Electricity network delivery and access
If the UK is to meet its climate change and renewable energy targets and ensure security of supply, large amounts of renewable and other low carbon generation need to be able to connect to our electricity networks in the next decade. Timely grid access arrangements are therefore vital to delivering new generation projects.
A joint review of the electricity transmission arrangements in Great Britain was carried out by DECC and Ofgem. The Transmission Access Review was published in June 2008, setting out a programme of reform.
Connect and Manage
In May 2009, Ofgem introduced a new ‘Connect and Manage’ interim regime that allowed National Grid to offer earlier grid access to new and existing generation projects.
In 27 July 2010, following consultation on the options for grid access reform, the Government announced the implementation of a new enduring Connect and Manage regime for grid access. This built on the successful interim arrangements introduced by Ofgem, and is enabling new generation to connect to the network more quickly thereby removing a key barrier to new renewables. Details are available on the Improving grid access - second consultation webpage. The Government asked Ofgem to monitor the regime’s impacts, and Ofgem has provided regular monitoring reports.
The Minister of State has responded to all of the reports:
New electricity transmission network is the enduring answer to capacity constraints for new renewable and other low carbon generation. The 2008 Transmission Access Review argued that in addition to revising grid access arrangements, the way in which new grid infrastructure is planned and developed needed to be accelerated.
In addition to timely connections, the network infrastructure also has to be strengthened and extended to accommodate new generation in a secure and cost effective manner. The Electricity Networks Strategy Group (ESNG) (a senior industry group including the Transmission Companies, chaired by DECC and Ofgem) has produced reports on the potential transmission network requirements to accommodate the large volumes of renewable other generation required to meet the 2020 renewables target and security of supply needs. The latest reports were published in February 2012.
Transmission constraint licence condition
Planned upgrades to our electricity transmission network will improve the capacity for our electricity to flow between regions. This will significantly reduce network congestion (known as ‘transmission constraints’), which National Grid has to resolve by calling on generators to either increase or decrease the amount of electricity they have planned and committed to provide to suppliers. Most constraint payments are legitimate and compensate generators for the costs incurred when having to reduce or increase the amount of electricity they have planned and committed to provide to suppliers. However, it is possible for generators to take advantage of the current arrangements, especially when there are limited options available to National Grid for balancing the network.
Until the planned upgrades can take effect, the Government has taken action to ensure that it is not possible for generators to take advantage of the current arrangements. This has been done through the introduction of the Transmission Constraint Licence Condition (TCLC). Further information about the TCLC is available from the Consultation on the Transmission Constraint Licence Condition web page.
GB Transmission charges
Transmission Network Use of System (TNUoS) charges which meet the costs of building and maintaining the network, currently reflect the costs electricity generators and suppliers impose on the GB transmission network. They are linked to the generator or supplier’s distance from the main centres of electricity demand and generation and the amount of spare capacity on the local network.
Transmission charges are designed to:
- ensure the transmission system develops efficiently and cost-effectively
- encourage new generation projects where there is higher demand
- minimise costs and therefore consumers’ energy bills
- encourage competition in the generation and supply of electricity
It is National Grid’s responsibility as the GB system operator to devise transmission charges in accordance with their licence. Ofgem then decides whether to approve these proposals, as the independent energy regulator. Ofgem is currently reviewing the cost-reflective TNUoS charge calculation method.
You can find out more on the National Grid: Charging Statements web page.
In September 2010, Ofgem launched Project TransmiT, a fundamental review of the transmission charging arrangements. The aim of the review is to ensure that we have in place arrangements that facilitate the timely move to a low carbon energy sector whilst continuing to provide safe, secure, high quality network services at value for money to existing and future consumers.
A number of potential changes to the transmission charging regime were considered in an Ofgem consultation which closed on 14 February 2012. In its conclusion, which was announced on 4 May 2012, Ofgem instructed National Grid and the Connection and Use of System Code (CUSC) industry group to develop changes to the transmission charging arrangements based on the principle of the Improved Investment Cost Related Pricing (ICRP) approach modelled during the review process. The Improved ICRP approach refines the way the current locational signal is calculated to ensure it more accurately reflects the actual costs each generator imposes on the network, notably by charging generators on the basis of their “load” on the system, rather than their total “capacity”. The CUSC Panel will need to take account of the impact of the changes on overall costs to the consumer.
