Reform of electricity network charges and balancing markets could fast-track energy transition

Reforming charges for using the electricity network and reviewing how generators and customers provide flexibility to the system, could accelerate cost-effective decarbonisation of the electricity system, and help GB meet its net-zero targets.

A new report1, from Cornwall Insight in partnership with SSE, explores how rethinking the Transmission Network Use of System (TNUoS) charges to accommodate low-carbon technologies could have as much of an impact on decarbonisation as the radical market reforms currently being considered by the government, and could help achieve change in a much shorter timeframe.

TNUoS charges cover the costs of installing and maintaining the transmission network, but the current charging methodology was designed to reflect the historic GB market environment rather than its future as we transition away from fossil fuels.

The report argues that the charges faced by renewables generation, battery storage, and flexible demand are often not reflective of their impact on the system and are therefore causing uncertainty among investors, driving up costs, and hindering the deployment of technologies crucial for achieving net zero.

Further, there is a pressing need to ensure that the cost of managing constraints on the GB electricity system is addressed and does not present a barrier to the electrification of demand or the deployment of renewables needed for net zero.

The paper recommends these potential evolutionary approaches to address TNUoS issues are considered further:  

  • TNUoS demand credits. This would see demand receive credits in a similar way to generation in areas where it provides benefit to the system.
  • Energy storage specific tariff. This would make a relatively small change to current TNUoS arrangements to create a fourth tariff specifically for energy storage sites, which would be designed to be more reflective of the costs and benefits to the system of storage assets.

The report also recommends that options that help address the cost of constraints on the transmission network be taken forward for further analysis. Ideas include:

  • Expand the Constraint Management Pathfinder. Building on the success of National Grid ESO’s existing constraint management activities, this would see a wider application of that approach to procuring more non-build solutions to reduce system constraints.
  • Incentivise demand Balancing Mechanism participation. This would see steps taken to further incentivise and support demand users to participate in the Balancing Mechanism.
  • Improved ESO data provision. This would require the ESO to increase the provision of system information over longer-term timescales.

Adam Boorman, Principal Consultant, at Cornwall Insight

“At a time when the government is considering revolutionary energy market reforms, there is also merit in considering the potential of more gradual approaches that can still deliver transformative results in less time and with minimal disruption.

“While it is true that no single solution can comprehensively tackle the challenges facing the decarbonisation of the electricity system, a combination of incremental changes to areas such as network charging can provide us with the means to make substantial improvements without the need for a protracted and costly overhaul of the energy system.”

 Angus MacRae, Market Development Director, at SSE:

The UK is rightly moving towards a strategic, coordinated approach to building the low carbon infrastructure required to deliver a clean, homegrown energy system, most notably with the accelerated deployment of the transmission network required to connect the huge wind potential across Great Britain.

“However, the current transmission network charging methodology does not align with this change in direction. It is adding cost and risk to investment in renewable energy in the areas of greatest resource, and importantly it doesn’t incentivise investment in storage and flexible demand in areas where it is needed most.

“This report from Cornwall Insight highlights a set of deliverable, incremental changes to transmission charges and balancing markets that could unlock significant investment in batteries, hydro-pumped storage and hydrogen electrolysers in congested areas of the network. These changes will enable the better use of the deployed renewable energy capacity, reducing emissions and costs for consumers, without the delays and disruption to renewables investment that would come with more disruptive changes to the electricity market in Great Britain.”   

  • Ends

Notes to Editors

  1. Link to the full report: Reform options for TNUoS and constraint management

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