gb elecricity industry for dummies

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Chris Beard, CGI

GB ElectricityIndustry




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GB Electricity Industry For Dummies

Published by:John Wiley & Sons, LtdThe AtriumSouthern GateChichesterWest SussexPO19 8SQEnglandwww.wiley.com

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About the AuthorChris Beardis one of CGIs leading Subject Matter Experts inenergy markets. Author ofSmart Metering For DummiesandSmart Grids For Dummies,Chris has spent the last 17 yearsworking across all parts of the energy industry, helpingcompanies to adapt and thrive within the ever-increasinglyde-regulated market.

AcknowledgementsMany people have contributed to this book and wed like totake this opportunity of thanking them: Sandra Bain, MarkBygraves, David Crossman, Jodie Eaton, David James,Jeremy Gann, David Leck, Tara McGeehan, Karen Beckettand Steve Westlake.




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Contents at a Glance

Introduction ............................................................................................... 1

Chapter 1: Getting to Grips with the Basics........................................... 5

Chapter 2: Generation ............................................................................. 13

Chapter 3: Transmission ........................................................................ 25

Chapter 4: Distribution ........................................................................... 37

Chapter 5: The Retail Market ................................................................. 47

Chapter 6: The Wholesale Market ......................................................... 59

Chapter 7: Settlement ............................................................................. 71Chapter 8: Regulation ............................................................................. 87

Chapter 9: The Smart Metering Implementation Programme ........... 99

Chapter 10: Ten Take-Away Points to Remember ............................. 115

Appendix: Timeline ............................................................................... 117




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Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

About This Book ........................................................................ 1

Foolish Assumptions ................................................................. 1

How This Book Is Organised .................................................... 2

Icons Used in This Book ............................................................ 2

Where to Go from Here ............................................................. 3

Chapter 1: Getting to Grips with the Basics . . . . . . . . . . .5

Coming Full Circle ...................................................................... 5

Understanding the Electricity Industry Structure ................. 7

Reviewing How We Got Here .................................................... 8

Nationalisation ................................................................. 9

Privatisation ..................................................................... 9

Vertical integration ........................................................ 10

Outlining the Key Industry-Wide Challenges ........................ 11

Chapter 2: Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Whats Generation All About? ................................................ 14

Looking at fuel types ..................................................... 14

Sizing up scale ................................................................ 16

Considering flexibility ................................................... 17

Assessing the Generation Mix ................................................ 17

Who Are the Major Players? ................................................... 18

What Are the Big Issues? ......................................................... 20New nuclear .................................................................... 20

Carbon Capture and Storage ....................................... 20

Renewable Obligation ................................................... 20

Feed-In Tariff Scheme ................................................... 21

Electricity Market Reform ............................................ 21

Project TransmiT ........................................................... 22

European Target Model ............................................... 22

Large Combustion Plant Directive .............................. 22

Industrial Emissions Directive .................................... 23

Chapter 3: Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Whats Transmission All About? ............................................ 26

The transmission network ............................................ 26

Balancing the transmission network .......................... 28

Planning investment ..................................................... 28

Charging for transmission ........................................... 29




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GB Electricity Industry For Dummiesviii

How Has Transmission Changed? .......................................... 29


How Is Transmission Regulated?........................................... 32What Are the Big Issues? ......................................................... 32

Growth in renewables ................................................... 32

Deep or shallow connections? ..................................... 32

Invest and connect or connect and manage? ......... 33

Greater European integration ...................................... 33

RIIO TD1 ....................................................................... 33

Project TransmiT ........................................................... 33

Offshore wind farms ...................................................... 34

Chapter 4: Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Whats Distribution All About?............................................... 38

The distribution network .............................................. 38

Charging for distribution ............................................. 39

Keeping records ............................................................. 39

How Has Distribution Changed? ............................................ 40


How Is Distribution Regulated? .............................................. 42

What Are the Big Issues? ......................................................... 42More consumption ........................................................ 42

More generation . . . everywhere! ................................ 42

More innovation............................................................. 43

Skills shortage ................................................................ 44

Metal theft....................................................................... 45

Chapter 5: The Retail Market . . . . . . . . . . . . . . . . . . . . . .47

Whats the Retail Market All About? ...................................... 48Being a supplier ............................................................. 48

Collecting the cash ........................................................ 49

How Has the Retail Market Changed? ................................... 49

Competition .................................................................... 50

Change of supplier ......................................................... 50


Suppliers ......................................................................... 51

Supplier Hub ................................................................... 51

Energy Service Companies .......................................... 51What Are the Big Issues? ......................................................... 52

Retail Market Review ..................................................... 52

Smart metering ............................................................... 53

Green Deal ...................................................................... 53

Mis-selling ....................................................................... 54

Prepayment problems ................................................... 55

Price increases............................................................... 55




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Table of Contents ix

The Renewable Obligation and the Carbon

Emissions Reduction Target ..................................... 56

Collective purchasing and switching.......................... 56

Chapter 6: The Wholesale Market . . . . . . . . . . . . . . . . . .59

Whats the Wholesale Market All About?.............................. 60

How Has the Wholesale Market Changed? ........................... 61

The Pool .......................................................................... 61

New Electricity Trading Arrangements ...................... 63

British Electricity Trading and

Transmission Arrangements .................................... 65

Who Are the Major Players? ................................................... 65What Are the Big Issues? ......................................................... 66


Retail Market Review .................................................... 67

Regulation of Wholesale Energy Markets

Integrity and Transparency ..................................... 68

Chapter 7: Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Whats Settlement All About? ................................................. 72

Working out the numbers ............................................. 72

Meters ................................................................... 73

Profiling ................................................................ 75

Time Pattern Regimes and Standard

Settlement Configurations ....................................... 76

Estimated Annual Consumptions

and Annualised Advances......................................... 77

Settlement timetable ..................................................... 78

Settling imbalance ......................................................... 79How Has Settlement Changed? ............................................... 80


Balancing and Settlement Code Company.................. 80

Balancing and SettlementCode Agents....................... 81

Other agents ................................................................... 82

Customers ....................................................................... 83

What Are the Big Issues? ......................................................... 83

Chapter 8: Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

Whats Regulation All About? ................................................. 88

Understanding the regulatory framework .................. 88

Policing the regulatory framework ............................. 89

Industry codes ............................................................... 90

How Has Regulation Changed? ............................................... 91

RPI-X ................................................................................ 92

RIIO .................................................................................. 92




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GB Electricity Industry For Dummiesx


What Are the Big Issues? ......................................................... 94

Impending Armageddon............................................... 94Climate Challenge Act ................................................... 95


EU Emissions Trading System ..................................... 96

European Target Model ................................................ 96

Code Governance Review ............................................. 97

Smart Energy Code ........................................................ 97

Chapter 9: The Smart Metering Implementation

Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99Whats the Programme All About?....................................... 100

The Centralised Communication Model................... 101

Getting to grips with the terminology ...................... 102

Dissecting the anatomy of the DCC ........................... 103

Critical/Sensitive Service Requests ........................... 104

How Has the Programme Changed? .................................... 105

Who Are the Major Players? ................................................. 106

What Are the Big Issues? ....................................................... 107

Rollout ........................................................................... 107

Opt-out .......................................................................... 108

Data access and privacy ............................................. 108

Security ......................................................................... 109

Impact assessment ...................................................... 109

Standards ...................................................................... 110

Volumes ........................................................................ 112

Foundation .................................................................... 112

Chapter 10: Ten Take-Away Pointsto Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

Appendix: Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117




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Introduction

Welcome to GB Electricity Industry For Dummies, theessential pocket guide to the British electricity sector.