Further details on the progress of Project TransmiT can be found on the Ofgem: Project TransmiT web pages.
Transmission charge adjustment
Section 185 of the Energy Act 2004 gives the Secretary of State the power to adjust transmission charges for renewable electricity generators in a specified area of Great Britain. The power can be exercised if renewable development in that area is likely to be deterred or hindered in a material respect by the level of transmission charges that would otherwise apply.
Section 185 of the Energy Act 2004 was amended by Section 25 of the Climate Change and Sustainable Energy Act 2006 to allow any scheme to run until October 2024.
This law was introduced to ensure transmission charges do not deter renewable energy generation in the north of Scotland, where there is significant potential for it.
In 2007, a report that looked at the relative economic viability of developing wind farms in the Scottish Islands compared to the north of Scotland was commissioned. The findings showed much greater potential returns for investors in Shetland and Orkney wind farms than on areas in the north of Scotland, where similar projects are already underway.
This suggested that there was no case to lower transmission charges to make these projects possible. While projects on the Western Isles proved less economically viable, the case for a Section 185 intervention was still only marginal.
You can read the full report about this:
The follow-up report confirmed the original findings were reasonable:
A statement outlining the proposed approach was published on 26 June 2008:
DECC may need to look again at whether there is a case for a section 185 scheme for renewable projects in the Scottish Islands following the work of the Connection and Use of System Code (CUSC) group tasked with developing the changes that Ofgem announced at the end of its independent review of transmission charges under Project TransmiT.
Protecting consumers in the north of Scotland
Hydro-Benefit Replacement Scheme
This scheme is designed to protect consumers from the high costs of distributing electricity in the north of Scotland. It is funded by charges on suppliers across Great Britain.
It was commenced under a power in section 184 of the Energy Act 2004.
Common Tariff Obligation
The Common Tariff Obligation ensures electricity suppliers in the north of Scotland do not charge comparable domestic customers different prices because of where they live. This is ultimately designed to protect those customers living in the area from higher electricity charges.
The Common Tariff Obligation was originally set out in the Electricity Act 1989 and updated by the Utilities Act 2000. Following a public consultation in 2004, the Common Tariff Obligation became law preventing electricity providers from introducing price discrimination on the basis of location in the north of Scotland.
Three year review
The Energy Act 2004 requires the Hydro Benefit Replacement Scheme to be reviewed every three years, with the last review being completed in 2009. A Ministerial commitment was made to review the working of the Common Tariff Obligation in parallel with the Hydro Benefit Replacement Scheme review.
In undertaking the required 2012 review, DECC has considered the operation of the two schemes and is not at this stage minded to make any changes. However, before making a final decision, DECC would welcome comments by 12 April 2013 from stakeholders on this approach. Further information on the review is available on the Hydro Benefit Replacement Scheme and Common Tariff Obligation: three year review of statutory schemes - call for comments page.
Costs of new high-voltage transmission lines
At the Government’s request, an independent and authoritative study has been published on the whole life costs of installing new high voltage transmission lines under the ground, under the sea and over ground. The purpose of this study is to provide a well-informed and objective point of reference for the planning authorities in evaluating planning applications for new transmission connections and reinforcements.
In order for interested parties to understand the process undertaken to produce this report, we have published the last draft received from an earlier stage of the project (see below). However, it is important to recognise that this was a working draft, and further refinement and formatting would have taken place before publication as a final document.
Offshore electricity networks development
Offshore networks comprise transmission assets:
- from GB offshore generation sites to the GB grid
- connecting the transmission systems of different countries or territories
- potentially from non-GB generation sites to the GB grid
Offshore transmission assets transport electricity from offshore generation sites (such as windfarms) back to the GB grid. The timely and efficient installation of this infrastructure is a key enabler of the UK’s 2020 renewable energy target, as well as its carbon budgets on the pathway to 2050. The GB regulatory regime for the construction and operation of offshore transmission assets is designed to provide flexibility for generators in terms of who constructs the assets as well as cost-effectiveness to consumers and generators from the competitive drivers. National Grid’s System Operator responsibilities have also been extended offshore to enable the coordinated, efficient and economic development of the network.
