Experience you can trust.1
Ofgem Stakeholder Workshop
Review of the scale & timing of proposed transmission network developments to deliver 2020 renewable targets
Mike Wilks, David Porter, Goran Strbac & Toby Manning
London - 7 December 2009
2
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
Context – significant challenges ahead
Nonetheless key questions need to be asked
• Are all the proposed of transmission investments needed for 2020 targets?
• Could any of the proposed transmission investments be premature?
• Are the costs of the proposed investments reasonable?
It is universally recognised major transmission investments will be
required for required new power generation
Important not to lose sight of the longer-term ‘Big Picture’
• Must seek to avoid delaying renewable generation deployment BUT must
also avoid unduly increasing the cost of renewable integration
There is a clear objective
4
BackgroundENSG Report 2009: A joint transmission development plan produced as a means of delivering 2020 renewable targets
Transmission requirements based on a ‘Gone Green’ generation scenario with 3 generation mix variants:
– Requirement to integrate 147 TWh of renewable generation output
– Scottish wind generation capacities: 6.6GW / 8.0GW / 11.4GW
England & Wales generation providing remainder
– Cost Benefit Analysis used to assess Anglo-Scottish reinforcements
– Existing planning framework used to assess other reinforcements (SQSS)
Transmission owner investment proposals cover current & future price control periods
5
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
6
Scope of KEMA’s support for Ofgem
Review robustness of the system-wide development plan for
delivery of 2020 renewable targets
Review included assessment of:
– Key assumptions influencing investment requirements
– Treatment of uncertainties in the investment plan
– Methodology review including:
Impact of the GB System Quality & Security standard (SQSS)
Cost Benefit Assessment (CBA)
– Consideration of options and/or operational measures
Verifying the Need and Timing of the proposed investments
– Requirements for funding during current price control period
High-level scope and cost effectiveness
7
Approach
Reviewed joint transmission company report submitted to ENSG
with supporting analysis
Reviewed detail of proposed investments as provided by the
transmission companies:
– Written Q&A process
– Bilateral meetings with Transmission Owners (TOs)
– Close liaison with Ofgem and PB Power to share information
and insights gained within each area of work
8
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
Scheme overview
Scottish – Reinforcements
• Knocknagael (SHETL)
• Western Isles link (SHETL)
• Beauly – Dounreay
• Beauly – Blackhillock – Kintore
• Hunterston – Kintyre link
• East- West upgrade
• East Coast upgrade
Schemes consist of stand alone and joint TO investments. There is a
mix of reinforcement and new build projects
SHETL
SHETL
SHETL
SHETL
SPTL & SHETL
SPTL
SPTL & SHETL
Scotland – England Expansion
• Scottish interconnector circuits
• West Coast HVDC link
• East Coast HVDC link
SPTL & NGET
SPTL & NGET
SHETL & NGET
England & Wales
• East Anglia
• London
• North Wales
• Central Wales
• South West
• Humber
NGET
NGET
NGET
NGET
NGET
NGET
Geographic overview - SHETL
• Schemes comprise submarine links & network
reinforcements from Northern Scotland to England
• SHETL not seeking TPCR4 funding for East Coast upgrade
but cost estimates provided
Orkney not submitted for additional
funding and Shetland scheme
proposal not firm so not
considered by KEMA
Geographic overview – SPTL
• SPTL reinforcements to enable power flow from Northern
Scotland through to England & Wales
• Hunterston-Kintyre is a joint SHETL/SPTL scheme
Geographic overview - NGET
Schemes to enable power flows
from Scotland and extremities of
E&W towards demand centres
Two major offshore Links between
Scotland and England are indicated
• Western HVDC Link is a joint
NGET/SPTL initiative
• Eastern HVDC Link is a joint
NGET/SHETL initiative
Overview of the schemesAnnual profile of proposed expenditure: 2009/10 – 2017/18
Scale of proposed investments
• Total equates to current allowed GB TO capex for
period 2007/08-2011/12
• 2014/15 investment requirement is roughly equal to
current annual total GB TO capex.
0
200
400
600
800
1000
1200
09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18
An
nu
al
Ex
pe
nd
itu
re (
£m
illio
n)
Year
Annual Expenditure Profile
Construction
Pre-construction
Excludes Shetland
£548m or £679m dependent on design
Not considered by KEMA
14
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
Assessment of the schemesComparison of schemes by financial commitment sought in
current price control period (finishes 2011/12)
• Chart illustrates scale of
additional TPCR4 funding
sought per scheme
• Includes pre-construction
and construction costs.