About This BookEvery now and again, you come across someone whos newto the electricity industry. Theyre easy to spot. Theyre theones with glazed expressions as waves of acronyms andjargon wash over them. Of course, those embroiled within theindustry arent immune. Lifting someone out of, say, distribu-tion and dropping them into settlement can produce a similarexpression. And just observe people from overseas trying toget to grips with the foibles of the British market. The likeli-hood is that theyre equally confused.

This book is intended as a mild source of pain relief for suchindividuals. We explain what each bit of the industry is for,why its ended up the way it is, the major players and the bigissues. And, of course, we explain some of the jargon.

Foolish AssumptionsWe made a few assumptions while writing this book. The firstobvious one is that something as complex and diverse asthe British electricity market can be condensed into a conve-niently pocket-sized booklet clearly a ludicrous undertaking!We also assume that:

Youre relatively new to the industry, or have workedonly in one area, and are interested in a useful, light-hearted overview of how the British electricity industryfits together.




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GB Electricity Industry For Dummies2

You dont want opinions as to the rights and wrongs ofthe various twists and turns that the industry has

been through (for those that do, wed recommendAlex Henneys excellent The British Electricity Industry19902010, published by EEE Limited).

How This Book Is OrganisedWe divide the book into ten concise and informative chapters:

Chapter 1: Getting to Grips with the Basics: We look atthe structure of the British electricity industry and howit has changed over time. Read this chapter if you readnothing else.

Chapters 2 to 9: We take a closer look at the individualbits of the industry: generation, transmission, distri-bution, the retail market, the wholesale market, settle-ment and regulation. And because its a hot topic right

now, we include a bonus chapter on Smart MeteringImplementation Programme. Each chapter has a commonlayout what the bit of the industrys for, how its evolvedto be as we see it today, who the major players are andthe big issues that keep them awake at night. We includea useful jargon buster sidebar to help you hold your ownin coffee machine conversations. Plus we include the oddcrystal-ball-gazing session with an industry expert.

Chapter 10: Ten Take-Away Points to Remember:A fewobservations on the British electricity industry to keepin mind.

Finally, we include an appendix with a succinct summary ofthe key milestones in the development of the British electric-ity industry.

Icons Used in This BookTo make navigation to particular information even easier, weuse icons to highlight key text:




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Introduction 3

Important points to keep in mind.

Pointers to help you deepen your understanding of a topic.

Drawing your attention to the Dark Side!

Where to Go from HereAs with all Dummies books, you can dip in and out or readfrom cover to cover it wont take long! Like the electric-ity network itself, the various bits of the industry are inter-related so, in an attempt to minimise repetition, we give lotsof useful references to other chapters. If you require anymore information, feel free to visit us at www.cgi-group.co.uk/utilities.




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Chapter 1

Getting to Gripswith the Basics

In This Chapter Examining the key bits of the industry

Taking a historical tour

Reviewing the key challenges

The British electricity industry has to be one of the mostcomplex in the world. It certainly qualifies as the oldest.

This chapter looks at how this industry came about and howits changed over its 120-odd year lifespan.

Coming Full CircleIn 1881, Messrs Calder & Barnet installed a Siemens ACalternator and dynamo, powered by a waterwheel located atWestbrook Mill on the River Wey. It fed seven arc lights and34 Swan incandescent lights that lit the streets of Godalmingand was the first experimental public electricity supply.

In 2008, a 70-kilowatt (kW) Archimedes screw was installed inthe River Goyt in Derbyshire. By February 2012, this community-

owned hydro scheme (affectionately known as Archie) hadgenerated over 500 megawatt hours (MWh).

Figure 1-1 illustrates the two schemes.




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Torrs Hydro New Mills plc, 2008

Figure 1-1:Coming full circle with two community electricity schemes.

Looking at these two examples of small-scale community elec-tricity schemes, it would be easy to think that not much hashappened in the intervening 127 years. Not so. From its first




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Chapter 1: Getting to Grips with the Basics 7

tentative steps in the streets of Godalming, the British elec-tricity industry has grown massively, has transformed beyond

recognition, and continues to evolve. Which means that, bythe time you read this, things will have moved on and therellbe a new set of issues, initiatives and acronyms. Such is life.

Understanding the ElectricityIndustry Structure

Electricity is something we take for granted. Recently, however,its becoming eye-wateringly expensive. Total UK householdexpenditure on electricity is now over 20 times what it was in1970, and the latest available government statistics show thatover 3.5 million households were in fuel poverty (spendingmore than 10 per cent of household income on gas and elec-tricity) by the end of 2010. The numbers came down a little in2011 but this was partly due to the introduction of a new defini-

tion of fuel poverty. The depth of fuel poverty, however, hasincreased for those unfortunate enough to suffer from it.

The household electricity bill is a pretty good place to startto get an understanding of how the electricity industry works.Figure 1-2 shows the composition of an average electricity billaccording to statistics published by the regulator Ofgem.

Based on Ofgem Fact Sheet 98, March 2013

Figure 1-2:Breakdown of an average domestic electricity bill




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The biggest portion is the cost of generating the electricity inthe first place (we discuss generation in Chapter 2). The major-

ity of electricity is generated in large power stations connectedto a high-voltage transmission network that moves the electric-ity over large distances to where its needed (we cover trans-mission in Chapter 3). The electricity leaves the transmissionnetwork and enters distribution networks to complete the lastleg of its journey to the end consumer (Chapter 4 covers distri-bution). The end consumer buys the electricity from a supplierin a competitive retail market (we look at retail in Chapter 5),who, in turn, buys the electricity from a competitive wholesale

market (the subject of Chapter 6). And after the kettles haveboiled and the toast has burnt, the settlement process worksout who used what so that all the participants can get paidaccordingly (Chapter 7 looks at settlement).

As you can see from Figure 1-2, generators and suppliersreceive a little over half of your bill payments, and moving theelectricity around (transmission and distribution) accountsfor another quarter. Because storing large quantities of elec-

tricity isnt easy, the System Operator (SO) is responsible forensuring that exactly the right amount of electricity gets towhere its needed at a stable frequency and voltage (we coverbalancing in Chapter 6). Some of the 5 per cent of the Othercosts in Figure 1-2 pays for this balancing (that is, keeping thelights on).