Generators have a choice of constructing the transmission assets themselves (“generator build”) or to opt for an Offshore Transmission Owner (OFTO) to do so (“OFTO build”). If they construct the assets themselves, then the generator must transfer the assets to an OFTO post-construction and installation. OFTO’s are selected on a competitive basis through a tender process run by Ofgem, the GB energy regulator. Initial analysis by Ofgem estimates that the offshore transmission regime’s competitive drivers will deliver significant cost savings to generators and consumers alike. There is significant interest in the OFTO market from new entrants to the sector, with almost £4 billion of bids for the first £1.1 billion of assets tendered by Ofgem.
Further details on the offshore transmission regime and OFTO tender rounds can be found on the Ofgem: Offshore transmission web pages.
Links between electricity transmission systems are known as interconnectors. GB has 4GW of interconnection – 2GW with France, 1GW with the Netherlands, 500MW with Northern Ireland and 500MW with the Republic of Ireland. There are a number projects in the pipeline to increase GB interconnection capacity. Further interconnection can contribute to our security, affordability and decarbonisation objectives, as well as towards a single European electricity market. Details on the GB interconnection regime can be found on the Ofgem: Electricity Interconnection web pages.
Government supports more interconnection: December 2013
Government has published a statement of support for further interconnection - More interconnection: improving energy security and lowering bills. This recognises the potential interconnection has to contribute to our energy policy objectives. It sets out Government’s views on further interconnection and makes proposals for improving how GB identifies interconnection opportunities and assesses the impacts of proposed projects. It also points to relevant initiatives, such as the work underway by Ofgem to clarify the regulatory models that will be available for future interconnectors.
Government has also published an independent analytical report it commissioned assessing the impacts to GB of further electricity interconnection.
Update on European Projects of Common Interest (PCI): October 2013
EU Regulation No. 347/2013 on guidelines for trans-European energy infrastructure governs the selection of ‘projects of common interest’ (PCI) to develop priority European energy corridors, including for electricity interconnection, smart grids and gas interconnection. Projects that are selected by the Member States to which they relate and by the European Commission are placed on a Union-wide list. Applications for PCI status were received from a number of projects that would involve UK territory. It is anticipated that the list will be refreshed every two years.
PCIs benefit from enhanced permit-granting processes and we consider existing GB procedures for nationally significant infrastructure projects to already be largely in line with these requirements. PCIs will also be eligible to seek financial instruments (such as loan finance), grants for feasibility studies and potentially grants for works under the Connecting Europe Facility.
When it is not clear what exact additional capacity is needed between markets, PCIs crossing the same country borders can be considered as part of a ‘potentially competitive cluster’. This category enables all PCIs within the cluster to benefit from the same rights and obligations as those PCIs not clustered.
The Commission adopted the first list of PCIs on 14 October 2013. This included a number of UK projects - six electricity interconnector projects, four renewable trading projects with Ireland (with the potential to also increase interconnection capacity), a smart grid project, and four gas projects. The list can be found here on the EC website.
Offshore transmission coordination project: implementation update: June 2013
The joint DECC and Ofgem Offshore Transmission Coordination Project (OTCP) conclusions report, published in March 2012, identified measures to address 6 areas of potential barriers to the development of coordinated networks (see September 2012 further down the page).
The table in the document below summarises progress made to date in addressing these potential barriers, and sets out further actions that parties expect to take.
Government will continue to monitor progress in this area.
Notice for making an order to extend the Authority’s powers to make a property transfer scheme: 15 March 2013
The government expects that in most cases where an offshore generator has constructed a transmission asset, they will be able to come to a commercial arrangement concerning asset transfer with the successful bidder of the tender process to own and operate the asset. However, under Schedule 2A of the Electricity Act 1989, the Authority has the power to make a “property scheme” providing for the transfer of property, rights or liabilities to the successful bidder or the creation of rights in favour of the successful bidder.
