Electricity System: Assessment of Future Challenges - Annex
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Electricity System: Assessment of Future Challenges - Annex 9 August 2012 Electricity System: Assessment of Future Challenges - Annex Contents Executive Summary .................................................................................................................... 3 Chapter 1: The GB Electricity System ........................................................................................ 5 Chapter 2: The GB Market And Networks Context ................................................................... 13 Chapter 3: Impact Of The Generation Mix On Balancing The Electricity System ..................... 26 Chapter 4: Balancing Tools And Technologies ......................................................................... 42 Chapter 5: Next Steps .............................................................................................................. 58 Glossary ................................................................................................................................... 62 Annex A - Impact of Electricity Market Reform ......................................................................... 67 Annex B - Technical capability of balancing services and technologies ................................... 70 Annex C - Reform of Existing Market Mechanisms .................................................................. 77 Annex D - Low Carbon Networks Fund Projects ...................................................................... 79 Annex E - Methodology and Assumptions from Imperial/NERA analysis ................................. 85 Annex F - Additional analysis relating to electricity system balancing ...................................... 90 Annex G - Projects supported under DECC’s Low Carbon Investment Fund ........................... 96 Annex H - Smarter Networks: Actions to overcome current and future barriers to smart network deployment ............................................................................................................................... 99 2 Electricity System: Assessment of Future Challenges - Annex Executive Summary 1. The GB electricity system is facing significant challenges over the coming years and decades. The generation mix will evolve from a mix dominated by large power stations providing predictable and mostly flexible electricity to a mix with a significantly greater proportion of intermittent and less flexible generation. Demand profiles will also change. The level of electricity consumption will increase due to the expected electrification of heat and transport. Daily peaks and troughs are likely to become more extreme. The locational profile of demand will change as residential demand increases to power cars and heat homes. Increasingly, balancing technologies (electricity storage, demand side response (DSR) and interconnection) and smarter networks will be required to help match the supply and demand of electricity efficiently and cost-effectively. 2. Analysis undertaken for the Government by Imperial College and NERA Economic Consulting (NERA)1 suggests that the value of balancing technologies starts to be realised in the 2020s and into the 2030s and beyond. The same analysis also shows that under the majority of likely generation and demand scenarios there is likely to be an important role for all balancing technologies. Making the most efficient use of these technologies will require the deployment of smarter distribution networks which allow the network companies to have more active control over power flows and act as enablers of balancing technologies like storage and DSR. 3. The need for a more flexible electricity system with more widespread deployment of balancing technologies and a smarter network appears to crystallise in the 2020s, nevertheless it is important that we ensure we are facilitating its development today. This means ensuring market arrangements are fit for purpose, supporting the development of key balancing technologies and promoting investment in smarter network infrastructure. 4. The market framework is changing as a result of the Electricity Market Reform (EMR) programme and other initiatives to improve the overall efficiency of the electricity market and it is difficult to predict accurately the strength of signals for flexibility under the new arrangements (although there is no evidence to suggest that the necessary signals will be not provided). The importance of promoting flexibility in the electricity system is explicitly recognised in the opportunity for both electricity storage and DSR to play a fair and equivalent role alongside generation in the Capacity Market proposed as part of EMR. 1 Imperial College and NERA Consulting, 2012, Understanding the Balancing Challenge , analysis commissioned by DECC to support this publication. Please see http://www.decc.gov.uk/en/content/cms/meeting_energy/network/strategy/strategy.aspx#Electricity_system_policy 3 Electricity System: Assessment of Future Challenges - Annex 5. Technology development is central to the successful evolution of a flexible electricity system - in terms of delivering key balancing activities (electricity storage and DSR in particular) and also in terms of helping new electricity infrastructure developments (such as electric vehicles) be sufficiently flexible to support DSR. There are a number of different dimensions where Government could help tackle barriers hindering technology development and deployment, ranging from standard technology development support, through understanding consumer engagement with new technologies to looking at how effective commercial arrangements could be developed. 6. There is already a considerable amount of work underway to promote the development of, and remove barriers to, smarter networks, notably in partnership with Ofgem and the Smart Grid Forum (an industry group). As well as the technical evolution of smarter networks there could be changes in the roles of, and interactions between, key players in the networks industry and it will be important to remove any barriers to the development of these new interactions and associated commercial frameworks. 7. Overall this paper demonstrates that balancing technologies, in conjunction with smarter networks, will have a key role to play in ensuring the supply of and demand for electricity match in a cost-effective way. There are multiple factors that will influence the actual trajectory of generation and demand so a full range of solutions will likely be deployed. There will continue to be a key role for Government in helping to ensure market frameworks and networks develop in a way that is fit for purpose, and in removing barriers to widespread deployment of balancing technologies. 4 Electricity System: Assessment of Future Challenges - Annex Chapter 1: The GB Electricity System 1.1 Delivering secure energy on the way to a low carbon energy future, while minimising costs to consumers, is a key priority for the UK Government. We face unprecedented challenges to our energy system as we seek to transform the UK into a low carbon economy and meet our 15% renewable energy target by 2020 and our 80% carbon reduction target by 2050. 1.2 We expect much of this decarbonisation to come from the electrification of the heat and transport sectors coupled with a radical change in the electricity generation mix. Analysis published in the December 2011 Carbon Plan2 suggests that the most cost effective paths to deliver the 2050 target require the electricity sector to be largely decarbonised during the 2030s. These changes will present challenges to the design and operation of the electricity system, particularly as we move into the 2020s and beyond. 1.3 The primary aim of the electricity system is to generate and transmit electricity according to where and when it is demanded. In order for the system to balance, supply of electricity must be equal to demand at all times. This is of fundamental importance to ensuring that demand can be met and the integrity of the system can be maintained. Ensuring that supply and demand are always in balance currently relies primarily on the availability of sufficient generation that is predictable, controllable and can be operated flexibly in order to react to fluctuations in demand and supply shocks. It also requires a fit for purpose network to ensure that electricity can be moved around the system efficiently and securely. 1.4 Achieving this in a cost effective and efficient way is central to the realisation of our energy, climate and growth objectives (see Box). 1.5 The major transformation to a new low carbon electricity system will also create pressures on the natural environment, land use, agriculture, landscape, water resources and quality, waste regulation and marine management. Risks from competing demand for resources, climate change, price volatility and interruptions to supply may have an effect on the on the supply of resources needed for low carbon energy technologies. It will therefore be important to ensure future energy technologies and infrastructure are deployed in a way that is resilient to environmental change and will not cause unnecessary harm to the natural environment, including the water and agricultural resources. 2 The Carbon Plan: Delivering our low carbon future - http://www.decc.gov.uk/assets/decc/11/tackling-climate-change/carbon- plan/3702-the-carbon-plan-delivering-our-low-carbon-future.pdf 5 Electricity System: Assessment of Future Challenges - Annex Secure energy supplies The ability for supply to match