Another key challenge facing all of us is climate change.Through the Climate Change Act, the government has entered

a legally binding target to reduce the UKs greenhouse gasemissions by at least 80 per cent below 1990 levels by 2050.Ten per cent of your electricity bill pays for the governmentspolicies for achieving this (we discuss regulation in Chapter 8).

Reviewing How We Got HereYou can liken the evolution of the GB electricity market tocontinental drift: a constantly shifting scene, driven by theforces of nationalisation and privatisation, in which largechunks of the industry either split up or come together toform new entities. Bits of the industry, notably the wires thattransport the electricity, are natural monopolies (the mas-sive cost of transmission and distribution networks makes itimpractical for a new entrant to compete). However, other




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bits, notably generation and supply, have the potential forcompetition.

NationalisationThe electricity industry started life in the form of numerousindividual, isolated ventures such as the water-powered streetlighting of Messrs Calder & Barnet in Godalming. The discov-ery of alternating current (AC)-enabled transmission pavedthe way for bringing these ventures together and small islands

of network started to coalesce. The advantages for doing sowere economies of scale and an increased chance of keepingthe lights on (security of supply) by having access to a largermix of generation to meet uncertain demand.

Legislation in 1926 paved the way for the first national grid,a set of 132-kilovolt (kV) interconnected regional grids thatbecame fully integrated in 1938.

The Electricity Act of 1947 saw nationalisation of the numer-ous municipal and privately owned electricity generation andsupply utilities to form the British Electricity Authority and 15Area Electricity Boards.

In 1955, the British Electricity Authority became the CentralElectricity Authority, which, in turn, became the CentralElectricity Generation Board (CEGB) in 1957.

Then, in 1990, the whole process started to reverse.

PrivatisationPrivatisation saw the CEGB broken up into a monopolytransmission business (National Grid Company) and twocompeting generators (National Power and PowerGen, affec-tionately called Big G and Little G). Later, the government

decided not to include the nuclear stations (originally givento National Power) in the privatisation process, resulting inthe formation of the publicly owned Nuclear Electric. The 12Area Electricity Boards in England and Wales were renamedRegional Electricity Companies (RECs) and sold off. Sixty percent of National Power and PowerGen followed in 1991, theremainder being sold in 1995.




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The year 1991 also saw privatisation of the Scottish elec-tricity industry, although the two organisations, renamed

ScottishPower and Scottish Hydro-Electric, remained verti-cally integrated(they retained ownership and control of theirtransmission networks).

The introduction of retail competition during the 1990s cul-minated, in 2000, in the split of the competitive supply andmonopoly distribution functions of the Regional ElectricityCompanies, leaving the distribution network operators pick-ing up the monopoly distribution businesses. Metering com-

petition accompanied retail competition and saw meteringbusinesses separated from their corporate companies andsnapped up by new independent meter operators.

By 1999, divestment of generation assets by National Powerand PowerGen had resulted in 38 generators. But despitethe apparent competition, the Office of Gas and ElectricityMarkets (Ofgem, the energy regulator), concluded thatwholesale prices were still controlled by a dominant few. By

2000, a dash for gas (largely by new market entrants) added7.9 gigawatts (GW) of new Combined Cycle Gas Turbine(CCGT) plant and created a substantial surplus of genera-tion. This, combined with a warm winter, saw a 10 to 20 percent fall in wholesale prices, a process that was to continuewith the replacement of the existing wholesale market (com-monly known as thePool) with the New Electricity TradingArrangements (NETA) (more in Chapter 6).

Then, the process started to reverse again. . . .

Vertical integrationIn the late 90s, generators, foreseeing a collapse in whole-sale prices, started buying up supply businesses as a naturalhedge. If wholesale prices were high, the generation arm ofthe business made money. If low, the supply side of the busi-

ness would bring in the cash. This vertical integration sawNational Power and PowerGen buying Midlands Electricityand East Midlands Electricity, respectively. Replacementof the Pool with NETA in 2001 only increased this trend.Recently, the mandated rollout of smart meters to domesticand small non-domestic customers has seen the large supplybusinesses taking metering back in-house.




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Throughout these privitisation and vertical integrationphases, a number of major US energy companies invested

in generation and supply, along with speculative trading inwholesale markets (remember Enron?). When prices col-lapsed, however, they had their fingers badly burned andrapidly withdrew, to be replaced by the emerging majorEuropean energy national champions.

Outlining the Key Industry-WideChallenges

We look at the key issues affecting each area of the industryin the following chapters, but heres a heads-up of some of thebig issues occupying the industry as a whole today:

Decarbonisation of the electricity industry: The threatof climate change is forcing the closure of fossil fuel gen-

eration plant in favour of low-carbon renewable and newnuclear generation (see CGIsNew Nuclear For Dummies).However, renewable generation tends to be intermittentand uncontrollable (dependent on when the wind blowsor the sun shines, for example) and nuclears not veryflexible (its either on or off), which means were lookingat a radical change to the way we consume electricity.Today, we generate to meet demand. In the future, wemay well have to use electricity when its available (more

on this in Chapter 2). Decarbonisation of the economy: Decarbonising elec-

tricity generation wont be sufficient on its own tomanage climate change. We need to radically reduceour dependency on fossil fuels in general. The humbledomestic electricity supply will have to replace thepetrol pump and the domestic gas supply as we replaceour gas-guzzlers with electric vehicles and central heat-ing with heat pumps. This will mean a massive increase

in the demand for (low-carbon) electricity.

Network investment: Increased demand for electricitymeans more electricity to move around. Unfortunately,our existing transmission and distribution networkswerent designed with this in mind, and theyll need mas-sive investment to support a future low-carbon economy.




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This means not just bigger networks, but also smarternetworks (more on this in Chapters 3 and 4; also, see

CGIsSmart Grids For Dummies).

Smart metering: One way of coping with the impendingincrease in electricity demand is to start using less of it.Improved home insulation can do a lot, but to really startcutting down, we need to become more energy-savvy.Smart meters are a way of helping us to not only betterunderstand our energy consumption, but also activelymanage and reduce it (more on this in Chapter 9; also,see CGIsSmart Metering For Dummies).

Innovation-based regulation: The scale of investmentrequired in our electricity infrastructure requires a newapproach to designing and operating networks. But howdo you incentivise regulated, monopoly network provid-ers to challenge age-old ways of working and start think-ing out of the box? Ofgems response to this quandaryhas been a radical change to the regulatory regime thatplaces greater emphasis on delivering innovation (more

on this in Chapter 8).

Electricity Market Reform (EMR): Ever-increasing elec-tricity prices and growing fuel poverty have focusedattention on the retail market and the dominance of theBig Six suppliers. Despite Britain being in the vanguardof a European trend towards retail competition, dra-matic headlines of large supplier profits have promptedOfgem to conduct an Energy Probe (more in Chapter 5),

which, in turn, has led to proposals for Electricity MarketReform (more in Chapter 6).