The power for the Authority to make a Property Scheme is a last resort measure, to give generators and successful bidders an avenue for expediting the transfer of assets where commercial agreement could not be found. It has not been used to date. It was designed to provide certainty and reassurance to tender participants for transitional, generator build projects that the transfer of assets can be achieved. Under paragraph 5 of Schedule 2A, an application to the Authority for a property scheme can only be made during the “transitional period”. This is defined as a period of 4 years beginning with the day on which section 92 of the Energy Act 2004 came into force. Section 92 of the Energy Act 2004 came into force on 20 May 2009.
However, under paragraph 5(3) of Schedule 2A, the Secretary of State may extend the transitional period by order, subject to the limitation that the total transitional period does not exceed 16 years. The Government is of the view that for the foreseeable future the need for these powers will remain, and the Secretary of State therefore proposes to extend the transitional period in which an application for a property scheme can be made by a period of 12 years.
This is because in 2010 Government and Ofgem decided on the back of consultation to maintain the generator build option in the enduring regime, alongside a new OFTO build option. Ofgem’s powers to make a property scheme will continue to be relevant to support the offshore transmission regime under the generator build option. These powers serve to encourage good faith in the negotiations over transmission asset transfer between the developer and the OFTO. Without them, OFTOs and generators would face a number of additional risks, which will be likely to increase risk premiums and therefore prices for consumers. These risks include:
Generators becoming involved in disputes over pricing with OFTOs and third parties prior to transfer of assets, putting generators at risk of having their assets stranded.
Generators being held to ransom by third parties who may refuse to transfer assets to the OFTO on reasonable terms (knowing that the generator faces stranding risk); and
Failure to achieve a timely and fair transfer resulting in delays to receiving their revenue stream and thus higher costs of financing for the OFTO.
DECC and the Authority will continue to monitor the effects of these powers, and should they prove necessary to use in the future will review the subsequent impact on the consumer, the parties concerned and the wider offshore market.
Any representations can be made, by no later than 12 April 2013, by email to Ben White at: email@example.com, or in writing to:
Department of Energy and Climate Change
3 Whitehall Place
Energy bill introduced into Parliament with offshore transmission commissioning clause: November 2012
Government’s Energy Bill includes a clause to further support the timely, secure and cost-effective delivery of connections from offshore wind farms to the GB grid. The clause applies to generator-build projects. It provides an exception in certain circumstances to the prohibition of participating in the transmission of electricity without a licence during a “commissioning period”. The clause will enable generators to continue to commission the transmission assets prior to their timely transfer to the appointed OFTO. We are grateful for the feedback of stakeholders at the July 2012 workshop that considered a draft of this clause.
The commissioning period covers the time prior to the issuing of a completion notice in respect of the offshore transmission system and 18 months following the notice being given. The Secretary of State has the power to reduce the 18 months to 12 months in the future, but projects that had already qualified under Ofgem’s tender process would not be affected. The clause also provides Ofgem with a power to make, after consultation, any modifications to codes or agreements that are necessary or desirable to implement or facilitate this measure.
Further information on the Energy Bill and its accompanying documents can be found on the Energy Bill web page.
Offshore transmission coordination project: implementation update: September 2012
The joint DECC and Ofgem Offshore Transmission Coordination Project (OTCP) conclusions report (below), published in March 2012, identified measures to address 6 areas of potential barriers to the development of coordinated networks (see March 2012 update below). The table at the link below summarises progress made to date by various parties in addressing these potential barriers, and sets out some further actions that parties expect to take. Government will continue to monitor progress in this area.
Offshore transmission: proposed measure to address commissioning concerns: July 2012
We are aware of developers’ concerns regarding the commissioning of offshore transmission assets under the generator build option following further commencement. We recognise the strong preference of generators to be able to convey electricity on these assets for a period prior to transfer of the assets to a licensed OFTO. We understand that some conveyance of electricity may be necessary in order to commission the transmission assets, and recognise that it is also desirable for renewable electricity to keep flowing over these assets during the finalisation of commercial activities.
DECC and Ofgem are working together to address these concerns, in a way which balances the preference for generators to be able to commission their transmission assets, under the enduring generator build option, with the need for ensuring that generators transfer the transmission assets to the OFTO in a timely manner.
The Energy Bill legislates for Electricity Market Reform, implementing the conclusions of the Ofgem Review, creation of the Office for Nuclear Regulation, and a small number of delivery critical measures. DECC proposes that one of these measures will look to address the concerns raised by generator developers regarding the commissioning of transmission assets.