• Considerable variations in
proportion of funding
sought during TPCR4
• Modest commitments now
have significant impact
during TPCR5
Projects Ranked by TPCR 4 Expenditure
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
We
ste
rn Isle
s H
VD
C lin
k (
SH
ET
L)
Ea
st A
ng
lia
(N
GE
T)
We
ste
rn H
VD
C lin
k (
NG
ET
/SP
TL
)
Sco
tla
nd
in
terc
on
ne
cto
rs (
NG
ET
/SP
TL
)
Hu
nte
rsto
n-K
inty
re lin
k (
SH
ET
L/S
PT
L)
Be
au
ly-D
ou
nre
ay (
SH
ET
L)
Kn
ockn
ag
ae
l (S
HE
TL
)
No
rth
Wa
les (
NG
ET
)
Be
au
ly-B
lackh
illo
ck-K
into
re (
SH
ET
L)
Ea
st C
oa
st u
pg
rad
e (
SP
TL
/SH
ET
L)
Lo
nd
on
(N
GE
T)
Ea
ste
rn H
VD
C lin
k (
NG
ET
/SH
ET
L)
Hu
mb
er
(NG
ET
)
So
uth
We
st (N
GE
T)
Ce
ntr
al W
ale
s (
NG
ET
)
Pro
ject
Co
sts
(£m
illi
on
)
TPCR 5
TPCR 4
Assessment of the schemesTotal cost comparison and high-level unit costs per scheme
• Chart shows relative size
of schemes
• Larger schemes towards
latter end of period.
• Larger schemes more
cost effective in terms of
£/kW capacity release
• £/kW does not always
convey full scheme
benefit
• High £/kW sometimes
unavoidable
Projects Ranked by Construction Start Date
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
Kn
ockn
ag
ae
l (S
HE
TL
)
Be
au
ly-B
lackh
illo
ck-K
into
re (
SH
ET
L)
We
ste
rn Isle
s H
VD
C lin
k (
SH
ET
L)
Ea
st A
ng
lia
(N
GE
T)
Be
au
ly-D
ou
nre
ay (
SH
ET
L)
Hu
nte
rsto
n-K
inty
re lin
k (
SH
ET
L/S
PT
L)
Sco
tla
nd
in
terc
on
ne
cto
rs (
NG
ET
/SP
TL
)
We
ste
rn H
VD
C lin
k (
NG
ET
/SP
TL
)
Lo
nd
on
(N
GE
T)
Ea
st C
oa
st u
pg
rad
e (
SP
TL
/SH
ET
L)
No
rth
Wa
les (
NG
ET
)
Ce
ntr
al W
ale
s (
NG
ET
)
So
uth
We
st (N
GE
T)
Hu
mb
er
(NG
ET
)
Ea
ste
rn H
VD
C lin
k (
NG
ET
/SH
ET
L)
To
tal
Pro
ject
Co
st
(£m
illi
on
)
0
100
200
300
400
500
600
700
800
900
Cap
acit
y I
ncre
ase C
ost
(£ /
kW
)
Total
£/kW
09/10 10/11 11/12 12/13
13/14
14/15
Assessment of the schemesScheme Timing Certainty
of need
Certainty
of timing
Materiality of
TPCR4
funding
Knocknagael (SHETL) 09/10 - 11/12 HIGH HIGH MEDIUM
Western Isles link inc. Lewis infrastructure
(SHETL)
09/10 – 13/14 MEDIUM LOW VERY HIGH
Beauly-Blackhillock-Kintore uprating (SHETL) 09/10 – 14/15 HIGH HIGH LOW-
MEDIUM
Beauly-Dounreay (SHETL) 10/11 – 12/13 HIGH HIGH MEDIUM
Hunterston-Kintyre link (SHETL/ SPTL) 10/11 – 13/14 HIGH HIGH MEDIUM –
HIGH
Scottish Interconnector upgrade1 10/11 – 14/15 MEDIUM MEDIUM MEDIUM –
HIGH
East Coast upgrade (SPTL/SHETL) 11/12 – 17/18 MEDIUM MEDIUM LOW
Western HVDC link (NGET/ SPTL) 10/11 – 15/16 LOW-
MEDIUM
LOW HIGH
Eastern HVDC link (NGET/ SHETL) 09/10 – 12/13
(pre-con only)
LOW
East Anglia (NGET) 09/10 – 16/17 HIGH HIGH -
MEDIUM
HIGH
London (NGET) 11/12 – 15/16 HIGH HIGH LOW
North Wales (NGET) 11/12 – 16/17 LOW LOW LOW -
MEDIUM
Central Wales (NGET) 12/13 – 15/16 LOW LOW -
MEDIUM
LOW
South West (NGET) 12/13 – 16/17 LOW LOW LOW
Humber (NGET) 13/14 – 16/17 LOW LOW LOW
1. Comprises Anglo-Scottish incremental works (NGET), SPTL-NGET interconnection scheme (SPTL) and
East - West upgrade (SPTL).