European Target Model: Britains reform of its electricitymarket is happening against the backdrop of a Europeaninitiative to implement a single European energy market.Recent draft European Union legislation requires tighterintegration of member states electricity networks as astep towards a fully liberalised internal electricity marketby 2014, and the legislation is likely to impact everyone

in the British electricity industry.




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Chapter 2

GenerationIn This Chapter Describing fuel types, scale and flexibility

Examining how Britain generates

Introducing the main generators

Exploring issues, from new nuclear to Project TransmiT

Generationis the process of turning primary energy

sources into electricity. Given the fact that this booksabout the British electricity industry, its fitting that it wasa British scientist, Michael Faraday, who first generatedelectricity back in the early 1800s. And we still use his basicmethod of moving a wire through a magnetic field to generateelectricity today.

This chapter looks at the different types of generation we relyon in Britain, who owns it and the challenges the owners face

in the future.




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Whats Generation All About?In this section, we look at the major types of generation, cat-egorised by fuel type, scale and flexibility.

Looking at fuel typesDifferent types of generation use different methods for moving

the wire through a magnetic field to generate electricity, andeach method has advantages and disadvantages in terms ofthe amount of electricity generated, the speed with which gen-eration can start and stop, and its impact on the environment.Here are the main flavours of generation in Britain:

Fossil-fuel: These power stations burn coal, gas or oiland convert the heat generated in combustion to elec-tricity, usually via a steam or gas turbine. By-products

are waste heat (a typical fossil-fuel generator is only 33per cent efficient), hence the large, iconic cooling towersyou see dotted across the countryside. The other keyby-product is flue gas containing, amongst other things,carbon dioxide, making fossil-fuel generators major emit-ters of greenhouse gases. With a cumulative capacity ofover 41,000 MW, Britains 72 fossil fuel plants currentlymake up a little over 41 per cent of the countrys genera-tion capacity.

Combined Cycle Gas Turbine (CCGT): Still a fossil-fuelpower station that converts gas into electricity via a gasturbine. However, in a CCGT, the heat of the turbinesexhaust generates steam that drives a secondary gen-erator, making the plant more efficient (typically morethan 50 per cent). Currently, 41 CCGTs are operating in

Semi-interesting generation factThe largest power station in theworld is the Three Gorges Dam inChina, which, at 22,500 MW, is morethan six times larger than Britains

largest power station and could meet60 per cent of Britains 2011 averagedemand.




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Chapter 2: Generation 15

Britain, providing just under 29,000 MW (29 per cent) ofthe countrys generation capacity.

Nuclear: Nuclear power stations are similar to fossil-fuelor CCGT power stations in that they use heat to generatesteam thats in turn converted to electricity via a turbine.In a nuclear power station, however, the heat is gener-ated by nuclear fission (the process in which the nucleusof an atom splits into smaller parts). This has the advan-tage that it doesnt generate carbon dioxide.

Nuclear power stations do, however, generate spent

nuclear fuel that remains deadly to living organisms forextremely long periods and requires careful manage-ment. Nuclear generation also has the disadvantage ofbeing relatively inflexible (its either on or off, making itgood for delivering base load demand but poor at meet-ing peak demand).

Currently, nine nuclear plants are operating in Britain,accounting for 9,200 MW (9 per cent) of the countrysgeneration capacity. Many of these are approaching theend of their lives; however, ten sites have been identifiedas candidates for new nuclear builds. For more informa-tion, have a read of CGIsNew Nuclear For Dummies.

Hydro: Conventional hydroelectric generation plants usedammed water to drive a water turbine to generate elec-tricity. Other variants include pumped storage (see thenext bullet), tidal and wave. Britain can claim to have theworlds first hydroelectric power scheme, developed at

Cragside in Northumberland in 1878. In Britain, we have83 hydro plants with a combined generation capacity of1,974 MW (less than 9 per cent of the capacity of the big-gest power station in the world, the Three Gorges Dam)!

Pumped storage: This is a form of hydroelectric genera-tion in which the water used to generate electricity ispumped from a lower elevation to a higher elevation ata time when electricity demand is low and then released

to generate electricity when demand is high. The lossesincurred in pumping the water make these stationsnet consumers, rather than producers, of electricity,but their ability to meet peak demand at short noticemakes them extremely useful for balancing the grid(see Chapter 3). In Britain, we have four pumped stor-age plants accounting for just over 2.5 per cent of the




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countrys generation capacity. However, its this 2.5 percent that keeps the kettles of Britain boiling at the end of

EastEnders.

Wind: Wind turbines convert wind energy into electric-ity. On the plus side, they produce no greenhouse gases.However, wind farms typically comprise many individualwind turbines and they arent always popular with thepublic. Offshore wind farms go some way to addressingpublic resistance, but are expensive to build and gener-ate power a long way from where its needed, whichmeans high transmission costs. The major drawbackwith wind power, however, is its intermittency, which,in the absence of large-scale storage, requires alterna-tive generation to be available to cope with days whentheres too little or too much wind to generate (yes, itcan be too windy to generate)! As of July 2012, Britainhad 155 onshore and 19 offshore wind farms, account-ing for around 5.2 per cent and 2.6 per cent of capacity,respectively.

Other renewables: This category covers a range of gen-eration including solar, biomass (crops, wood chip andso on), animal waste, landfill gas, solar and tidal, andprovides a little over 4 per cent of Britains generationcapacity.

Interconnectors: Britain is currently served by threeinterconnectors to France, the Netherlands and NorthernIreland. These have a combined capacity of 3,500 MW

(3.5 per cent of the nations capacity) and can be used toimport or export electricity depending on market prices.

Sizing up scaleIn addition to coming in an assortment of flavours, generationalso comes in different sizes.

Grid-connected: Most of the generation we describe inthe preceding section is large scale and provides electric-ity at high voltage directly onto the transmission network(see Chapter 3) through Grid Entry Points (GEPs).

Embedded: Smaller scale generation that connectsdirectly to the distribution grid (see Chapter 4) at lowervoltages. Some smaller scale renewable generation falls




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into this category, along with Combined Heat and Power(CHP). CHP is effectively a mini power station designed

to meet the electrical and heating needs of the site inwhich its installed, but its also capable of exportingelectricity onto the distribution network.

Micro: The governments Feed-In Tariff Scheme (FITS)has seen many households installing solar panels (alsocalled photovoltaics, or PVs). This has given rise tothe termprosumer(a consumer who also produces).Although a lot of PV generation is consumed by thehousehold, PVs, like CHPs, are capable of exporting ontothe distribution network. Micro-generation can also takethe form of wind turbines or micro CHP.

Considering flexibilityAnother useful categorisation of power plant is its flexibility.Given the current need to match uncertain demand with gen-eration in real time, plant that can deliver large quantities ofelectricity at short notice (so calledpeaking plant) can com-mand premium prices.

The clear winner in this race is pumped storage, which canachieve maximum output from a standing start in less than 16seconds. By comparison, base load plant, such as nuclear andcoal-fired, take appreciable notice to change output and canbe considered more marathon runners than sprinters.