Draft Energy Bill
Offshore transmission coordination project conclusions: March 2012
DECC and Ofgem have published a report on the conclusions of the joint offshore transmission coordination project.
The project was set up in 2011 to consider whether further measures are necessary to help ensure that onshore and offshore transmission networks develop in a strategic and coordinated manner.
Government and Ofgem recognise the potential benefits that the coordinated development of offshore electricity transmission infrastructure can offer, including lower overall capital costs, potentially reduced planning-related delays and reduced pressure on onshore infrastructure. This was a major driver in the prior decision to extend the role of National Grid’s onshore System Operator responsibilities offshore, including to develop a coordinated system of electricity transmission, and to create a licence obligation requiring the System Operator to develop an Offshore Development Information Statement (ODIS).
The System Operator has been offered some Round 3 Zone developers connections which envisage more coordinated configurations.
Modelling undertaken for the project using four different generation scenarios, found that coordinated configurations in respect of certain Crown Estate Round 3 Zones have the potential to deliver savings of around 8-15%, or £0.5-3.5billion, when compared to purely radial configurations. The report confirms that an incremental, evolutionary approach to offshore network development best serves the needs of consumers and generators given the future uncertainties involved, and that for certain Zones a radial configuration is likely to remain the best option. However, for those Zones where a coordinated configuration could be most efficient and deliverable, there may need to be anticipatory investment made at key decisions points in the build-out of the Zone to keep options for coordination open.
The project identified six areas of potential barrier to the coordinated development of the offshore and onshore networks, where further measures are required to provide the right incentives. The potential barriers and proposed ways to address them are set out in the report. They cover the following areas:
- anticipatory investment
- designing an efficient network
- risk-reward profile for coordinated investments
- regulatory boundaries
- technology and supply chain
In parallel to publication of the joint conclusions report, Ofgem has published a consultation document on decisions around implementation of certain proposed new measures, in particular anticipatory development and designing an efficient network.
Offshore transmission coordination – insights from other countries and sectors: March 2012
To support the joint DECC and Ofgem Offshore Transmission Coordination Project (see above), DECC commissioned consultants SKM and CEPA to conduct an analysis of regulatory regimes for offshore electricity transmission in other countries with significant amounts of planned or existing offshore wind generation, as well as for other relevant infrastructure sectors, to uncover insights and enable evidence-based international comparisons. In all the countries studied (Great Britain, Germany, Denmark, the Netherlands, Belgium, France, Ireland, Sweden, China and the USA), all existing offshore wind farm connections have been delivered as radial configurations so far, though some integrated configurations are now planned. Irrespective of the type of regulatory regime, key requirements for integrated configurations to be efficient are the geographical proximity of wind farms and their development timelines.
The analysis is delivered in three separate reports:
Update on further commencement: June 2011
Ofgem is running tender processes to grant Offshore Transmission Owner (OFTO) licences for transitional tender round 1 and 2 offshore generation projects. Government has amended key definitions in the Electricity Act 1989 to extend the offshore transmission regulatory regime to all projects conveying electricity from GB offshore waters at or above 132kV, including projects in the Renewable Energy Zone (REZ). The amended definitions are partially commenced and currently apply to projects conveying electricity from offshore at or above 132kV from the point of asset transfer to an OFTO.
Government intends to commence the regulatory regime in due course to apply it to all OFTO and generator built assets at or above 132 kV and extend the territorial extent of the regime into the REZ. As a result, the class exemption order that applies to offshore distribution will no longer apply to an offshore line that conveys electricity generated offshore at 132 kV.
In deciding the appropriate timing for further commencement of the regulatory regime, government will take into account factors including the need for a smooth transition from the current arrangements for projects that are part of the transitional tender rounds, and the implementation of the Third Energy Package.
Based on these considerations, Government does not intend to further commence the offshore transmission regulatory regime before summer 2012. We will review, with Ofgem, the position on timing of further commencement at the end of 2011.
Government response to consultations on offshore electricity transmission: December 2010
The response sets out changes made by the Secretary of State to the Connection and Use of System Code (CUSC) and the Grid Code, in order to ensure the availability of a generator build option on an enduring basis. We consider that changes will also be required to the System Operator – Transmission Owner Code (STC) to fully implement our policy decisions, and we set out how we expect those changes to be progressed.
