House of Commons Energy and Climate Change Committee A European Supergrid Seventh Report of Session 2010–12 Volume II Additional written evidence Ordered by the House of Commons to be published 7 September 2011 Published on 22 September 2011 by authority of the House of Commons London: The Stationery Office Limited The Energy and Climate Change Committee The Energy and Climate Change Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Energy and Climate Change and associated public bodies. Current membership Mr Tim Yeo MP (Conservative, South Suffolk) (Chair) Dan Byles MP (Conservative, North Warwickshire) Barry Gardiner MP (Labour, Brent North) Ian Lavery MP (Labour, Wansbeck) Dr Phillip Lee MP (Conservative, Bracknell) Albert Owen MP (Labour, Ynys Môn) Christopher Pincher MP (Conservative, Tamworth) John Robertson MP (Labour, Glasgow North West) Laura Sandys MP (Conservative, South Thanet) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) Dr Alan Whitehead MP (Labour, Southampton Test) The following members were also members of the committee during the parliament: Gemma Doyle MP (Labour/Co-operative, West Dunbartonshire) Tom Greatrex MP (Labour, Rutherglen and Hamilton West) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/parliament.uk/ecc. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Nerys Welfoot (Clerk), Richard Benwell (Second Clerk), Dr Michael H. O’Brien (Committee Specialist), Jenny Bird (Committee Specialist), Francene Graham (Senior Committee Assistant), Jonathan Olivier Wright (Committee Assistant) and Nick Davies (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Energy and Climate Change Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2569; the Committee’s email address is [email protected] List of additional written evidence (published in Volume II on the Committee’s website www.parliament.uk/ecc) Page 1 Climate Policy Initiative Ev w1 2 Alstom Grid UK Ev w4 3 The Crown Estate Ev w7 4 E.ON UK Ev w9 5 Association of Electricity Producers Ev w11 6 EDF Energy Ev w14 7 Greenpeace UK Ev w19 8 RWE npower Renewables UK Ev w21 9 Alderney Renewable Energy Ev w22 10 Scottish and Southern Energy Ev w24, Ev w26 11 Campaign to Protect Rural England Ev w28 12 DONG Energy Ev w30 13 Centrica Ev w32 14 Institute of Marine Engineering, Science and Technology, Offshore Renewables Special Interest Group Ev w36 15 Mainstream Renewable Power Ev w39, Ev w44 16 Scottish Renewables Ev w44 17 E3G Ev w47 18 WWF-UK Ev w52 19 Scottish Government Ev w60 cobber Pack: U PL: CWE1 [SO] Processed: [21-09-2011 13:37] Job: 014588 Unit: PG01 Energy and Climate Change Committee: Evidence Ev w1 Written evidence Memorandum submitted by Climate Policy Initiative Climate Policy Initiative (CPI) welcomes the opportunity to respond to the Energy and Climate Change Select Committee’s Inquiry into A European Supergrid dated 14 February 2011.1 An integrated, robust yet flexible European power network is needed to ensure that the EU’s medium- to long-term energy and carbon aspirations are met. In particular, this submission will provide written evidence in response to the following questions: — How would a Supergrid contribute to the goals of the EU Third Energy Liberalisation Package? — Would new institutions be needed to operate and regulate a Supergrid? General Remarks In light of the goals of European climate policy, the power system will require significant investments in electricity transmission, distribution, generation and innovative new approaches to manage the demand side. The North Seas offshore grid (contributing much to the so-called EU Supergrid) and the Memorandum of Understanding between 10 North Seas Countries,2 offer the opportunity to cooperatively tackle areas which, if addressed, could provide long-term and far reaching benefits to the onshore and offshore European power market: — the current approach to congestion management between and within countries limits cross- border flows. — regional/zonal pricing does not adequately reflect system state and risks undermining investment; — an integrated approach to offshore DC (Direct Current) interfaces can limit exposure to possible operational shortcomings, and; — system-wide information-sharing can maximize the potential resources available and efficiently incorporate variable energy sources. Since offshore DC links will be connected to various locations of the onshore AC power system,3 they are of particular importance to the EU transmission system. Any flows scheduled on these DC lines have an impact on the flow pattern in the remaining system, and can thus create benefits for countries (reducing existing line loading) or contribute to additional constraints (loop flows). The responsible TSO can determine the DC flow volumes, and consequently can have a significant impact on the performance of the overall system. Without a jointly agreed methodology (including a system operation objective function), operation of the offshore grid has the potential to create conflicts that undermine the effective use of the transmission system. Furthermore, for the effective integration of intermittent generation (especially offshore wind), the offshore grid offers the opportunity to share flexibility across regions. This is only effective however, if intraday markets are fully integrated across regions with energy markets—building on the positive experience of coupling energy and transmission markets at the day-ahead stage. The reminder of this submission reports on market design options to address these requirements. Options for Europe: EU Power Market Design to Support Offshore Grid Planning and Operations In the EU, almost 200 gigawatts (GWs) of new and additional renewable energy sources are expected to be constructed by 2020. However, the existing EU power market design and the pursed “target model” utilizing regional/zonal pricing risks impeding the required rate of development to meet these 2020 aspirations. Through various qualitative and quantitative studies detailed below, we explore whether the current European power market designs foster the transition to low-carbon energy. Using an international comparison, we find that the approaches currently pursued across EU countries do not provide an effective framework for the widespread adoption of many GWs of on- and off-shore intermittent power: — The current structure does not make effective use of network transmission capacity, thus increasing costs and risking delays for renewable energy connections—see Section A. — It does not use improvements in wind forecasts during the day to optimise European system dispatch, to save costs and emissions—see Section B. — In addition, it does not create transparent signals about system constraints to inform transmission network investment decisions. 1 http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/news/ new-inquiry-a-european-supergrid/ 2 http://ec.europa.eu/energy/renewables/grid/doc/north_sea_countries_offshore_grid_initiative_mou.pdf 3 See the European Commission’s Baltic and North Seas Coordinator Annual Review for 2010 in which CPI contributed. http://ec.europa.eu/energy/infrastructure/tent_e/doc/off_shore_wind/2010_annual_report_en.pdf. cobber Pack: U PL: CWE1 [E] Processed: [21-09-2011 13:37] Job: 014588 Unit: PG01 Ev w2 Energy and Climate Change Committee: Evidence We conclude that implementing an integrated nodal pricing approach addresses the needs by providing appropriate price signals for the economic design, evaluations and planning of offshore grids, and encourages the effective use of transmission capacity whilst improving interfaces between onshore and offshore networks4—see discussion in Section C. For reference, listed below are recent studies we carried out with regards to the current power market design in the EU: — K Neuhoff (CPI Berlin/DIW Berlin), B Hobbs & D Newbery (Electricity Policy Research Group, University of Cambridge): Congestion Management in European Power Networks, 2010. — F Borggrefe (University of Cologne) & K Neuhoff: Balancing and Intraday Market Design: Options for Wind Integration, 2010. — K Neuhoff: A Smart Power Market at the Centre of a Smart Grid, 2010. — K Neuhoff, R Boyd & T Grau (CPI Berlin), J Barquin & F Echavarren (Universidad Pontificia Comillas), J Bialek & C Dent (Durham University), C von Hirschhausen (TU Berlin), B Hobbs, F Kunz & H Weigt (TU Dresden), C Nabe & G Papaefthymiou (Ecofys Germany) and C Weber (Duisberg-Essen University): Renewable Electric Energy Integration: Quantifying the Value of Design of Markets for International Transmission Capacity, 2011. — K Neuhoff & R Boyd: Frequently asked questions on the international experience with nodal pricing implementation, working document 2011.