And finally you have intermittent plantsuch as wind and solarwhose output depends on the forces of nature and that arevirtually uncontrollable.

The current wholesale market arrangements (see Chapter 6)favour flexibility.

Assessing the Generation MixWeve come a long way since the days of Big G and Little Gin 1990 (the first two competing generators that we mentionin Chapter 1). As of end of May 2011, there were well over50 power producers, operating almost 400 power stations inBritain, with a combined capacity of a little under 96,000 MW.




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In addition, we also have some 3,500 MW of interconnectorcapacity to draw on.

However, moving to a low-carbon economy requires us toincrease overall generation capacity while at the same timede-carbonising it. The scale of this task becomes clearer if welook at the types of generation plant we actually use to gener-ate our electricity (see Figure 2-1).

Based on figures contained in DUKES, July 2012.

Figure 2-1:Fuel used in British generation in 2011.

The majority of the generation capacity we currently use is

provided by fossil fuels and an aging fleet of nuclear plant,much of which will close in the near future. In its Carbon Planpublished in December 2011, the government predicted thatwe need to build around 60 to 80 GW of new electricity capac-ity by 2030, and that 40 to 70 GW of this needs to come fromlow-carbon technologies, such as nuclear, renewables andfossil fuel stations with Carbon Capture and Storage (see thelater section What are the Big Issues?).

Who Are the Major Players?Although we have over 50 generators in Britain today, overhalf of the 390-odd power stations are owned by only fourplayers (EDF, RWE, E.ON and SSE). RWE tops the list, closelyfollowed by EDF (having acquired British Energy in 2009).




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These two companies alone account for almost 30 per centof our generation capacity. The trend towards vertical inte-

gration means that the six largest electricity suppliers (com-monly referred to as the Big Six) also feature in the top sevenbiggest British generators. The impact of this vertical integra-tion on market liquidity is one of the drivers for the ElectricityMarket Reform, led by the Office of Gas and ElectricityMarkets (Ofgem) (we discuss this in Chapter 8).

However, homeowners may be set to become major players inBritains generation industry too (well, perhaps not individu-

ally, but collectively). The governments Feed-In Tariff scheme(in which consumers with micro-generation get paid for theelectricity they generate) has encouraged many householdsto install micro-generation, predominantly in the form of solarpanels. By the end of 2012, the Feed-In Tariff scheme (or FITS,as its more commonly known) had resulted in an estimated350,000 homes with solar panel installations, totalling over709,698 kilowatts of capacity. Although still less than 2 percent of Britains average demand, this represents a 19-fold

increase since 2010, as illustrated in Figure 2-2. Mid-Devonleads the way with almost 1 in 13 households having installedsolar panels.

Based on Ofgems Feed-In Tariff Installation Report, January 2013.

Figure 2-2:Feed-In Tariff installations




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What Are the Big Issues?Here are some of talking points in the world of generation.

New nuclearThose of you who have read CGIsNew Nuclear For Dummieswill be aware that the government is considering ten sites inBritain for development of new nuclear plant. National Grid

is assuming that new nuclear will feature prominently in thefuture British generation mix.

Carbon Capture and StorageCarbon Capture and Storage (CCS) is a technology for prevent-ing the release of large amounts of carbon dioxide into theatmosphere as a result of burning fossil fuels. Its the great

white hope for extending the life of fossil fuel electricity gen-eration and it comes in three forms:

Pre-combustion: The fuel is converted into a clean-burning gas by stripping out the carbon dioxide beforeits burnt.

Post-combustion: Carbon dioxide is captured from thepower stations flue gases.

Oxy-fuel combustion: The fossil fuel is burnt in oxygenrather than air, resulting in a pure carbon dioxide emis-sion that can be captured.

The upside of CCS is that it could reduce carbon dioxideoutput from fossil fuel power stations by 80 to 90 per cent.The downside is that it could take between 25 to 40 per centof the power stations output to drive the technology, dramat-ically increasing the cost of the power generated. The govern-

ment has been looking for a CCS demonstration project on alarge coal-fired power station, but progress has been difficult.

Renewable ObligationTheRenewable Obligation(RO) is an obligation on UK electric-ity suppliers to source an increasing proportion of electricity




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they supply to customers from renewable sources. Its oneof the governments key instruments in meeting its com-

mitment to generate 15 per cent of energy from renewablesources by 2020.

Ofgem issues Renewable Obligation Certificates (ROCs) torenewable generators for every megawatt hour (MWh) theygenerate and suppliers collect these as evidence of renewablegeneration purchases. At the end of the year, suppliers musthold sufficient Renewable Obligation Certificates to cover theagreed proportion of their demand, and any shortfall incurs

a fixed penalty (the buy-out price). The buy-out price for the201314 Obligation is 42.02 per MWh, setting a minimumprice for renewable generation.

The government is considering replacing RenewableObligation with Feed-In Tariffs with Contracts for Differences(FITCfD) as part of the Electricity Market Reform (see the latersection on this).

Feed-In Tariff SchemeTheFeed-In Tariff Scheme (FITS) is a similar subsidy schemeto the Renewable Obligations, but aimed at smaller scale (lessthan 5 MW) renewable generation. FITS guarantees paymentsfor each kWh generated, and also pays for electricity deemedto have been exported onto the distribution network.

FITS is responsible for the proliferation of PVs on rooftopsaround Britain, but a larger-than-expected uptake caused thegovernment to cut the guaranteed payments from 43.3 p/kWhto a tiered tariff ranging from between 7 p/kWh to 16 p/kWh,attracting much press coverage.

Electricity Market ReformWe coverElectricity Market Reform(EMR) in Chapter 8 onregulation, but suffice to say it will have a major impact ongenerators (along with many other participants). The key ele-ments affecting generators are:




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The proposed replacement of Renewable Obligationswith Feed-In Tariffs with Contracts for Differences

(FITCfDs)

The Emissions Performance Standard (EPS) designed toprevent new coal-fired generation that doesnt have CCS

The Capacity Market designed to encourage new andexisting generation capacity to ensure security of supply(see Chapter 6 for more details)

Project TransmiTProject TransmiTis Ofgems independent review of thecharging arrangements for gas and electricity transmissionnetworks and, as such, it gets a mention in Chapter 3 on trans-mission. However, Project TransmiT impacts generators tooin that it will affect the Transmission Network Use of System(TNUoS) charging arrangements that is, what generatorspay, or are paid, for using the transmission network.

European Target ModelWe cover the European Target Model (ETM) in Chapter 8 onregulation, but we mention it here because the tighter inte-gration between European transmission networks that theEuropean Target Model is looking to put in place may providegenerators with an expanded market for their product.

Large Combustion Plant DirectiveTheLarge Combustion Plant Directive (LCPD) is Europeanlegislation aimed at controlling emissions of sulphur dioxide,nitrogen oxides and particulate matter. Combustion plants,including power stations, have a choice as to whether theyopt in or opt out of the scheme. If they opt in, they must

invest in technology to meet defined emission limit values (orELVs, as theyre often referred to). Those opting out can oper-ate for a maximum of 20,000 hours prior to a must close dateof the end of 2015.

