the resilience of the electricity system - uk …...the alvin weinberg foundation – written...

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SCIENCE AND TECHNOLOGY SELECT COMMITTEE

The Resilience of the Electricity System

Oral and Written evidence

Contents

The Alvin Weinberg Foundation – Written evidence (REI0027) ................................................ 5

Aston University – Written evidence (REI0010) ......................................................................... 7

BDO LLP – Written evidence (REI0011) ...................................................................................... 9

BDO LLP, the DEMAND Centre and BEAMA – Oral evidence (QQ 114-123) ............................ 15

BEAMA, BDO LLP and the DEMAND Centre – Oral evidence (QQ 114-123) ............................ 16

David L. Bowen – Written evidence (REI0001) ........................................................................ 17

Stephen Browning – Written evidence (REI0007) ................................................................... 20

Carbon Capture and Storage Association (CCSA) – Written evidence (REI0042) .................... 23

City of London Corporation – Written evidence (REI0029) ..................................................... 29

Committee on Climate Change (CCC), Energy Technologies Institute (ETI) and the Resilient Electricity Networks for Great Britain (RESNET) project – Oral evidence (QQ 124-138)......... 35

Confederation of UK Coal Producers (CoalPro) – Written evidence (REI0021) ....................... 57

Rupert Darwall, the Renewable Energy Foundation and Dr Robert Gross, Imperial College London – Oral evidence (QQ 167-175)..................................................................................... 76

The DEMAND Centre, Lancaster University – Written evidence (REI0037) ............................. 77

The DEMAND Centre, BEAMA and BDO LLP – Oral evidence (QQ 114-123) ........................... 83

Durham Energy Institute, Durham University – Written evidence (REI0016) ......................... 97

E.ON UK, EDF Energy and OVO Energy – Oral evidence (QQ 29-43) ..................................... 101

E3C Electricity Task Group (ETG) – Written evidence (REI0033) ........................................... 102

EDF Energy – Written evidence (REI0030) ............................................................................. 105

EDF Energy, OVO Energy and E.ON UK – Oral evidence (QQ 29-43) ..................................... 113

EDF Energy –Supplementary written evidence (REI0053) ..................................................... 114

The Electricity Storage Network – Written evidence (REI0012) ............................................ 116

The Electricity Storage Network, National Grid and Professor Goran Strbac, Imperial College London – Oral evidence (QQ 102-113)................................................................................... 120

Energy Networks Association (ENA) – Written evidence (REI0041) ...................................... 136

Energy Networks Association (ENA) and the National Grid – Oral evidence (QQ 53-68)...... 144

Energy Technologies Institute (ETI) – Written evidence (REI0018) ....................................... 145

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Energy Technologies Institute (ETI), the Resilient Electricity Networks for Great Britain (RESNET) project and the Committee on Climate Change (CCC) – Oral evidence (QQ 124-138) ................................................................................................................................................ 154

Energy UK – Written evidence (REI0034) ............................................................................... 155

The European Network of Transmission System Operators for Electricity and Professor Catherine Mitchell, University of Exeter – Oral evidence (QQ 139-149) ............................... 165

Professor David Fisk and Dr Deeph Chana, Imperial College London – Written evidence (REI0051) ................................................................................................................................ 166

Flexitricity – Written evidence (REI0058) ............................................................................... 169

GDF SUEZ Energy UK-Turkey – Written evidence (REI0036) .................................................. 170

Professor Jon Gibbins, University of Edinburgh, Dr Keith MacLean, University of Exeter and Professor William Nuttall, Open University – Oral evidence (QQ 91-101) ............................ 180

Government – Written evidence (REI0040) ........................................................................... 196

Government: Department of Energy and Climate Change (DECC) – Oral evidence (QQ 17-28) ................................................................................................................................................ 215

Government: Rt Hon Ed Davey MP, Secretary of State for Energy and Climate Change, DECC and Jonathan Mills, Director, Electricity Market Reform, DECC – Oral evidence (QQ 186-198) ................................................................................................................................................ 229

Government: Jonathan Mills, Director, Electricity Market Reform, DECC and Rt Hon Ed Davey MP, Secretary of State for Energy and Climate Change, DECC – Oral evidence (QQ 186-198) ................................................................................................................................................ 249

Professor Richard Green, Imperial College London, Professor Gordon Hughes, University of Edinburgh and Renewable Energy Association – Oral evidence (QQ 80-90) ......................... 250

Professor Richard Green, Imperial College Business School – Supplementary written evidence (REI0050) ................................................................................................................. 251

Professor Richard Green and Dr Iain Staffell, Imperial College Business School – Written evidence (REI0056) ................................................................................................................. 256

Dr Robert Gross, Imperial College London, Rupert Darwall and the Renewable Energy Foundation – Oral evidence (QQ 167-175) ............................................................................ 260

Professor Michael Grubb, University College London and Professor David Newbery, Cambridge University – Written evidence (REI0026) ............................................................ 276

Professor Michael Grubb, University College London, the UK Energy Research Centre (UKERC) and Professor David Newbery, Cambridge University – Oral evidence (QQ 69-79) 277

Professor Dieter Helm CBE, University of Oxford – Oral evidence (QQ 44-52) ..................... 278

Alex Henney, EEE Ltd – Written evidence (REI0015) ............................................................. 291

Alex Henney, EEE Ltd – Supplementary written evidence (REI0055) .................................... 298

Honeywell – Written evidence (REI0019) .............................................................................. 306

Professor Gordon Hughes, University of Edinburgh – Written evidence (REI0049) .............. 314

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Professor Gordon Hughes, University of Edinburgh, Renewable Energy Association and Professor Richard Green, Imperial College London – Oral evidence (QQ 80-90) .................. 320

IESIS – Written evidence (REI0013) ........................................................................................ 321

The Institution of Engineering and Technology (IET) – Written evidence (REI0032) ............ 324

The Institution of Engineering and Technology (IET) and the Royal Academy of Engineering – Oral evidence (QQ 1-16) ......................................................................................................... 342

The Institution of Engineering and Technology (IET) – Supplementary written evidence (REI0052) ................................................................................................................................ 359

KiWi Power – Written evidence (REI0057) ............................................................................. 365

Llinos Lanini – Written evidence (REI0005) ............................................................................ 368

Dr Keith MacLean, University of Exeter, Professor William Nuttall, Open University and Professor Jon Gibbins, University of Edinburgh – Oral evidence (QQ 91-101) ...................... 369

Professor Catherine Mitchell, University of Exeter and the European Network of Transmission System Operators for Electricity – Oral evidence (QQ 139-149) ..................... 370

Moltex Energy LLP – Written evidence (REI0009) ................................................................. 385

National Grid – Written evidence (REI0017) .......................................................................... 397

National Grid and the Energy Networks Association (ENA) – Oral evidence (QQ 53-68)...... 412

National Grid, Professor Goran Strbac, Imperial College London and The Electricity Storage Network – Oral evidence (QQ 102-113) ................................................................................. 429

National Grid – Supplementary written evidence (REI0060) ................................................. 430

Professor David Newbery, Cambridge University and Professor Michael Grubb, University College London – Written evidence (REI0026) ...................................................................... 432

Professor David Newbery, Cambridge University, Professor Michael Grubb, University College London and the UK Energy Research Centre (UKERC) – Oral evidence (QQ 69-79) . 435

Northern Powergrid – Written evidence (REI0059) ............................................................... 436

Nuclear Industry Association (NIA) – Written evidence (REI0020) ........................................ 437

Professor William Nuttall, Open University, Professor Jon Gibbins, University of Edinburgh and Dr Keith MacLean, University of Exeter – Oral evidence (QQ 91-101) ........................... 440

Ofgem – Written evidence (REI0044) .................................................................................... 441

Ofgem – Oral evidence (QQ 176-185) .................................................................................... 467

Harry Osborn – Written evidence (REI0035).......................................................................... 480

OVO Energy, E.ON UK and EDF Energy – Oral evidence (QQ 29-43) ..................................... 482

PCAH (Parents Concerned about Hinkley) – Written evidence (REI0002) ............................. 498

