Resilient energy networks are critical for energy security, and a strengthening of our electricity network will ensure we can meet challenges from an increasing diversified energy mix.
Resilient energy networks are critical for energy security, and a strengthening of our electricity network will ensure we can meet our wider energy needs. With rapid increases in new generation capacity (over £30 billion invested in electricity generation, principally in renewable technologies since 2010, and the first new nuclear stations expected to come online in a generation), timely investment and innovative solutions are vital to ensuring our electricity network is smart and efficient.
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.
On 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 barrier to new renewables.
The Minister of State has responded to the reports:
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 network operators, 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. The transmission network operators also provide quarterly updates on progress on their major projects to the Electricity Networks Strategy Group.
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).
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 reviewed the transmission charging regime through Project TransmiT which concluded in July 2014 with an announcement that changes will be implemented from April 2016.
European Network Codes
The operation of our electricity network is governed by a set of rules, known as Network Codes. These codes lay down the regulations which need to be followed if, for example, a generator wants to transmit power over the network or a consumer wants to connect to make use of that power. They ensure that the network operates efficiently and is sufficiently flexible in its day-to-day operation, whilst also guaranteeing it is robust and can be relied upon.
The introduction of an integrated EU energy market offers the scope to link the national networks and hence facilitate power supply across borders, with the ambition of reducing prices for consumers and ensuring greater energy security. This will require the different rules which govern the national networks to be harmonised into a set of EU-wide rules, which all networks can comply with. The member states of the EU, are working with the various national regulators and industry stakeholders to create the European Network Codes.
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. A Ministerial commitment was made to review the working of the Common Tariff Obligation in parallel with the Hydro Benefit Replacement Scheme review. These schemes were last reviewed in 2013, when DECC concluded that both should continue.
Continuing support for Shetland
Domestic and non-domestic electricity consumers on Shetland are currently protected from the high costs of electricity supply resulting from the isolated nature of Shetland’s electricity infrastructure. Following a public consultation, DECC confirmed arrangements in March 2015 for the continuation of this support to Shetland.
Costs of new high-voltage transmission lines
At the Government’s request, an independent and authoritative study was published in 2012 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.
Offshore electricity networks development
Offshore generation sites are connected to the onshore grid under the offshore transmission regime, while interconnection links GB to the transmission systems of different countries or territories.
Offshore transmission assets transport electricity from offshore generation sites (such as wind farms) 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 its competitive tender process. 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, who have confirmed that this approach has saved £200-£400 million on the first tranche of projects alone. There has been 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 interconnection can contribute to our security, affordability and decarbonisation objectives, as well as towards a single European electricity market. Great Britain has 4GW of interconnection – 2GW with France, 1GW with the Netherlands, 500MW with Northern Ireland and 500MW with the Republic of Ireland.
The Government has supported around 6GW of interconnection projects to benefit from European Project of Common Interest (PCI) status, with benefits including enhanced permitting procedures, potential regulatory incentives and access to funding under the Connecting Europe Facility. In December 2013, the government published the “More interconnection: improving energy security, lowering bills policy paper” setting out our commitment and activity underway to achieve it. This led to recent announcements that interconnected capacity will be able to to participate in the Capacity Market in the 2015 auction. The independent regulator, Ofgem, has also put in place a ‘cap and floor’ regulatory framework, which aims to incentivise further investment in interconnection by reducing the downside revenue risks.
There are a number projects in the pipeline to increase GB interconnection capacity, which could provide billions of pounds of additional investment in electricity networks. The Nemo (1GW to Belgium) and NSN (1.4GW to Norway) interconnectors both reached financial investment decision early in 2015, which marks a major milestone towards seeing these interconnectors become operational. Ofgem has granted initial approval for three further interconnectors which could be operational by 2020, providing an additional 3.4GW of capacity to France and Denmark.
Historical announcements and publications for this page can be accessed via the national archives by searching for ‘Electricity network delivery and access’.