A lot of opted-out Britains power stations have used up theirhours more quickly, due to high market prices, and are beingshut down imminently.




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Industrial Emissions DirectiveNot to be confused with improvised explosive devices, theIndustrial Emissions Directive (IED) is a further tightening ofthe emission limit values for fossil-fuelled plants. Opting inwill require fitting of Selective Catalytic Reduction (SCR) orsimilar nitrogen oxide-reducing technology. Opting out willrestrict plant to 17,000 hours of operation between 2016and 2023.

Jargon busterHeres a smattering of terminology totry out on your generator friends:

Black start: A power stationcapable of providing black startis one that can start itself without

using power from the transmis-sion network. Only some typesof plant are capable of doingthis, an example being pumpedstorage.

Frequency response: As the GBSystem Operator (see Chapter 3),National Grid is required to keepthe frequency of the network to50 Hertz (give or take 1 per cent).Frequency response is a serviceNational Grid procures from gen-erators to help do this.

Registered Capacity (RC),Transmission Entry Capacity(TEC), Connection Entry Capacity(CEC), Declared Net Capability

(DNC): All subtly different ways

of measuring how big a powerstation or generating unit is.

Maximum Export Limit (MEL):Adynamic version of RC, TEC, CECand DNC, allowing generators to

declare their available genera-tion capacity in real time.

Spinning and non-spinningreserve: Spinning reserve isextra generation capacity avail-able from generators that areup and running and, therefore,delivered quickly. Non-spinningreserveis additional generationcapacity that isnt up and run-ning and therefore requires morenotice to bring online.

Short-Term Operating Reserve(STOR): A service that NationalGrid procures from generatorsto provide additional generationwhen needed to balance the

system.




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Chapter 3

TransmissionIn This Chapter Getting a feel for the transmission network

Charting the history of transmission

Introducing the Transmission Owners

Examining the big issues in transmission

Thomas Edisons system for electricity distribution, pat-

ented in 1880, used direct current (DC). Then, in the late1800s, Nikola Tesla worked out that doubling the voltage(thus halving the current) reduced the amount of electric-ity lost when moving it around by three quarters. However,changing voltages efficiently requires alternating current(AC). Thus followed the War of the Currents (DC versus AC),from which AC emerged victorious. Electricity could now bemoved efficiently at high voltages while still being availablefor use at lower, relatively safe voltages. This principle

underpins most of our transmission and distributionnetworks today.

This chapter takes a closer look at the transmission network,how its come about and whats likely to happen to it inthe future.




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Whats Transmission All About?In this section, we take a look at what makes up the transmis-sion network and how it differs from the distribution network(which we describe in Chapter 4). We also examine the role ofthe GB System Operator in balancing, planning and chargingfor use of the transmission network.

The transmission networkThe transmission networkis a bunch of wires that connectlarge power stations, where electricity is generated, to distri-bution networks, where its distributed for use. It operates athigh voltages to reduce losses.

In Britain, we have a fully integrated national transmissionnetwork comprising networks owned by three differentTransmission Owners (TOs), two in Scotland and one inEngland and Wales. The England and Wales transmission

network mainly operates at 400 kilovolts (kV) and 275 kV.Anything operating at less than 275 kV belongs to distribution(the subject of Chapter 4). In Scotland, things are slightly dif-ferent because the transmission network operates down to the132 kV network (the 132 kV network is part of the distributionnetwork in England and Wales).

Most of the transmission wires (96 per cent, in fact) are over-head lines, accounting for the more than 21,000 kilometres of

connected pylons we see crisscrossing the landscape. Buriedtransmission cables have advantages (aesthetics, less proneto weather damage) but can cost up to ten times as much tobuild and are expensive to maintain.

Semi-interesting transmission factThe largest ever drop in UK demandoccurred during the three-minute

silence in memory of victims of the9/11 attacks in the US.




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Chapter 3: Transmission 27

Because people generally consider overhead cables an eye-sore and theyre unpopular with the public, several attempts

have been made to make them more acceptable. The tradi-tional pylon was a product of a 1931 competition won by SirReginald Bloomfield, a prolific British architect and memberof the Royal Academy. In 2011, National Grid held anothercompetition and selected Bystrups T Pylon as the winningdesign from over 250 entries. Figure 3-1 shows the differingdesigns.

Figure 3-1:Sir Reginald Bloomfields 1931 design and Bystrups T Pylon,

winner of the RIBAs 2011 pylon design competition.

Electricity generated at the power stations enters the trans-mission network at Grid Entry Points (GEPs) and leaves the

transmission network at Grid Supply Points (GSPs) whereit enters the distribution networks. A typical distributionnetwork is fed by a little over 30 GSPs. Very large grid-connected customers (for example, aluminum smelters) canconnect directly to the transmission network via their own




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GSP. Network Rail has 13 GSPs supplying its electrified track,and there are more than 60 GSPs supplying electricity to the

power stations themselves, to meet station demand.

Balancing the transmissionnetworkElectricity isnt easy to store in large quantities, so the trans-mission network needs to be constantly balanced to ensure

that enough electricity is present in the right place at theright time to meet demand. In Britain, this role is performedby National Grid in its role as GB System Operator (GBSO).The GB System Operator has three main tools for keeping thenational system in balance:

Ancillary services (such as the Short-Term OperatingReserve, procured by National Grid from generators toprovide additional generation when needed to balance

the system). Wholesale trades (bilateral contracts ahead of gate clo-

sure see Chapter 6 on the wholesale market).

Bid/offer acceptances in the Balancing Mechanism, amarket put in place under the British Electricity andTrading Arrangements (BETTA covered in Chapter 6).

Planning investmentIn addition to balancing the network and moving electricityaround the country, National Grid provides the industryscrystal ball. The Seven Year Statement (affectionately knownas SYS), published annually, sets out the National Gridsforecast of future demand and generation, and its subse-quent plans for the transmission network. National Grid alsoproduces the Offshore Development Information Statement

(ODIS), which aims to help the long-term development of thetransmission system in the offshore waters around Britain (tosupport offshore generation). With the move to a new regula-tory framework (see How is transmission regulated?) later inthis chapter, National Grid is consulting on how best to alignthese two publications.




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Charging for transmissionUsers of the electricity network must sign up to theConnection Use of System Code (CUSC; more in Chapter 8).The Connection Use of System Code includes a charging state-ment that sets out what charges network users are liable for.Charges include:

Connection charges that recover the costs of connectingthe user to the network.

Transmission Network Use of System (TNUoS) chargesthat cover the annual 1.6 billion cost of installing andmaintaining transmission network assets. Suppliers pickup the bulk of TNUoS charges (73 per cent, to be exact).TNUoS charges are currently calculated annually usingtwo models:

A transportmodel (the DC load flow investmentcost-related pricing model, to give it its full title)that calculates the 20 per cent locational element ofthe charge.