Marco Pogliano – Written evidence (REI0008) ...................................................................... 500

Renewable Energy Association, Professor Richard Green, Imperial College London and Professor Gordon Hughes, University of Edinburgh – Oral evidence (QQ 80-90) ................. 503

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Renewable Energy Foundation, Dr Robert Gross, Imperial College London and Rupert Darwall – Oral evidence (QQ 167-175) ................................................................................................ 517

Renewable Energy Foundation – Supplementary written evidence (REI0054) ..................... 518

RenewableUK – Written evidence (REI0039) ......................................................................... 527

Resilient Electricity Networks for Great Britain (RESNET) project – Written evidence (REI0025) ................................................................................................................................ 533

Resilient Electricity Networks for Great Britain (RESNET) project, the Committee on Climate Change (CCC) and the Energy Technologies Institute (ETI) – Oral evidence (QQ 124-138) .. 541

Royal Academy of Engineering and the Institution of Engineering and Technology (IET) – Oral evidence (QQ 1-16) ................................................................................................................ 542

Royal Academy of Engineering – Oral evidence (QQ 150-166) ............................................. 543

The Royal Astronomical Society – Written evidence (REI0048) ............................................ 561

RSA Group – Written evidence (REI0028) .............................................................................. 565

The Scientific Alliance – Written evidence (REI0046) ............................................................ 568

Hugh Sharman – Written evidence (REI0006) ....................................................................... 578

Barrie Skelcher – Written evidence (REI0003) ....................................................................... 598

Dr Iain Staffell and Professor Richard Green, Imperial College Business School – Written evidence (REI0056) ................................................................................................................. 603

Storelectric Ltd – Written evidence (REI0004) ....................................................................... 604

Professor Goran Strbac, Imperial College London, The Electricity Storage Network and National Grid – Oral evidence (QQ 102-113) ......................................................................... 610

UK Energy Research Centre (UKERC) – Written evidence (REI0031) ..................................... 611

UK Energy Research Centre (UKERC), Professor David Newbery, Cambridge University and Professor Michael Grubb, University College London – Oral evidence (QQ 69-79) .............. 631

UK Hydrogen and Fuel Cell Association – Written evidence (REI0023) ................................. 645

The Utility Regulator – Written evidence (REI0024) .............................................................. 649

The Alvin Weinberg Foundation – Written evidence (REI0027)

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The Alvin Weinberg Foundation – Written evidence (REI0027) 1. The Alvin Weinberg Foundation is a charity which promotes next generation nuclear energy to combat climate change and achieve long-term energy security. We are particularly interested in the Molten Salt Reactor (MSR), one of the six Generation IV nuclear concepts1. 2. MSRs represent a revolutionary advance in nuclear fission technology. The only nuclear reactor to use liquid fuel, the MSR is extremely fuel efficient, generates very little waste, and offers unique passive safety features. Crucially, the MSR has outstanding load-following capability and will provide a low-carbon alternative to gas as a flexible source of electricity to support renewables. 3. MSRs burn up between 90% and 98% of the energy contained within uranium or thorium fuel. In solid-fuelled reactors, fission products accumulate which reduce the lifetime of the fuel rods, allowing only around 3% of the energy contained within the fuel to be exploited. MSRs continuously remove fission products so that the fuel can be almost fully consumed, leaving only small quantities of waste. Passive Safety 4. MSRs offer a range of inherent safety features. They operate at atmospheric pressure, eliminating the possibility of a pressure explosion. MSR temperature regulation is passive, so no control rods or active cooling system are required. The heat generated by fission expands the molten salt, decreasing the level of reactivity, which leads to a contraction of the molten salt and an increase in reactivity, and thus a self-regulating system. Load-Following Capabilities 5. MSRs can load-follow reliably and flexibly, making them a superb candidate to replace fossil fuel back-up generation currently required as support for intermittent renewables. The passive temperature system enables MSRs to load-follow automatically. As more heat is extracted from the reactor, the salt temperature goes down, causing power output to increase, thus responding instantaneously to demand. 6. In addition, MSRs have far greater load-following capability than solid-fuelled reactors due to their capacity for online removal of xenon gas2. Xenon is a neutron-poison which increases in quantity in solid-fuelled reactors when the power level is lowered, thus limiting load-following operation. In MSRs, xenon is constantly bubbled out of the reactor via the off-gas system which enables MSRs to be among the most flexible load-following nuclear reactors. 7. The capital cost of MSRs promises to be significantly lower than for current generation nuclear plants, in large part due to the intrinsic safety features, which eliminate the need for expensive safety mechanisms and shielding. UK-based start-up Moltex Energy are

1 Generation IV International Forum website, ‘Generation IV Systems’. 2 Transatomic Power, ‘Technical White Paper’, March 2014, p. 24.

https://www.gen-4.org/gif/jcms/c_59461/generation-iv-systemshttp://transatomicpower.com/white_papers/TAP_White_Paper.pdf

The Alvin Weinberg Foundation – Written evidence (REI0027)

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developing an MSR design with the assistance of researchers at Manchester and Edinburgh University. Moltex believe that their MSR could compete with gas as a load following technology due to its relatively low construction and operating costs3. Research and Development 8. China leads the world in MSR development with its $70 million a year thorium-fuelled MSR program. The Chinese Academy of Sciences is working on two MSR iterations, the first solid-fuelled and molten salt-cooled, the second both fuelled and cooled by molten salt. A recent report suggests that China is aiming to commercialise the technology by 20244. 9. The UK is home to number of world experts in the use of molten salts for nuclear applications. The National Nuclear Laboratory, University College London, and the universities of Manchester, Nottingham, Edinburgh and Cambridge have formed the REFINE research consortium, which is focussing on the use of molten salt for spent fuel reprocessing. REFINE is training up a new cohort of molten salts scientists, whose expertise could be directly applied to MSR R&D work. 10. Sadly, at present, there is no UK MSR R&D programme for these scientists to work on. The Nuclear Innovation and Research Advisory Board (NIRAB) is due to make recommendations to government in January 2015 regarding the UK’s Generation IV reactor R&D capabilities. We are hopeful that NIRAB will recognise the important role that MSRs could play in the UK energy mix by recommending the establishment of a national-level MSR R&D programme. The UK could make a major contribution to MSR technology development with an investment of around £5-10 million per year. 19 September 2014

3 Moltex Energy LLP, ‘The Simple Molten Salt Reactor: Practical, Safe and Cheap’, Conference Presentation, Institute of Chemical Engineers, Sustainable Nuclear Energy Conference, 11th April 2014. 4 ‘Chinese scientists urged to develop new thorium nuclear reactors by 2024’, South China Morning Post, 18th March 2014.

http://www.icheme.org/events/conferences/past-conferences/2014/sustainable-nuclear-energy-conference-2014/~/media/06221500C09344B8AB4694AB78DE65FB.pdfhttp://www.scmp.com/news/china/article/1452011/chinese-scientists-urged-develop-new-thorium-nuclear-reactors-2024

Aston University – Written evidence (REI0010)