The document also outlines the approach to further refinements to the enduring regime, including to the enduring Offshore Transmission Owner (OFTO) tender process. In addition, letters have been sent to the owner of the CUSC and the Grid Code informing them of the changes made to those codes and instructing them to publish the changes by 31 December 2010, from which date they will take effect.
The Government response, annexes of amended code text, final impact assessment and the letters to code owners are all available on the November 2010 consultation page.
Offshore Electricity Transmission: Implementing further refinements to the enduring regime: November 2010
On 8 November 2010, DECC and Ofgem E-Serve published a joint consultation document, ‘Offshore Electricity Transmission: Implementing further refinements to the enduring regime’.
This document follows a joint decision by DECC and Ofgem E-Serve to provide additional flexibility under the enduring offshore transmission regime. It consults on proposed amendments to the Connection and Use of System Code (CUSC) and the Grid Code that we consider necessary to implement our policy decisions to provide a generator build option as part of the enduring regime for offshore electricity transmission and to provide additional clarity on the OFTO build options. We also consider that changes to the System Operator – Transmission Owner Code (STC) will be required to implement our policy decisions and we intend to publish the proposed STC changes later in the year.
The consultation document and annexes are available in our consultation section.
Offshore Transmission Regime: Initial decision on generator build option: October 2010
On 21 October 2010, DECC and Ofgem E-Serve published a joint open letter (below), ‘Providing additional flexibility in the enduring regulatory regime for offshore electricity transmission: Initial joint decision statement’. This letter announces our intention to implement the changes necessary to deliver a generator build option in the enduring regime. We will shortly consult on the detailed changes to the industry codes necessary to deliver the generator build approach. This letter also outlines our intention to further consider how best to facilitate co-ordinated development of the offshore transmission system through the offshore transmission regime.
Offshore electricity transmission regime - further consultation: August 2010
On 26 August 2010, DECC and Ofgem E-Serve published a consultation on the enduring offshore transmission regime, ‘Offshore electricity transmission: further consultation on the enduring regulatory regime’.
Building on Ofgem’s December 2009 consultation, Offshore Electricity Transmission: Consultation on the Enduring Regime, it provides updated proposals on OFTO build options, presents an additional ‘generator build’ option and outlines the implementation challenges identified in delivering this further option. In addition the document considers how the competitive regime can facilitate the development of a co-ordinated offshore network and seeks views on whether further action is required to support co-ordination.
The consultation document and Impact Assessment are available in our consultations section.
Offshore grid connections: July 2010
On 27 July 2010 DECC and Ofgem E-Serve published a joint open letter, ‘Providing additional flexibility in the enduring regulatory regime for offshore electricity transmission – Ofgem E-Serve/DECC open letter’. This letter outlines our intention to consult further on the enduring regime for offshore electricity transmission. We propose to consult on providing the option of enabling generator developers to design and construct the transmission infrastructure in addition to the existing ‘OFTO’ build approach. The consultation will also seek views on how best to ensure that the enduring regime delivers a coordinated and strategic onshore and offshore network.
The letter, below, also provides details on the commencement of the new regime for transitional projects; new tender regulations; and the next steps.
Offshore grid development - research published on joint projects and interconnection: June 2010
As a useful contribution to the debate on the development of renewable ‘Joint Projects’ with other European countries under the Renewable Energy Directive, DECC appointed Sinclair Knight Merz (SKM), in association with Deloitte, to undertake a high level review of the costs and benefits from a UK perspective of different potential Joint Projects and different means of exporting the resulting electricity back to the UK. In particular, the analysis looked at the question of whether offshore windfarms offer a cost-effective option for interconnection. Four potential areas around the UK were examined for potential Joint Project development, namely Norway (North Sea), Ireland (Irish Sea), Continental Europe (English Channel area) and Iceland.
The report, below, identifies clear potential benefits to the UK from Joint Project development and interconnection. It generally finds that in the short to medium term for the potential projects considered, point to point interconnection that does not incorporate offshore windfarms provides the most cost-effective means of achieving those benefits.