A tariffmodel that calculates the 80 per cent resid-ual component of the charge.

Balancing System Use of System (BSUoS) charges thatrecover the costs of balancing the network. The chargescover the cost of the ancillary services, wholesale tradesand bid/offer acceptances required to keep the nationalsystem in balance. Theyre paid by suppliers and genera-tors based on the energy they take or supply to/from thetransmission grid on a half-hourly basis.

How Has Transmission Changed?It was the creation of the Central Electricity Board in 1926 thatpaved the way for the transmission network we have today.

The first electricity pylon was built in 1928 near Edinburghand the first part of the national grid was opened in 1930when a 132 kilovolt (kV) line was energised from Portobellopower station. Commercial operation of the integratednational 132 kV grid, the first in the world, began in 1935, withfull integration achieved in 1937.




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By 1950, realisation dawned that the existing grid could notmeet the future demands of customers and work started on

a 12-year project to create a 275 kV super grid with linesdesigned to carry 400 kV in the future. In 1953, a rural electrifi-cation programme started that would see 85 per cent of farmssupplied by 1962.

The Electricity Act of 1957 saw the demise of the CentralElectricity Authority, and its generation and transmissionduties passed to the Central Electricity Generating Board(CEGB). The Electricity Act of 1989 paved the way for privati-

sation of the industry, and in 1990 the National Grid Companywas formed, taking ownership and control of the transmis-sion network in England and Wales (the transmission net-work in Scotland remained with the two vertically integratedcompanies). A single Electricity National Control Centre atWokingham became operational in 1996, replacing sevenregional control centres.

In 2001, the New Electricity Trading Arrangements (NETA;

see Chapter 6) were introduced, and National Grid startedbalancing the England and Wales transmission network usingthe Balancing Mechanism. Then, in 2005, NETA was replacedwith the British Electricity Trading and TransmissionArrangements (BETTA), and National Grid became the GBSystem Operator, taking control of the Scottish transmissionnetworks in addition to the England and Wales network.

The introduction of BETTA saw the AngloScottish

Interconnector (also known as the Cheviot boundary)absorbed into the national network and Scottish generationgain access to British transmission rights. The Cheviot bound-ary had long been a bottleneck in moving Scotlands excessgeneration down south. This constraint didnt magically dis-appear overnight with BETTA, and the relevant transmissioncompanies embarked on the Transmission Investment forRenewable Generation (TIRG) works to address this bottleneck.

The growth in renewable generation and the move towardsa connect and manage regime has focused attention onconstraint costs and how these can be minimised. Its alsoprompted a re-think of the way the transmission companies




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are incentivised. The focus is shifting from short-term incen-tives aimed at minimising operational and investment costs

towards long-term incentives to speed up connections andminimise constraint costs. Transmission Owners and the GBSystem Operator have different roles and, therefore, differ-ent incentive schemes, but the Office of Gas and ElectricityMarkets (Ofgem) recognises the interdependencies betweenthe two and is looking to align incentives as much as possible.

Who Are the Major Players?The Transmission Owners, of which there are three. NationalGrid Electricity Transmission (NGET) owns the transmissionnetwork in England and Wales, and ownership of the Scottishtransmission network is split between Scottish Hydro-Electric Transmission Limited (SHETL), owned by SSE, and SPTransmission Limited (SPTL), owned by Iberdrola.

Prior to 2005, the three Transmission Owners operated theirown networks. However, following the introduction of BETTA,the three networks are now managed as a single national net-work by NGET, acting as the GB System Operator.

The growth in generation off the coast of Britain has seena new kind of transmission owner, namely the OffshoreTransmission Owner (OFTO).

Given the growing influence of Europe on the British transmis-sion system, its probably worth mentioning the EuropeanNetwork of Transmission System Operators for Electricity(ENTSO-E). Established in late 2008 as part of the ThirdPackage (EU legislation looking at creating a EuropeanInternal Energy Market), ENTSO-E represents the electric-ity Transmission System Operators in 34 European coun-tries. ENTSO-E will play a key role in the implementation ofEuropean initiatives such as the European Target Model (see

Chapter 8).




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How Is Transmission Regulated?Because of the huge investment in transmission infrastruc-ture, transmission is a natural monopoly, and as such, itsheavily regulated. For the past 20-odd years, the transmissioncompanies have been regulated by an RPI-X price controlintroduced by Professor Stephen Littlechild (we talk aboutthis more in Chapter 8). More recently, theyre moving to anew incentive-based price control mechanism called RIIO(Revenue = Incentives + Innovation + Outputs). RIIO TD1, the

transmission flavour of RIIO, replaced RPI-X from April 2013(see Chapter 8 if youre interested).

What Are the Big Issues?Here are some of talking points in the world of transmission.

Growth in renewablesAs we discuss in Chapter 2, the mix of generation in Britainis set to change over the coming decades with an increasingreliance on intermittent generation. This means a move fromconventional generation with high load factors (generatingmost of the time) to less predictable renewable generationwith lower load factors, which will have a significant impacton the way the transmission network is managed. For the

GB System Operator, that means a need for greater reservecapacity (when renewable generation output is low) and morecongestion management (when its high).

Deep or shallow connections?Theres been much debate on whether connections should bedeep(the new user pays not only for the connection assets

but also for any reinforcement of the network thats required)or shallow(the new user pays only for the connection assets,and the cost of the reinforcement is socialised across allusers). The deeper the connection charges, the greater theneed for generation subsidies to encourage renewable genera-tion investors.




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Invest and connect or connect

and manage?Should new users have to wait for any network reinforcementto complete before being able to use the network (so calledinvest then connect) or should a connect and manage policyexist in which users can start using the network as soon astheyre connected, with the GB System Operator managingany resulting constraints? The large amount of renewable andother low-carbon generation queuing up to join the network

has brought this issue into the spotlight, and the governmentstending towards a shallow connect and manage policy.

Greater European integration

Interconnection capacity is expected to increase from 2.5gigawatts (GW) at the end of 2010 to 4 GW at the end of 2012,and potentially rising to 8 GW in 2020. This, combined with

European legislation aimed at implementing a single EuropeanInternal Energy Market (see Chapter 8), will impact the Britishtransmission network and the way that its balanced.

RIIO TD1For a regulated monopoly, the price control mechanismby which its regulated is fundamental to the business. In

the case of the transmission companies, the price controlmechanism is set to change for the first time in over 20 years.The move from RPI-X to RIIO TD1 is occupying a lot ofTransmission Owners time (see Chapter 8 for more details).

Project TransmiTProject TransmiTis an Ofgem review of the charging regime and

associated connection arrangements for Britains electricityand gas transmission networks. Its tasked with ensuring thatthe right incentives are in place to deliver the estimated 200billion investment required in our transmission networks overthe next ten years in transitioning to a low-carbon economy.