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Aston University – Written evidence (REI0010) 1. As noted in paragraph 2 of this call for evidence “Energy policy in the UK focuses on balancing three interconnected demands: energy security, affordability and decarbonisation” and this call for evidence “looks specifically at the current and future contribution of science and technology to ensuring the resilience of the UKs electricity infrastructure.” 2. In order to ensure that the necessary decisions about “large scale investment in new electricity infrastructure (which) will be needed over the coming decades” are made appropriately, it is necessary that these decisions are evidence based, informed by the consensus of scientific opinion, and underpinned by the ethos embodied within the Haldane principle. 3. The UK has a vibrant and effective research base investigating issues relating to the resilience of the electricity infrastructure, and potentially, a vast corpus of data is already in the public domain, and will continue to be made available over the short and medium term timescales considered in this review. It is essential that all this data is made available and considered holistically and appropriately in order to inform these ongoing considerations. 4. One concern of note with current electricity infrastructure research relates to the difficulties associated with trialling new technologies on a network due to the conflict with customer minute losses and customer interruption reporting. This means that much research to date is small scale, risk adverse and contains significant modelling based on assumptions which may be wildly wrong. Trialling new, game changing technology is unlikely to occur to any great extent within the UK under these current constraints. 5. In addition, there is a potential trade-off between cost and resilience - focussing on cost reduction doesn’t necessarily lend itself to increasing network resilience as design margins are pushed towards their limits; however, mode adventurous and innovative solutions may not be as favourable as the cheaper alternatives. 6. It should also be noted that the HVDC (high voltage, direct current) technology for connecting between countries is changing rapidly and voltage source multi-level converters are proving to be popular on new builds. The reliability and long term running experience of these items of equipment are not so well established and thus their reliability and subsequent impact on resilience can be determined. 7. In terms of research funding (the aspect of this review we feel best placed to comment on as a research-led institution), in the short term, the current policy (delivered on behalf of the Government by the Engineering and Physical Sciences Research Council, EPSRC) of investing in this area primarily through recognised centres of excellence is well founded, and has already shown tangible impacts; however, the current system also provides mechanisms for researchers outside these established centres to investigate excellent ideas of huge potential benefit. This is essential to the continuing support of excellence that will underpin the development of future technologies in this arena. This mechanism is highly effective, and the

Aston University – Written evidence (REI0010)

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potential exists for other governmental agencies to avail themselves of EPSRC resources and expertise to ensure that their investments are also underpinned by the standards of excellence that are embedded in EPSRC processes. The continuing close collaboration between the EPSRC and Innovate UK (formerly the Technology Strategy Board) provides an effective potential route to market for these technologies. 8. The next six years will provide insights which will help inform future decisions – ongoing projects include – searching the national database, gateway to research (http://gtr.rcuk.ac.uk/), reveals 956 active research projects using the search term electricity infrastructure resilience, with a total of 2232 projects on the database. It is in the nature of research that insights tend to occur towards the end of the individual project, or even following a period of reflection after the end of the award. 9. It is unlikely that a market led approach will be sufficient to deliver resilience without ongoing integration with the research base. 15 September 2014

http://gtr.rcuk.ac.uk/

BDO LLP – Written evidence (REI0011)

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BDO LLP – Written evidence (REI0011) Author: Michael Ware, Partner for New Energy and Environment Short term (to 2020) 1. How resilient is the UK’s electricity system to peaks in consumer demand and sudden

shocks? How well developed is the underpinning evidence base? 1.1. No comment

2. What measures are being taken to improve the resilience of the UK’s electricity system until 2020? Will this be sufficient to ‘keep the light on’? 2.1. As the Committee will be aware, electricity demand in the UK varies hugely during the course of the day with the greatest peaks usually between 4pm and 7pm on winter evenings. We believe that demand-side response could play a much larger role in reducing these peaks, both by calling on unused generating capacity and by incentivising end users to reduce demand at these times. By developing policies that minimise the impact of these peaks, the Government can partially reduce the need for expensive new capacity. Many organisations, e.g. hospitals, have on-site generation particularly for emergency use, which could be flexed to help meet peaks in demand.

2.2. We acknowledge that the National Grid have already implemented polices in this area either directly or through aggregators to schemes such as National Grid’s Short Term Operating Reserve (STOR) providing up to 2.8 GW of flexible capacity. As the Committee may be aware, aggregators use smart grid technology to communicate directly with electricity generating and consuming equipment on remote customer sites via secure connections. This gives the grid the ability to increase generation and/or reduce consumption during peak times from sites that individually would be too small to meet National Grid’s 3 MW minimum to contribute to STOR, e.g. supermarkets remotely turning off freezers briefly at peak times. Public sector buildings may also play a significant role here, with aggregation of flexible demand across estates delivering both cost savings and extra grid resilience. 2.3. We feel that demand management during peak periods has significant potential and should be the subject of more significant investment and tax allowances. There may be an argument to rebalance an element of Government investment away from creating new renewable capacity and towards demand management technology.

3. How are the costs and benefits of investing in electricity resilience assessed and how

are decisions made? 3.1. As the Committee may be aware, global investment in renewables in 2013 was $214 billion and the majority of this was in China, the US and Western Europe. This is a truly international market with free movement of capital across borders. Although the


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investment community is largely centred in London, there is no sentiment towards the UK and projects in this country have to compete with wind, solar and waste to energy plants elsewhere in the world. In this context, investment decisions tend to be made on the basis of:

reliable and secure sources of energy

unleveraged project internal rates of return (IRRs need to be 12%-15%)

long-term certainty of tariff support

stable currencies

ability to repatriate dividends and capital across borders

sympathetic planning regimes and ease of grid access and connection.

3.2. Unfortunately the Government in the UK tends not to appreciate that it is in competition for capital with other countries and hence ignores the fundamentally risk averse nature of project financiers on a depressingly regular basis. Tariff regimes are almost constantly under review, there is no strategic cohesion between Central Government, the local planning regimes and the National Grid, and recently the Scottish referendum has unsettled long-term currency trading. We recognise that a lot of these issues are macro political and not easily resolved but to our mind there are some easy low-risk wins such as:

A five to ten year moratorium on changes to tariff structures, capital allowances and legislation applying to Venture Capital Trust/Enterprise Initiative Scheme as it applies to renewables. This would unlock a secure source of capital.

Greater coordination between DECC, the National Grid and planning policy.

Developing greater experience within DECC of the reality of project finance, including secondments to banks and developers.

4. What steps need to be taken by 2020 to ensure that the UK’s electricity system is resilient, affordable and on a trajectory to decarbonisation in the following decade? How effective will the Government’s current policies be in achieving this? 4.1. Our comments here cover two policy areas: the Government’s new Contracts for Difference (CFD) policy and the role of the Green Investment Bank (GIB). Contracts for Difference 4.2. We welcome the move to the Contracts for Difference subsidy scheme and feel that the auction-based element for the process will secure better value for money for the taxpayer. However, we have four concerns regarding the process. I. Our understanding of the system is that bidders submit a Strike Price bid per MWhr

for their project. These are then aggregated until the annual budget cap is reached. However, at that point all the successful bidders receive the Clearing Price which will have been set by the highest Strike Price bid accepted in that delivery year. This price will inevitably be higher than all but one of the preceding bids submitted because the highest price bid before the cap is reached determines the price for all


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earlier bids. So in essence the Government is proposing to create a system whereby the bidders having established and bid a profitable Strike Price per MWhr for their project are then paid a potentially much higher Clearing Price per MWhr without any need to provide project-specific justification or rationale. To our mind this is an absurd quirk of the system and we are aware that our concerns are shared by project developers who feel that the budget will be spent on too few projects at artificially high Clearing Prices. We feel that a process should be adopted so that each successful bidder receives the Strike Price per MWhr they bid irrespective of what other bidders submitted.

II. We note that the CFD Administrative Strike Price is not adjusted for regional differences in costs and the availability of renewable energy sources such as wind, solar etc. The Government is missing an opportunity to make the CFD budget an engine for regional growth by either conducting area-specific auctions with an allocated budget or setting higher Administrative Strike Prices in areas of low economic growth.

III. We note that bidders in the CFD process have to have received full planning consent and more importantly grid connection offers for the projects before they can participate in the process. We feel that this will reduce the number of bidders and significantly disadvantage smaller single-project companies and Community Interest groups. The availability of planning consents and grid connection varies hugely by region and is a significant factor delaying the development of renewables infrastructure in the UK. We feel that if developers have to spend money on obtaining these consents before they have the certainty of a CFD contract they will be more likely to focus on the less risky technologies and regions, and act as a brake on smaller developers vs large established companies. Our view is that the Government should require planning and grid offers within a specified period, i.e. twelve months subsequent to the auction not before.

IV. Finally, we note that there are no refinancing clauses in the standard CFD contract. As you may recall this was a trenchant and widely publicised criticism of the Private Finance Initiative (PFI) scheme, and we feel the same arguments apply here. Projects inevitably become less risky once operational and this is reflected in a diminution in the cost of finance. We feel that the CFD contract should have provisions to recover some of the benefit of a refinancing event for the Government through a reduction in the Strike Price, i.e. where there is overcompensation for projects compared to their initial financing points there should be a built-in mechanism to allow a proportion of savings to flow back to the overall scheme, enabling greater deployment.