• Earlier schemes
have greatest
certainty re-
need & timing
• Earlier schemes
require most
additional
TPCR4 funding
• Greatest
uncertainty with
Western Isles
and Western
HVDC Link
schemes
18
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
Investment assessment methodology
Many investments justified on a deterministic basis – i.e. specific
generation scenario and SQSS requirements to secure peak demand
Cost Benefit Analysis undertaken for Scotland – England network
capacity expansions
NGET indicates that investment case for other schemes may be
reinforced by CBA assessment, e.g. East Anglia, South West England
Thus review of the CBA methodology & inputs undertaken
Cost Benefit Analysis (CBA) & deterministic
approaches undertaken by NGET
Transmission
investment cost
Principles of CBA Constraint
management cost
20
Cost benefit analysis resultsNorth – South expansion: ‘Boundary B6’
TOs concluded that two B6 expansion options are required
before 2020 – equal weighting of scenario variants
CBA results suggests the Eastern HVDC Link is marginally
more cost effective than Western HVDC Link in longer term
Greater certainty of generation projects driving Western HVDC
link; and more uncertainty over the Eastern HVDC Link design
TO preferred order for B6 reinforcements is:
1. Incremental works” on Scottish Interconnector circuits
2. Western HVDC Link
3. Eastern HVDC Link
Key CBA input assumptions
Market evidence & other sources suggests significant scope
to refine CBA input assumptions, particularly 1, 3, 4 & 5
Input CBA Assumption Alternative
1Wind load
factor
35% for onshore and
offshore (average)
Onshore wind currently 28% load factor
Offshore expected to be higher but current
projects indicate similar performance
2Plant Merit
Order
Plant hierarchies based on
historic operation. No
locational factors
Changing generation mix may change status
of some key conventional plant, especially in
Scotland; adoption of locational costs would
change relative merits of specific plant
3Constraint
Prices
£90/MWh assumed based
on relationship of bid and
offer prices.
Model bid/offer prices according to LRMC
principles. Assumed price has significant
impact and higher than other sources
4Renewable
scenario mix
Equal weighting of
6.6/8.0/11.4 GW variants
Varied weightings - important to understand
sensitivity of results
5Project cost
estimates
April 2009 Cost estimates,
e.g. Western HVDC £697m
Some September 2009 figures now
increased, e.g. Western HVDC £805m
6Transmission
losses costAssumed cost of £60/MWh
Model assumes wholesale prices fall from
£50/MWh to £40/MWh
CBA sensitivity – 15 year time horizonFor Scottish wind capacities of circa 8 GW, the economics of the
Western HVDC link appears marginal
Source: NGET - this analysis was undertaken using the lower estimated scheme costs
as presented in the ENSG Report and does not reflect higher costs as submitted to
Ofgem for additional funding.
Chart illustrates
impact of
constraint
prices for B6
investments to
break even
under the 3
Gone Green
scenarios.
>100% requires
contraction;
<100% requires
expansion
51%
135%
90%
224%
16%
26%
321%
50%
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
300%
325%
6.0 7.0 8.0 9.0 10.0 11.0 12.0
Scottish wind (GW)
Co
ns
train
t p
ric
e m
ult
ipli
er
a. - 0. a. + b. - a. a. + b. +c. - a. + b.
GG5 cGG5 bGG5 a
Incremental
onshore
expansion
Western
HVDC
link
Eastern
HVDC
link
£90/MWh
CBA sensitivity – 40 year time horizonEconomics of investment inevitably improve with extended time
horizons as aggregate constraint costs increase
Source: NGET - this analysis was undertaken using the lower estimated scheme costs
as presented in the ENSG Report and does not reflect higher costs as submitted to
Ofgem for additional funding.
Chart illustrates
impact of
constraint
prices for B6
investments to
break even
under the 3
Gone Green
scenarios.
>100% requires
contraction;
<100% requires
expansion
30%
78%
62%
172%
8%
13%
161%
25%
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
300%
325%
6.0 7.0 8.0 9.0 10.0 11.0 12.0
Scottish wind (GW)
Co
ns
train
t p
ric
e m
ult
ipli
er
a. - 0. a. + b. - a. a. + b. +c. - a. + b.
GG5 cGG5 bGG5 a
Incremental
onshore
expansion
Western
HVDC
link
Eastern
HVDC
link
£90/MWh
Anglo-Scottish reinforcement summary
Proposed reinforcementScottish wind capacity (GW)
6.6 8.0 11.4
Incremental onshore expansion
Western HVDC Link
Eastern HVDC Link
40 Year
Assessment
period
Incremental onshore expansion
Western HVDC Link
Eastern HVDC Link
?
15 Year
Assessment
period
Which of the proposed investments are required; and
which are required urgently?