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In terms of electricity transmission, Project TransmiT is pre-dominantly looking at reforming the Transmission Network

Use of System charging regime. The Project is consideringthree broad options:

Some minor tweaks to the current charging model.

An improved charging model that takes into accountchanges to the system (for example, more intermittentwind generation).

A non-locational postalised model in which all transmis-

sion costs are socialised.

At the time of writing, the government seems to be favouringthe improved charging model approach.

Offshore wind farmsThere was a time when, other than the odd interconnector or

two, transmission networks were confined to land. However,the government, seeing potential for over 32 GW of offshorewind generation and other marine technologies, has extendedNational Grids onshore System Operator responsibilitiesoffshore.

To date, existing offshore wind farms (or those underconstruction) have required dedicated transmission infra-structure to connect to the onshore transmission network.

Ofgem has run competitive tenders to select an OffshoreTransmission Owner (OFTO) to own and manage the trans-mission assets for 20 years. The assets themselves wereeither built by the OFTO or inherited from the generator ifgenerator-built. As offshore wind farms proliferate, theresincreased scope for sharing of transmission assets and, there-fore, an increased need for co-ordination, a role that NationalGrid is expected to perform.




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Jargon busterHere are a few transmission termsthat may come in useful:

Average Cold Spell (ACS): A cor-rection applied to annual peakdemands to remove weathervariations from one year tothe next.

Bilateral Connection Agreements(BCAs), Bilateral EmbeddedGeneration Agreements (BEGAs)and Bilateral Embedded LicenceExemptible Large Power StationAgreements (BELLAs): Differentforms of agreement betweengenerators and the GB Operator,

setting out terms for connectionto the transmission network.

Balancing System Use ofSystem (BSUoS): The element oftransmission charges that paysfor balancing the transmissionnetwork.

DC load flow (DCLF): A model

used by National Grid when set-ting TNUoS charges.

Grid Entry Point (GEP): The pointat which electricity enters thetransmission network.

Grid Supply Point (GSP): Thepoint at which electricity leaves

the transmission network andenters a distribution network orgrid-connected customer.

High voltage DC (HVDC): A long-distance direct-current powertransmission system that usesdirect-current voltages up to

about 1 megavolt (MV). In somecases, its a more efficient meansof transmitting large quantities ofpower over large distances, par-ticularly in the case of underseacables.

Investment Cost-Related Pricing(ICRP):A methodology currently

used for calculating the locationalcomponent of TNUoS charges.

Retail Price Index (RPI): Firstcalculated in 1947, its a measureof inflation published monthly bythe Office of National Statisticsbased on the change in the costof a basket of retail goods andservices.

System Operator (SO): The partyresponsible for balancing thetransmission network.

Supergrid: The part of the trans-mission network that operates at275 kV or above.

(continued)




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Seven Year Statement (SYS):Adocument produced each yearby National Grid in its role as theGB Operator that sets out fore-casts of how supply, demandand the transmission networkwill change over the next sevenyears.

Transmission Owner (TO): Theorganisation that owns and main-tains the transmission assets.

T r a n s m i s s i o n O w n e rReinforcement Instructions

(TORIs) and TransmissionOwner Construction Agreements(TOCAs): Forms of agreementbetween the TransmissionOwner and generators wantingto connect to the TOs transmis-sion network.

Transmission Network Use of

System (TNUoS): The element oftransmission charges that paysfor the installation and mainte-nance of transmission assets.

(continued)




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Chapter 4

DistributionIn This Chapter Charting changes in the distribution network

Inspecting the records that distributors keep

Identifying the network operator licensees

Thinking about challenges, from innovation to theft

Distributionis the means by which electricity travels the

last mile from the transmission network to the endconsumer. In many ways, its similar to the process of trans-mission (see Chapter 3), but at lower voltages and with moreconnections. And like transmission, the scale of investment indistribution assets makes it a natural monopoly.

In this chapter, we examine what makes up a distribution net-work, what distribution network operators currently do andwhat theyll need to do in the future.

Semi-interesting distribution factFrom a distributors perspective,home-charging an electric vehicle

(EV) is the equivalent of adding eighthouses to your street.




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Whats Distribution All About?So lets take a look at what happens to electricity when itleaves the transmission network.

The distribution networkFigure 4-1 shows the various bits of a typical distribution net-work topology. Distribution starts at the Grid Supply Point

(GSP), where electricity leaves the transmission network andenters the extra-high voltage (EHV) distribution network,reducing its voltage to 132 kilowatts (kV) (as we mentionin Chapter 3, in Scotland, the 132 kV network is consideredpart of the transmission grid). Each GSP typically feeds half adozen Bulk Supply Points (BSPs), where the voltage is furtherreduced to 33 kV. Each BSP typically supplies half a dozenprimary substations, where it enters the high-voltage distribu-tion network, reducing the voltage yet again to 11 kV. Finally,

each primary substation typically feeds 20-odd secondarysubstations, where the electricity enters the low voltage dis-tribution network at 400/230 volts, ready to boil kettles andcharge iPhones.

Figure 4-1:Typical distribution network topology.




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Chapter 4: Distribution 39

Charging for distributionIn the same way that Transmission Network Use of Systemcharges recover the cost of maintaining and operating trans-mission assets (see Chapter 3), Distribution Use of System(DUoS) charges recover the cost of maintaining and operatingthe distribution network.

Until recently, each of the 14 distribution companies had theirown DUoS charging mechanism. However, in April 2010, thedistributors implemented the Common Distribution ChargingMethodology (CDCM) for customers connected at the low-andhigh-voltage levels. Similarly, in October 2010, the distributionnetwork operators (the holders of a distribution licence) imple-mented a largely common connection charging methodology.

Keeping recordsDistributors are responsible for getting electricity to your dooror, more precisely, to your meter (the meter, itself, being theresponsibility of your supplier more on this in Chapter 5).Distributors are, however, also responsible for keeping arecord of every electricity supply point on their network(every point at which electricity leaves or enters the distribu-tion network).

Electricity supply points are identified by something calledaMeter Point Administration Number(MPAN). A commonmisapprehension is that an MPAN is the 13-digit number youread off your electricity bill when changing supplier, but thepedants would point out that this is, in fact, the MPAN core.The first two digits of the MPAN core identify the distributorand the last digit is a checksum(a number calculated from theother 12 numbers using a special algorithm that allows you toverify that the MPAN core is valid). The full MPAN (also some-times referred to as theS number) is a 20-digit number that,in addition to its core, also contains the Profile Class, MeterTimeswitch Code and Line Loss Factor (more on these termsin Chapter 7 on Settlement).

Its the distributors job to maintain a record of which suppli-ers are registered to which supply points and which agents




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the suppliers have appointed. The distributor does this byproviding aSupplier Meter Registration Service(SMRS) using

aMeter Point Administration System(MPAS), a large databasethat holds information about all the supply points connectedto the distributors network. This role is set to expand toinclude maintaining details of Green Deals see Chapter 5.

How Has Distribution Changed?The distribution networks as we know them to

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