases. To analyse and encapsulate that uncertain future we create a series of scenarios which cover the range of credible futures, covering both affordability and sustainability while maintaining a resilient security of supply.
8.2 Looking beyond the steps already noted, part of our assessment of the UK’s future energy landscape has shown that decarbonisation of the existing generation fleet will come with the potential of connecting substantial volumes of low carbon and renewable technologies to the UK’s electricity transmission system. The effort to meet this decarbonisation target will need sustained, confident investment; and the key to inspiring this investment is stability and certainty of the UK and EU legislative and regulatory environment.
9.1 National Grid’s FES Scenarios do not currently feature any significant game changing technologies that could have a revolutionary impact on our electricity network infrastructure and its resilience in the 2020s. Technologies that we envisage would make a significant contribution to the system’s resilience in terms of security of supply and required to meet the electricity supply set out in our Gone Green and Low Carbon Life scenarios. They are all market ready with the exceptions of Carbon Capture and Storage (CCS) and electricity storage beyond the pumped storage currently available.
9.2 CCS is an innovative technology which will help with the resilience of the system. Whilst addressing greenhouse gas emissions it will also enable fossil fuels to continue to be used as part of a low carbon generation mix and serve as an aid to balance variable forms of low carbon generation. CCS uses established technology in an innovative way to capture, transport and permanently store CO2 emissions from fossil fuel power stations and industrial emitters beneath the sea bed. Flexible power generation with CCS enables the maximum levels of renewable and nuclear energy in the lowest cost way, with lowest emissions.
9.3 Whilst CCS generation is not yet proven on a large scale, in March 2013 the Peterhead and White Rose Projects were named as the two preferred bidders in the UK CCS Commercialisation Programme Competition. To bring down costs and allow CCS to be more widely used, the full chain of capture, transport and storage needs to be built and operated on a commercial scale. Analysis also shows that annual household energy bills could be £82 lower by 2030 with CCS in the energy mix than without[5].
9.4 The two very distinct projects within the CCS competition would benefit from developing together to create strategically important infrastructure which would accelerate the benefits of a UK CCS industry and supply chain. If both projects were to progress in conjunction with one another, rather than in competition, they could collaborate and share learning, which would create better value for the Department of Energy and Climate Change.
9.5 Electricity storage has great potential to be a game changer in terms of balancing electricity supply and demand if it can be brought forward as a cost effective proposition. Energy storage has the potential to take excess generation such as on a windy or sunny summer day, and store it in multiple places from large pumped hydro stations down to batteries within homes and everything in between; potentially becoming a game changer.
9.6 The ambition to roll out smart meters to all households in 2020 is likely to have little impact on energy resilience on its own. Smarts meters are an enabler for other mechanisms to take effect, in particular smart appliances combined with time of use tariffs. By 2030, our FES scenarios assume that smart meters will continue to have a relatively modest impact.
10.1 Investment in energy transmission provides opportunities to support the UK economy in both the short and the long term, delivering a number of sustainable economic benefits including job creation, export opportunities and a gateway for further investment. In terms of maintaining a resilient low carbon energy system, National Grid does not see a benefit in favouring one technology over another. National Grid is technology neutral. We support the system having a diverse range of energy sources to maintain long term security of supply, and a portfolio of technologies ensures that their individual benefits and limitations are balanced.
10.2 In assessing opportunities for driving economic growth, National Grid has supported CCS over the past seven years and has championed the important contribution that CCS can make to decarbonising the UK’s future energy mix, by enabling carbon intensive industries to reduce their emissions affordably. We have been at the forefront of researching and testing pipeline capabilities for CO transportation and progressing CO storage development.
10.3 A UK CCS industry would deliver economic benefits of £2-4 billion per year by 2030 and create up to 30,000 jobs. There is also potential for growth in the UK becoming a leader in storage technology in Europe. Last year, while taking part in the White Rose competition National Grid completed ground-breaking work to drill the world’s first offshore appraisal well for the storage of carbon dioxide in the North Sea around 65 km off the Yorkshire Coast.