The Role of the Green Investment bank in the transition to low carbon generation 4.3. We also feel the role assigned to the Green Investment Bank should be reviewed and amended. As noted above, total investment in renewables in 2013 was $214 billion so there is no global shortage of liquidity and we do not see the need for State-sponsored banks in the UK to focus on lower-risk larger-scale renewable infrastructure.


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Indeed, we have recently encountered situations where the presence of GIB as senior debt provider has actually discouraged other banks from participating in deals and to our mind this is evidence that this is not the correct role for the bank. 4.4. There is however, with the retrenchment of the Cooperative Bank, a shortage of UK banks who are prepared to lend to projects at the sub £20m scale, where a lot of the more emerging technologies such as anaerobic digestion, small-scale wind and solar are to be found. This funding gap is currently being filled by Venture Capital Trusts and dedicated Infrastructure funds who are lending money at 12%-15% compared to the 6%-7% available from banks as debt for larger projects. This is unnecessarily expensive funding given the risk level of these technologies and is a net cost to the taxpayer. 4.5. The traditional objection by the banks to sub £20m lending is that the transaction costs are uneconomic. However, we feel that for a state-backed institution such as GIB, the role of the Treasury in PFI is instructive in this regard. As you may recall the Treasury worked with the banks to produce a standard suite of contracting documents for PFI deals so as to minimise the transaction cost of negotiating 800 plus projects and ensure consistent access to liquidity. We feel that GIB could undertake a similar role on renewable energy projects, i.e. produce a standard suite of project finance documents for sub £20m deals and act as a lender to these projects.

Medium Term (to 2030) 5. What will affect the resilience of the UK’s electricity infrastructure in the 2020s? Will

new risks to resilience emerge? How will factors such and intermittency and localised generation of electricity affect resilience? 5.1. No comment

6. What does modelling tell us about how to achieve resilient, affordable and low carbon electricity infrastructure by 2030? How reliable are current models and what information is needed to improve models? 6.1. No comment

7. What steps need to be taken to ensure that the UK’s electricity system is resilient as well as competitively priced and decarbonised by 2030? How effective would current policies be in achieving this? 7.1. See our comments above re CFD and the GIB.

8. Is the technology for achieving this market ready? How are further developments in science and technology expected to help reduce the cost of maintaining resilience whilst addressing greenhouse gas emissions? Are there any game changing technologies which could have are evolutionary impact on electricity infrastructure and its resilience?


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8.1. We think that advanced waste to energy technologies have huge potential to become more mainstream in the UK. We note that the UK lags significantly behind the rest of Europe in recovering energy from waste. Sweden and Denmark for example recover energy from 50% of the municipal waste stream and the Netherlands 35%, whereas for the UK the figure is approximately 12% and 40% is sent to landfill. 8.2. The Government’s 2011 waste review suggested that renewable electricity generation from waste could treble to 2.6 TWh by 2020. We also note that 2.4 million tons of Refuse Derived fuel (RDF) is currently being exported and such is the level of supply compared to demand that European end users receiving the RDF (cement kilns and waste to energy plants) are being paid circa £60 to £80 per tonne by UK suppliers to burn what is in essence fuel. 8.3. This market has grown rapidly in the last few years and as a result, UK taxpayers are indirectly subsiding European cement and electricity markets. To our mind this is an absurd situation caused by local planning objections to incinerators and a lack of Government support for the technology.

9. Is UK industry in a position to lead in any, or all, technology areas driving economic growth? Should the UK favour particular technology approaches to maintaining a resilient low carbon energy system? 9.1. We don’t feel that that the State has a significant role to play in promoting particular technologies. We note with concern that the CFD process still has two tiers and technologies that are perceived to be more risky such as wave, tidal and advanced waste to energy are to be awarded a higher CFD than more established technologies such as solar and wind. To our mind this is a hangover from the ROC regime whereby the Department of Energy and Climate Change tried to manipulate technology development by awarding higher ROCs to less developed technologies in order to act as a carrot and pull through projects. 9.2. However, the cost of a project is subject to many competing variables such as the cost of technology, the grid connection, the energy source, the cost of funding and many more. We feel that it is beyond the expertise of civil servants to second guess the impact of all of these factors acting simultaneously and in trying to manipulate subsidy/tariff regimes to push or pull the development of particular technologies. The Government is always either paying too much, i.e. the early days of solar when tariff prices fell more quickly than the subsidy, or too little, i.e. the very high levels of subsidy being awarded to wave and tidal are still deemed insufficient. 9.3. In our view, the Government will never get this judgement right and the legitimate role of the State in this process should be to procure renewable energy capacity irrespective of the technology. Governments are very bad at trying to pick winners and the market is a better arbiter of which technologies should be promoted.

10. Are effective measures in place to enable Government and industry to learn from the


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outputs of current research and development and demonstration projects? 10.1. In our experience there are very few mechanisms for Government to learn from current developments in renewable technology. There is a lot of activity taking place in areas such as waste to energy and energy storage but this tends to be under the radar of DECC. Similarly grant funding regimes are opaque and dispersed across central and local Government. We see an opportunity for a national body for promoting research and development into renewable energy with all current grant and funding regimes aggregated into a single mechanism.

11. Is the current regulatory and policy context in the UK enabling? Will a market led approach be sufficient to deliver resilience or is greater coordination required and what form would this take? 11.1. We feel that the Government could play a stronger role in directing the scale at which renewable energy is produced. We note that in Germany 46% of all renewable capacity is installed as micro generators on either houses or farms. This dispersed approach has the obvious advantages of:

being quicker to procure,

is on a project by project basis far less capital intensive, and

avoids the issues of planning and grid connectivity that stifle the development of larger projects.

11.2. We feel that the Government could do a lot more to encourage dispersed capacity by amending the personal taxation system so that investment by taxpayers in domestic renewable energy or energy efficiency measures qualified for the same tax breaks as investing in VCT or EIS schemes. At the moment we have the situation where the individual receives a tax break for investing in a VCT and receives a return on his investment of say 5%- 7% and the VCT then invests in renewable energy at a higher cost of capital (i.e. 12%). To our mind there is obvious potential to reduce the cost of installing capacity by taking out the VCT and transferring the tax break to the domestic installer. This could be used instead of a tariff regime for domestic installers.

16 September 2014

BDO LLP, the DEMAND Centre and BEAMA – Oral evidence (QQ 114-123)

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BDO LLP, the DEMAND Centre and BEAMA – Oral evidence (QQ 114-123) Transcript to be found under the DEMAND Centre

BEAMA, BDO LLP and the DEMAND Centre – Oral evidence (QQ 114-123)

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BEAMA, BDO LLP and the DEMAND Centre – Oral evidence (QQ 114-123) Transcript to be found under the DEMAND Centre

David L. Bowen – Written evidence (REI0001)

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David L. Bowen – Written evidence (REI0001) 1a : Between the Wars, and just in time for the outbreak of the second World War, a 132kv. National Grid network was constructed to link up the regional Power Generators. They were a mixture of private and Council run units. This allowed for energy to be moved to manufacturing facilities vital to the War effort. 1b ; After the second World War, generating plant was worn out. It was clear that a unified generating body was the natural progression from the National Grid. New plant was needed urgently, but the many plant owners could not afford the huge costs involved. With help from the Americans, in the form of Marshal Aid, the Government of the day, Nationalised the entire system. 1c ; Efficient, large, generating stations, to replace the many, best suited the National Grid. 1d ; A unified system operating under the control of the National Grid, rather like a single heart beating to the instruction of a brain, was the result. First called the BEA, the British Electricity Authority, then the CEA, the Central Electricity Authority, and finally the CEGB, the Central Electricity Generating Board. The National Grid grew into the Super Grid at 400kv. This was designed to cater for the doubling of demand every 10 years, up until the 1970’s, when deindustrialisation stopped this growth. 1e ; Electricity distribution Boards were set up. The cost of electricity to these Boards, was determined nationally by the Generators, on a regular and continuous basis, and called the “Bulk Tariff”. Every generating station had to monitor its efficiency on a weekly basis. Every month they had to produce a STEP ( station thermal efficiency and performance ) factor. National Grid Control used this to determine the plant that would be called upon to run. It was “cheapest first, and dearest last”. As cheaper, more efficient, plant came into service, the older plant was less frequently called for. However, it was deemed prudent to maintain availability, and to maintain 30% surplus over peak demand. Older plant was decommissioned when this could be maintained without them. 1f ; This evolved system was considered to be the best in the World. It produced the cheapest electricity in Europe, with the exception of Norway, and from the dearest fuel. 2a ; The dissolution of our coal industry, and our dash for cheap gas, caught our energy manufacturing industries unprepared, with no time to readjust. Their designs were for large steam generating plant specified by the CEGB. Gas plant was already being made in Europe. Transfer of orders to the Continent led to the demise of our industries. 2b; Privatisation of the electricity industry has reverted to its fragmentation, exacerbated when foreign investors took control of most of the industry.