Key
uncertainty
Investment requirement conclusions from the CBA produced for
ENSG report (15yr time horizon) and CBA with 40yrs time horizon
Note: All other assumptions unchanged between the two assessments
25
Assessment of Cost Benefit Analysis
Generation scenario sensitivity – the Scottish Government 6.6 GW wind target may not require significant Anglo-Scottish reinforcements
Material increased project costs undermine the CBA case for implementing two network reinforcement schemes across the Anglo-Scottish border
CBA results highly sensitive to generation constraint prices
Need to not just look at sensitivities to single assumptions in isolation
CBA is regarded as the most appropriate tool for wind energy driven transmission investment assessment
Approaches based on securing demand with wind generation are now less relevant
NGET’s CBA approach is robust – appropriate to review inputs
26
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TOs’ schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
27
Scheme Conclusions (1)Schemes commencing in 2012/13 i.e. beyond TPCR4 (TPCR5)
Four schemes are to be commenced in TPCR5 timeframes– Central Wales
– Humber
– South West
– Eastern HVDC
The first three are stand alone scheme whose certainty of need and timing directly reflect forecasts of generation developments
The latter is proposed a 3rd of three B6 reinforcements driven by CBA and investment case not conclusive
No funding commitment for construction required for any of these schemes prior to TPCR5 process
Reasonable to fund pre-construction assessments as planned
28
Scheme Conclusions (2)Scheme commencing in 2011/12 (Phase 2)
Five schemes are proposed to commence in 2011/12 – last year
of TPCR4
The phasing of the Anglo-Scottish and East West Scotland
schemes appear reasonable
The London, North Wales and Scottish East Coast schemes could
probably commence construction in TPCR5 without impacting
delivery
Thus probably no construction funding commitment is required for
the latter three schemes until TPCR5
Reasonable to fund pre-construction works for all
Scheme First Year Construction
Spend in 11/12
(Last Year of TPCR4)
Total Scheme Cost Percentage of scheme
expenditure
Anglo-Scottish Incremental works £47m £182m 26%
East-West Upgrade £8m £83m 10%
North Wales £17m £422m 4%
East Coast Upgrade £7m* £253m 3%
London £4m £186m 2%
1. This is a joint SHETL/SPTL scheme. However, only SPTL submitted construction costs for this scheme
and SHETL are not planning any expenditure before 2013/14
29
Scheme Conclusions (3)Scheme commencing in 2010/11 (Phase 1)
Schemes proposed to commence construction in 2010/11 are:– Beauly-Dounreay
– Hunterston-Kintyre Link
– SPTL-NGET interconnection
– Western HVDC
KEMA believes, the first two are required in relatively short timeframes and should receive funding
The third could viably be commenced in 2011/12 but KEMA accept specific constraint cost savings supports 2010/11 start
The Western HVDC link is the 2nd of three B6 reinforcements and subject to uncertainties whether two B6 reinforcements are required. Unclear need to commence construction during TPCR4
Reasonable to fund pre-construction assessments
30
Scheme Conclusions (4)Scheme commenced in 2009/10 (Phase 1)
Schemes already commenced construction in 2009/10 are:– Knocknagael (will be completed within TPCR4)
– Beauly-Blackhillock-Kintore
– East Anglia
– Western Isles (450MW HVDC link)
KEMA believes, the first three schemes are required and should receive (efficient) funding
– though latter part of East Anglia should be subject to review under TPCR5
The timing of the fourth (Western Isles) is less clear– £8m of onshore costs (Lewis) incurred in 2009/10
– £102m of costs to occur in 2010/11 (offshore works start)
– Only c.50MW of WI generation has consent – may rise to 200MW in New
Year (suggested 150MW justifies WI Link on CBA basis)
– TO indicated it will not proceed on anticipatory basis; but it is unclear users in
position to commit to securitise 2010/11 spend
31
Contents
Context
Scope and delivery of KEMA’s support
Overview of the TOs’ schemes
Assessment of the TO’s schemes
Cost benefit analysis assessment
Summary and Conclusions
Final Remarks
32
Final RemarksSeriousness of climate change challenge acknowledged and
importance of UK 2020 renewables targets recognised
KEMA conclusions will not impact on the ability of the required
level of renewable generation to connect by 2020
Connecting renewable capacity to meet 2020 targets may not
necessarily require all the proposed transmission investments
Decisions to postpone some proposed investments during TPCR4
is a ‘low regret’ approach from a consumer cost perspective
compared to premature investment commitment
Important to monitor wind capacity increases in Scotland
Important to quickly establish and agree the investment planning
framework to integrate large-scale renewables
Experience you can trust.33
Thank you for your attention
KEMA Limited
Hudson House, 8 Tavistock Street, Covent
Garden, London | United Kingdom
T +44 203 170 8165
www.kema.com
Top Related