10.4 An additional technology with the potential to drive economic growth and in which the UK could become a leader is interconnection. Increased interconnection to overseas electricity networks is anticipated to aid security of supply and help balance variable forms of low carbon generation. Increasing interconnection is seen to support the cost of maintaining resilience as it is cheaper than building extra generation to improve the diversification of supply and demand.
10.5 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[6]. 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.
10.6 New interconnector projects would also catalyse a range of additional economic benefits. New jobs would be created from the need to plan, build and maintain the new links and inward investment would be boosted in order to deliver the multi-billion pound projects. This inward investment could reach a critical mass requiring new industries in the UK to manufacture the substantial quantities of subsea cabling required.
11.1 Ofgem has put in place several mechanisms to stimulate and fund innovation in the interests of consumers that will lead to developments in how National Grid delivers to our customers and stakeholders. Innovation is an important feature of our RIIO regulation mechanism where our revenue is linked to innovation, incentives and specific outputs. All explicitly funded innovation activity by licensees is made public through Ofgem’s Network Innovation Competition and Network Innovation Allowance funded projects. In addition there are a number of interactions at all levels across our company with government, other industry parties, our employees, suppliers and the innovation community.
11.2 This wide engagement ensures that learning from projects is shared to benefit all consumers. National Grid is playing a significant role in the Low Carbon Network Innovation conference- a showcase for the exchange of information on innovation projects- and has recently published key stakeholder documents on the innovation activities we are taking forward, along with increasing the transparency of who in our organisation to contact to share learning.
11.3 National Grid actively participates in a number of groups and organisations to share industry learning. A key group is the Energy Networks Association and through their Innovation Forum we, and other transmission and distribution network operators, share ideas, research and development learning points and disseminate information to our stakeholders. We produce an annual review of our innovation activities[7].
12.1 The current energy policy and regulation picture for electricity infrastructure needs to be considered in the context of:
12.2 Given this context, vigorous political debate on energy issues which drive ongoing government policy making and adjustment. However, despite the potential for ongoing and even increasing intervention, it remains that the benefits of a market-based energy approach include:
12.3 To maintain these benefits, regulators must continue to act in a manner which is consistent with facilitating competitive energy markets, in short, by continuing to abide by the principles of good regulation set out by the Better Regulation Task Force.
12.4 The electricity market is currently the subject of significant change, particularly including the introduction of a capacity mechanism and new support mechanisms for low carbon and renewable energy sources. We consider these to be appropriate interventions and developments given current challenges identified above. In particular, while these measures give greater certainty that security of supply and environmental policy goals will be achieved, the measures are also market compatible as they introduce contracts and instruments that a well-functioning market would offer and trade.
12.5 The facilitation of resilient network infrastructure to support the European market such as the development of interconnection, offshore grids and their integration with onshore network facilities require greater coordination. We welcome Ofgem’s Integrated Transmission Planning and Regulation project and initiatives in this area.
19 September 2014
[1] National Electricity Transmission System Performance Report 2012- 2013, National Grid http://www2.nationalgrid.com/UK/Industry-information/Electricity-transmission-operational-data/Report-explorer/Performance-Reports/
[2] Future Energy Scenarios 2014, National Grid
http://www2.nationalgrid.com/uk/industry-information/future-of-energy/future-energy-scenarios/
[3] System Operability Framework 2014 Report, National Grid
http://www2.nationalgrid.com/UK/Industry-information/Future-of-Energy/System-Operability-Framework/
[4] Electricity Ten Year Statement 2013, National Grid
http://www2.nationalgrid.com/UK/Industry-information/Future-of-Energy/Electricity-ten-year-statement/
[5] ‘The Economic Benefits of CCS in the UK’ Trade Union Congress and the Carbon Capture and Storage Association Report 2014
http://www.tuc.org.uk/sites/default/files/carboncapturebenefits.pdf
[6] Getting More Connected 2014, National Grid
http://www2.nationalgrid.com/About-us/European-business-development/Interconnectors/
[7] Annual Network Innovation Allowance Report 2013/14, National Grid http://www2.nationalgrid.com/WorkArea/DownloadAsset.aspx?id=34778