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2c; Electricity is now traded as a commodity, with traders facing each other fighting for a share, and maximum price. 2d; National Grid Company still has the roll of controlling the generators. They have to forecast each day, in advance, the demand curve. This is when they have to negotiate with traders for the required generation, and for the price they will have to pay. 2e; Wind and solar power is out of their control, other than to “constrain them off” to maintain stability. Wear and tear to main generating plant is a concern, due to their sporadic activity. 2f; Instead of one heart and brain, we now have multiple hearts, with some outside of the body, dependent on external, intermittent, stimuli. 2g; To break up the electricity supply industry by further fragmentation, will not encourage competition. Especially when a “middle man” retailer is considered to be a supplier. 2h; We need to return to a unified system where a “clearing house” can determine the generated price of electricity, Bulk Tariff. Generators should be freed from having their own customers. Costs of individual generating stations must be provided to the National Grid, so that they can run plant on merit. This would eliminate Traders. 3a; Our closure of coal fired Power Stations, imposed on us by the EU, for environmental reasons, has left us very vulnerable. We have little headroom above maximum demand. 5% at best. 3b; What can we do about this? 3c; Stop further closures. 3d; Mothballed gas plant must be made fully available, without having to pay owners to do so. It is their responsibility as we are paying for them in our bills. 3e; We should discourage further development of wind and solar energy. The cost to benefit is hopelessly high, and impractical. 3f; Nuclear is also hopelessly expensive, as envisaged, having to import the technology from overseas. The French are 70% nuclear, and charge their customers £46 a MWhr. They have persuaded us to pay some £95 a MWhr., and to maintain the differential for 35 years if they build one for us, so called the“strike price”. The crippling cost of disposing of our, already enormous, stockpile of Plutonium, should be a disincentive. 3g; If we are able to manufacture our own “small” reactors, based on those used for marine propulsion, we should be able to avoid this crippling “strike price” arrangement, if Nuclear is the way we want to go.


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4a; What coal mines we have left we must exploit to the full. In situe gasification of coal seams now appears to be a viable option and must be encouraged, as indeed must be Fracking. We must, however, begin to do things for ourselves again, or else all profitable returns are destined to continue to go overseas. 22 July 2014

Stephen Browning – Written evidence (REI0007)

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Stephen Browning – Written evidence (REI0007) Author: Stephen Browning BSc(Hons) MIET MIEEE MEI, Electricity Efficiency - APL 3454, www.eleceffic.com I hope the text which follows will help; it is taken from various sources and I haven't had a chance to clean it up. My background, observations on strategy and papers on Future Power Systems can be seen at www.eleceffic.com "Everything affects Everything Else simultaneously in Electricity Production, Transport and Usage". To reinforce the IET position on system stress and the need for an Architect (Power Networks Joint Venture). From FPS 1, 2 and 3 which are on my www.eleceffic.com webspace Electricity flows from Alternator to Appliance at the speed of light and there is no storage in the wires. Thus, each Electricity system is always in perfect instantaneous Power balance (Generation Power = Delivered Demand Power) Any mismatch between Generation Power and 'Required' Demand Power (as would be at 50Hz) causes an excursion in system speed (frequency). Generation Power needs to be tightly matched to 'Required' Demand Power as a large excursion can cause instability and loss of equipment. Most generation plant is 'locked together' by synchronism and thus delivers or absorbs energy instantaneously to counteract a speed change (with automatic damping) - inertia. Most induction motors will also respond to damp frequency excursions. However, increasing levels of induction and DC Generation (DFIG-AC and AC-DC-AC etc), as used on Wind turbines, is not interlocked in this way. The system needs to be secured at all points for any single credible loss with secure active and reactive power flows and system stability (steady state and transient) maintained under all conditions (pre, during and post fault). Thus each AC system is a single large machine and one of the largest on the planet; with the prime movers connected to the demand by electromagnetic coupling, through a quite fragile system of wires. At the system Peak we are pushing nearly 85 million Brake Horsepower through that quite fragile set of wires!! The EU CE system gets to over 500mBHP

http://www.eleceffic.com/


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As regards the questions and evaluating the worth and viability of future strategies for Electricity system configuration (FPS 22). I thinks this hits the various points. We need to determine what combination of Generation (Big+Little), Storage, Distributed Resources management, Interconnection trading, Ancillary services provision and Transmission/Distribution management will deliver the goods as regards safe, secure, efficient, and economic operation with reduced fossil fuel burn. All parts of the electricity business are involved; generation, supply, transmission, distribution, system operation and the market, together with the customer, in a commercial/technical framework in which the target can be hit while maintaining system security, quality of supply and accuracy of settlement. Better commercial and technical interfaces are required between member states and across Interconnectors between Electricity Pools. This forms the 'Smart Enterprise', incorporating Smart Grid and Smart Meter initiatives. A number of time series simulation studies of future plant mixes have been run using schedulers (my specialist area) including ' state of the art' Mixed Integer-Linear software. But, each run only gives a single definitive snapshot of the Generation (and demand management) profile for a single set of data. As we move through time, predictive and forecast data will change and that will occur more often as more volatile (variable and partly difficult to predict) plant joins the system. The main issue is the need to evaluate the various scenarios correctly; full nested time 'walk through' series iterative simulations (Commitment-Schedule-Dispatch-Outturn) in respect of the Power System, with Fuel supply allocation and emissions calculations. This involves both Market and Operator mechanisms in iterative tandem. As we move through time, predictive and forecast data will change within the forward models and the actual conditions will be applied to give the outturn, including reserve delivery. This needs to cover prediction of generation and demand (in total and by location), the matching of the totals and the overlaid actions to maintain Transmission and Distribution security (static/dynamic stability, pre/post fault overload and voltage risk). The system will be more 'volatile' than at present, especially where variable renewables and counterbalancing storage, interconnection and/or customer action cause power flow swings. It is the 'Sustainable Transformation' of all three energy sectors; Power, Heat and Transport, which is the big target for Energy Security, Emissions reduction and Cost. We have a lot of different technology which tries to approach this, but which combination will deliver the goods??. We can only work out the Smart Customer and Grid requirements if we have a view of where the Smart Enterprise is going. Thus we need to model the three energy sectors with different combinations of technology to see which is the best approach.


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The future Electricity system will be more dynamic and reliant on fast communication and data analysis to ensure system security and stability is maintained. It is probable that the level of instruction and monitoring required will mean that manual operation will no longer be feasible and that a high level of automation of Market and Operator (system operation) functions will be required. That obviously increases the risks from IT systems failures or attacks on same. ================================================================= I spent many years with the CEGB then National Grid, working in the fields of generation, system operation and the development of models for Generation Economics - Commitment, Scheduling, Dispatch and Ancillary services with the associated representation of Demand, Fuel, Market, Interconnection flows and Transmission security constraints. "The Future is out there somewhere; we just have to make sure we get the best one" "There are an infinite number of ways of running an Electricity Supply system badly" ====================================================================== Stephen Browning BSc(Hons) MIET MIEEE MEI Ex CEGB and National Grid UK GB Electricity Operations - Generation, Demand, Fuel and Market modelling Contributor to EU Smart Grids Technology Programme WG 2 - Network Operations 30 August 2014

Carbon Capture and Storage Association (CCSA) – Written evidence (REI0042)

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Carbon Capture and Storage Association (CCSA) – Written evidence (REI0042) Introduction 1. The Carbon Capture and Storage Association welcomes the opportunity to respond to

the Select Committee on Science and Technology’s Call for Evidence on the Resilience of Electricity Infrastructure. The CCSA would be very happy to provide any further details on the issues raised below and would also welcome the opportunity to provide oral evidence.

2. The CCSA brings together a wide range of specialist companies across the spectrum of Carbon Capture & Storage (CCS) technology, as well as a variety of support services to the energy sector. The Association exists to represent the interests of its members in promoting the business of CCS and to assist policy developments in the UK and the EU towards a long term regulatory framework for CCS, as a means of abating carbon dioxide emissions.

General comments 3. The development of a commercial CCS industry and the establishment of a CO2

transport and storage infrastructure could deliver significant benefits to the UK’s industrial and energy systems by 2030:

Affordable decarbonisation of the power sector and industry – annual household bills could be £82 lower by 2030 with CCS in the energy mix5, and decarbonisation costs could be reduced by around £30bn a year by 2050 with CCS.6

Enhanced integration of other low-carbon energy sources – flexible CCS-generation would be complementary to inflexible or variable output from renewable and nuclear generation sources;

Energy security – through enabling the continued use of both indigenous and imported fossil fuels whilst reducing their carbon emissions;

Industry retention – enabling carbon intensive industries to retain their activities in the UK/EU rather than relocating in order to avoid carbon costs;

4. Given the time scales associated with developing CCS projects the period through to 2030 provides a very limited window within which the technology has to be deployed for the first time, commercialised and deployed at scale. If the benefits of CCS for the UK are to be realised then a clear and ambitious Government CCS policy is needed to maintain momentum and support a progressive roll-out of CCS. The actions necessary to deliver CCS at scale can be neatly divided along the timelines set out in this call for evidence, i.e. short term (pre-2020) and medium term (to 2030). Critically the short term actions are a necessary enabler of the medium term actions and must be delivered.

5 http://www.tuc.org.uk/sites/default/files/carboncapturebenefits.pdf 6 http://www.eti.co.uk/wp-content/uploads/2014/09/Highlight-Report-Carbon-Capture-and-Storage-20141.pdf

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Short term (to 2020)

What steps need to be taken by 2020 to ensure that the UK’s electricity system is resilient, affordable and on a trajectory to decarbonisation in the following decade? How effective will the Government’s current policies be in achieving this?

5. Delivering the objectives outlined above requires the three main carbon reduction technologies to be cost-competitive, commercial and deployable under the electricity market framework. For CCS to be commercialised, the period to 2020 requires the delivery of the first two projects under the current CCS competition7 towards the end of the current decade. However, to deliver on this timeline the Government needs to negotiate the CCS competition contracts with pace and intent. The competition projects not only provide the evidence required to inform future investment decisions but will also establish the early CO2 transport and storage infrastructure that can be utilised by subsequent projects. The ability for CCS projects to utilise shared infrastructure is key to delivering cost-competitive CCS.

6. In addition to delivering the first projects the policies must provide enough confidence to prospective developers on the future market for CCS that investment in a second phase of CCS projects can commence in parallel to the development of the competition projects. Bringing forward this second phase is key to supporting the progressive, cost-effective, roll-out of CCS that is necessary to delivering the benefits of this technology to the UK.

7. The alternative approach of commencing development of second phase projects after

the competition projects have begun operation (i.e. 2020 onwards) would seriously jeopardise the UK’s ability to install significant CCS capacity in the decade to 2030 and threaten the UK’s electricity infrastructure resilience.

8. To deliver the CCS deployment timetable set out above the following steps are required;

Regulatory and policy clarity that clearly defines the long-term revenue streams which enable investors to recover their capital and operational expenditure.

A commercial framework that enables investment in shared-user ‘right sized’ CO2 pipelines to deliver economies of scale and pre-investment in storage site characterisation to provide CO2-emitters with the confidence to invest in capture projects. In particular it should be noted that geological storage site characterisation has a long lead-time, bears geological risk and has a high cost in proportion to the overall store development cost.

CCS needs to be placed on a level playing field with other relatively immature renewable energy sources. CCS should be explicitly supported in the EU 2030 Energy and Climate Framework as an essential part of achieving the European energy and climate change objectives. CCS will also benefit from a reformed and more effective EU Emissions Trading Scheme.

7 https://www.gov.uk/uk-carbon-capture-and-storage-government-funding-and-support#ccs-commercialisation-competition

https://www.gov.uk/uk-carbon-capture-and-storage-government-funding-and-support#ccs-commercialisation-competitionhttps://www.gov.uk/uk-carbon-capture-and-storage-government-funding-and-support#ccs-commercialisation-competition


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Will the next six years provide any insights which will help inform future decisions on investment in electricity infrastructure?

9. Delivering the two projects under the competition will demonstrate the commercial model, test the regulatory framework, establish strategic CO2 transport and storage infrastructure, provide cost discovery and expected cost reductions and deliver insights on expected performance of CCS in the UK. This will help inform the development of future policies that will bring forward additional CCS capacity.

Medium term (to 2030)

What does modelling tell us about how to achieve resilient, affordable and low carbon electricity infrastructure by 2030? How reliable are current models and what information is needed to improve models?

10. Energy system modelling clearly demonstrates that the most affordable route to decarbonisation of the economy is through the deployment of CCS alongside the widespread deployment of renewable and nuclear. Modelling scenarios which remove CCS technologies demonstrate very considerable increases in the cost of decarbonisation. For example, the IPCC8 assessed a number of models and found that the increase in mitigation costs in scenarios with no CCS averaged 138%, which was a significantly greater increase than seen for scenarios without nuclear (7%), limited solar/wind (6%) and limited bioenergy (64%). In the UK the ETI has developed its ESME model which similarly demonstrates that CCS is the most “valuable” of the low-carbon technologies as the costs of decarbonising almost doubles by 2050 when CCS is not available.9 Further analysis of the ESME scenarios showed that by 2030 electricity prices in the UK were around 15% lower when CCS included in the energy mix compared to scenarios where decarbonisation targets were reached without CCS.10

What steps need to be taken to ensure that the UK’s electricity system is resilient as well as competitively priced and decarbonised by 2030? How effective would current policies be in achieving this?

11. In addition to the contribution to decarbonisation and cost-competitiveness thermal power plants fitted with CCS have the potential to operate flexibly and in this regard are very much complementary to intermittent renewables and inflexible nuclear plant. Despite there being considerable value in low-carbon, flexible generation current policies will not deliver technologies like CCS with these characteristics. The primary policy support for low-carbon technologies is FiT CfDs, however these have only been designed as either “intermittent” or “baseload” contracts and there is no contract to incentivise the development and operation of flexible low-carbon plants. The

8 http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdf. 9 http://www.eti.co.uk/wp-content/uploads/2014/09/Highlight-Report-Carbon-Capture-and-Storage-20141.pdf 10 http://www.tuc.org.uk/sites/default/files/carboncapturebenefits.pdf

http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-policymakers_approved.pdfhttp://www.eti.co.uk/wp-content/uploads/2014/09/Highlight-Report-Carbon-Capture-and-Storage-20141.pdfhttp://www.tuc.org.uk/sites/default/files/carboncapturebenefits.pdf


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Government did consider the development of “flexible CfDs” in the EMR White Paper11 however this has never been progressed. Flexibility of CCS systems has been demonstrated and validated, however in the absence of appropriate policies flexible CCS plants will not be built and operated at the necessary scale.

Is the technology for achieving this market ready? How are further developments in science and technology expected to help reduce the cost of maintaining resilience, whilst addressing greenhouse gas emissions? Are there any game changing technologies which could have a revolutionary impact on electricity infrastructure and its resilience?

12. The technologies used in CCS are largely mature and ready for deployment at commercial scale. The challenge to delivering CCS in order that its unique characteristics can contribute to electricity resilience is largely associated with the integration of the technology into novel value chains, testing regulatory frameworks and establishing a policy framework that enables a progressive roll-out of the technology over the period to 2030.

Is UK industry in a position to lead in any, or all, technology areas, driving economic growth? Should the UK favour particular technology approaches to maintaining a resilient low carbon energy system?

13. The UK has clear potential to be a leader in the development of CCS. The UK had intended to be one of the first countries to develop the application of CCS to power plants and launched its first programme to deliver the technology in 2007 and expected to have its first project operating in 2014. However, the development of projects has not progressed as quickly as anticipated and the first operating power CCS projects are in North America. UK industry has taken around 17 projects to various stages of development and it is deeply disappointing that progress here has not been as rapid as expected.

14. The CCSA’s optimism on the future prospects of CCS in the UK is predicated in part upon the new framework that has been established under Electricity Market Reform. This framework is the world’s first that has the potential to drive the deployment of all low-carbon technologies; CCS, nuclear and renewables. While other regions have been more successful at delivering the first commercial-scale CCS projects EMR provides the framework which can enable the scaling up of the technology thereby delivering the benefits outlined above. However it must be noted that the EMR framework is not complete and this Government has still not established a CCS CfD, a CfD allocation framework for CCS or provided any clarity on the timing and volume of additional CCS projects that might be deployed. Until this work is completed the UK’s CCS potential will not be realised.

15. To date the policy framework – driven by the legally binding 2020 renewables target -

has strongly favoured investments in renewable energy technologies. The CCSA believes that this has been to the detriment of CCS and to our 2050 target. Looking

11 Annex B: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/48130/2173-planning-electric-future-white-paper.pdf.

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forward it is important that a more level playing field is established to support the investment in all of the low-carbon technologies. In this respect the CCSA is supportive of the Government’s position on importance of a technology-neutral approach in the EU 2030 energy and climate framework discussions.

16. While the focus of this inquiry is on electricity sector resilience it is important to note

that the development of a commercial CCS industry could bring significant application and benefits to industrial companies in the UK. Industrial consumers would benefit from the development of CCS not only in the provision of cost-effective, decarbonised electricity but also because CCS is in many cases the only technology that can be used to significantly reduce industrial process CO2 emissions, i.e. those emissions arising as an intrinsic part of the industrial process rather than from the combustion of fossil fuels. Fossil-fuels and CCS can also be an important source of cost-competitive low-carbon hydrogen which is expected to play an important enabler to the decarbonisation of a number of industrial applications. Longer-term the development of CCS could provide the UK with the opportunity to not only retain but potentially grow its carbon intensive industries as EU and global decarbonisation efforts continue.

17. Finally, the UK is particularly well-endowed with geological formations that are well

suited to store CO2. Analysis by the UK Storage Appraisal Project12 concluded that the UK could potentially store almost 80 billion tonnes CO2 which would be more than enough to meet the needs of the UK for the next 100 years. This provides a potential opportunity for the UK to “sell” CO2 geological storage facilities to European countries that do not have ready access to suitable geological structures.

Are effective measures in place to enable Government and industry to learn from the outputs of current research and development and demonstration projects?

18. The UK has established Knowledge Transfer obligations on the two projects that are being developed under the current CCS competition. As these projects are still under development the outputs from these projects have not yet been delivered however they are expected to help ensure that the lessons from these first projects are effectively disseminated.

Is the current regulatory and policy context in the UK enabling? Will a market-led approach be sufficient to deliver resilience or is greater coordination required and what form would this take?

19. As noted in paras 14 & 16 above the EMR policy framework has clearly stated that it will enable investment across all low-carbon technologies. However, to date there is still a significant amount of policy that needs to be developed before EMR is able to support the commercial deployment of CCS in the UK. In addition DECC has recently released a CCS Policy Scoping Document which is consulting on the framework needed to bring forward the next phase of CCS. As the CCSA develops its response to this consultation it would be happy to provide this information to this inquiry.

12 http://www.eti.co.uk/project/uk-storage-appraisal-project/

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The view expressed in this paper cannot be taken to represent the views of all members of the CCSA. However, they do reflect a general consensus within the Association. 26 September 2014

City of London Corporation – Written evidence (REI0029)

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City of London Corporation – Written evidence (REI0029) Submitted by the Office of the City Remembrancer Introduction 1. This submission provides the City’s views on the need for greater regulatory flexibility

and more targeted investment and calls for better planning of the delivery of capacity in the system. The submission concludes with a suggestion for a new approach to the capacity problem.

2. The City Property Advisory Team at the City of London Corporation works alongside

developers, utilities and telecoms providers in ensuring that the Square Mile provides the optimum environment for existing and new businesses. It is in the context of the City’s role in promoting the Square Mile as a world leading hub for business, that the City of London Corporation makes this submission.

3. The Square Mile directly competes with other cities to be the premium destination for

global business. One part of the City’s, and London’s, attractiveness to international business is the ability to provide the highest quality commercial buildings and services. A significant factor working against London’s position is exemplified by a recent World Bank Report which placed the UK as the 62nd out of 184 countries for getting an electricity connection on time.

4. The City of London's area has the largest electrical footprint (over 600 megawatts) in the

UK and demand for electricity in the Square Mile has greatly increased in recent years, owing, for example, to the widespread use of power intensive IT equipment and cooling systems.

Lack of Capacity 5. UK Power Networks (UKPN) is the District Network Operator (DNO) for London. It is

clear that its network in London does not have available spare capacity to cope with future demand. This poses risks to future development and refurbishment cycles because developers and property owners are unable to be sure of the availability of electricity capacity. Further uncertainty results from the fact that it can take up to 3 years for substations to be reinforced and installation works completed so as to have sufficient capacity to supply a new building.

6. Given that Ofgem’s existing regime does not incentivise investment ahead of need, new

connections generally occur on an ad hoc basis, responding to immediate demand. The difficulty of creating such new connections at the last minute is hampered by the physical characteristics of the City (such as utilities congestion under the highway. This is a further factor that creates uncertainty and results in a lack of capacity in the system.


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Resilience and Security - Generation 7. Recent research13 undertaken by the British Council for Offices has outlined that the

forthcoming closure of the UK’s legacy generation plant and lack of available new sources of generation has increased the likelihood of blackouts from 1 in 3,307 years in 2012 to 1 in 12 years in 2015. Moreover, the sector’s regulator, Ofgem, does not incentivise DNOs to modify and improve aging network assets. The City Corporation is concerned that a possible “black start” - where supply is suddenly unavailable across the whole of a network and needs to be restored - would severely affect the Square Mile and its ability to continue to operate as a business centre. We are also gravely concerned about the effect that such an event would have on London’s reputation.

Network Resilience / Power Network Distribution 8. As a regulated monopoly, UKPN is obliged to carry out a price control review every 8

years, which involves submission of their business plans to Ofgem, to determine future investment plans, and the overall revenues that UKPN is permitted to recover from customers. Under the latest price control review process, UKPN is required to consult with stakeholders and ensure that their views are represented in the final business plan. As part of UKPN’s consultation, the City of London provided information to UKPN on likely forthcoming developments. After considering the draft business plan produced at the end of this process, the City concluded that UKPN’s investment plans for the period 2015-2023 (which included the reinforcement of 6 existing substations serving the City of London) would have been sufficient to meet the expected level of required new capacity. This new investment would have increased the capacity of the City’s network from the existing 600MW peak load by 50%. However, following the submission of its business plan by UKPN to Ofgem, the regulator’s preliminary determination was to reject UKPN’s draft business plan. This has compounded the existing problems regarding lack of investment. Ofgem has proposed a 12% reduction in the UKPN’s overall spending plans for the period. This would mean a loss of money available for investment in central London of around £200 million. This is highly likely to have a significant impact on UKPN’s ability to undertake a suitable level of network asset replacement work in the period 2015-2023. Cuts in investment are likely to lead to more widespread and frequent network outages due to the age of network assets.

9. UKPN’s network serves the Square Mile, which generates 16% of London’s total output

and 4% of the UK’s total output. This is a major issue for the City, London and the nation. The Corporation believes that in this context the regulator should re-consider aspects of UKPN’s spending plans with a view to allowing the replacement of cable assets over a certain age as well as those serving key buildings and under key junctions and distributor roads. Whilst the City Corporation fully accepts Ofgem’s desire to keep consumer bills to a minimum, the Corporation remains concerned that Ofgem’s determination will not provide UKPN with the funding to ensure sufficient resilience can

13 http://www.bco.org.uk/Research/Publications/Britains_Energy_Gap.aspx.

http://www.bco.org.uk/Research/Publications/Britains_Energy_Gap.aspx


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be built into the City and Central London’s network to support the needs of business and residential stakeholders.

10. Furthermore, the City Corporation is concerned that the reduction in proposed funding

could affect UKPN’s plans for investment in greater network automation enabling the provider to switch power between substations and thus avoiding loss of supply to businesses and residents. Investment in such automation would do much to provide a more robust network for Central London.

11. In a further aspect of its preliminary determination of UKPN’s business plan, Ofgem has

reduced the amount of expenditure that UKPN will be allowed to make in installing deep level tunnels to house critical 132kv transmission cables. These operate at high voltage and deliver power to substations from the National Grid. If, because of Ofgem’s determination, UKPN is required to take the cheaper route and install such cables under the public highway, there would be a serious negative impact on traffic across London. In addition, placing such heavily powered cables under the public highway could pose considerable risk of catastrophic district wide network outages should one of the cables be disturbed by any of the many utilities companies that regularly dig up the highway. The City therefore considers it imperative that Ofgem reinstate this funding element in its final determination in December 2014.

Size of Connection 12. The planning process for large developments can take many years. In an ordinary case,

for example, it will take about 3 years. During the planning stage for large office buildings (whether in the Square Mile or beyond) there are often difficult negotiations with UKPN over the availability of power supply to the building. These negotiations arise for two reasons: (i) there is very little capacity in the system; and (ii) the work required to reinforce a substation such that it is able to supply the required amount of power often takes longer than the design and build of an office block.

13. A separate problem arises because there appears to be an unknown amount of reserved

capacity on the network which is currently unused. Some of the larger buildings in the Square Mile are now requesting up to 15MW, enough electricity to power a small town, which is largely to cater for trading floor operations. Developers (whether in relation to new build or to refurbishment) are likely to request large amounts of capacity because, given the difficulty of obtaining supply in a timely manner, they cannot sure what type of tenant is likely to occupy the building and so hedge their bets. The additional cost of reservation charges is borne by the business because they regard it as a way of mitigating the severe difficulty and uncertainty surrounding a future request for the supply of electricity.

14. UKPN has confirmed to the City Corporation that UKPN would consider a scheme where

capacity could be sold by a building back to UKPN for use elsewhere on the network. UKPN maintains, however, that it is constrained from progressing this idea because the existing regulatory regime prevents it from engaging in such arrangements.


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15. The City Corporation considers that, given the scarcity of available capacity in

substations serving the Square Mile, UKPN should be permitted to take an active role in policing the size of the connections which developers and occupiers are able to retain when it is beyond their requirements.

16. UKPN should adopt the model used by Consolidated Edison, the electricity network

operator for New York City, whereby developers are told what size connection they are allowed based on industry standard formula (10Kilowatts per sq m), and the amount of capacity taken is therefore dictated by a calculation of watts per square metre of the whole building. Developers are able to reserve extra capacity for future expansion, if they agree to pay the cost of additional power at the start. Network capacity is, however not reserved, and Consolidated Edison will agree to invest in the network to create the additional capacity at an agreed point in time, providing the developer exercises the option for additional power at a contracted point in time. If the developer does not exercise its option, Consolidated Edison retains all monies paid by the developer and the capacity is released for use by other customers.

Investment ahead of need / timing of investment 17. The scenario set out above leads the City Corporation to conclude that there is a failure

in the regulatory framework that prevents DNOs investing ahead of need. The City believes that in an area with the largest electrical footprint in the UK investment ahead of need should be permitted.

18. The City of London, London First and the City Property Association commissioned the

“Delivering Power” study14 in April 2012 which found that UKPN is not incentivised to invest ahead of need under Ofgem’s current regime. The existing system promotes a “just in time” approach. The failure to allow investment ahead of need constrains developers’ ability to ensure network capacity for new developments. Consequently, businesses and developers suffer from uncertainty in crafting their business plans, delays to new developments and risks to their business.

19. Together with Westminster City Council, GLA, City Property Association, Westminster

Property Association and London First, the City Corporation has engaged with UKPN to feed into their business plan and called for central London to be allowed greater flexibility in investing in spare capacity.

20. In August 2013 the City submitted to UKPN’s business planning consultation details of

forthcoming developments in the Square Mile. The timing and distribution of the investment remains key - to ensure that capacity is delivered in a timely manner so that it does not pose risks to the delivery of new development. There must be better predictability of UKPN’s investment path. The City Corporation has amended its Planning Policy to ensure that developers engage with UKPN as soon as possible.

14 http://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Documents/research-2012/Delivering%20Power.pdf).

http://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Documents/research-2012/Delivering%20Power.pdfhttp://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Documents/research-2012/Delivering%20Power.pdf


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Developers must include the building’s likely electricity footprint in the planning application so that this information can inform UKPN’s future demand modelling for network upgrading. This approach can make, however, only a limited impact on the overall problem.

21. Engagement, by the City Corporation and others, with developers has shown that they

are willing to pay more if it means that their connections will be delivered faster. In certain cases developers are prepared to pay for full reinforcement of substations, despite only using a fraction of the new reinforcement and accepting that refunds (calculated on subsequent use by other parties) may be paid at a much later date. This highlights how desperate developers are to secure electricity supplies for their building. It is therefore likely that developers would support any future developer-funded proposal to facilitate investment ahead of need.

22. Ofgem has argued that DNOs can invest ahead of need under Section 22 of the

Electricity Act 1989. This provision allows developers to act as a consortium which may be effective on brownfield sites where there are 3 or 4 major developers, but it would not be practical in areas such as the City of London or other urban areas where there is a high level of continuous growth and with, for instance, over 70 developers operating across 120 development sites with varying timescales and developers requiring electricity connections at different times.

23. The City Corporation supports the Mayor of London’s representations to Government

on investment ahead of need. In June 2014, following discussions with the Mayor, senior ministers from DECC and BIS agreed to consider a proposal that could operate alongside existing regulatory arrangements. The proposals considered that the initial investment needed from DNOs would be funded to enable network reinforcement / planning of connections ahead of need. Ofgem and DECC agreed they would be willing to discuss any proposals so long as they do not affect consumer bills and must be able to be adopted on a UK-wide basis. If the Government is considering legislative moves in this area, it is likely to require funding from developers operating in defined development zones. The delineation of such zones will rely on local government to provide projections of likely forthcoming developments. The success of any scheme will depend on choosing areas of continuous existing and planned high office development where there is known to be high utilisation of DNO assets, and a lack of spare substation capacity in the local network (such as the City of London and the Central Activities Zone as defined in the London Plan). The City has volunteered to be the test bed for this proposal given rapid take up of substation capacity utilization by developers presenting marginal risk.

24. However, the starting point for the verification of any case for investment ahead of

need will be a clear overview of available DNO substation capacity in areas of high development growth. Regrettably this data is currently unavailable. Ofgem and the Government should ensure that DNOs make this information publically available. It would be important to consider this data alongside information from developers, market details and Local Authority information (in London at the GLA level as well as at


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borough level) in determining appropriate areas. The City, for example, has robust information on the timescales of forthcoming developments.

25. The City has met with Ofgem and suggested that the link between local authorities and

DNOs should be restored to allow