INTERCONNECTIONAND THENORTH SEAS GRID

THE BENEFITS OF A COORDINATED APPROACH

“Cross border transmission capacity connecting different countries”

Interconnection means...

It helps solve the energy ‘trilemma’

Security

DecarbonisationAffordability by lowering bills for householdsand businesses

by ‘keeping the lights on’ and reducing reliance on imported fossil fuels

by cutting greenhousegas emissions

Britain’s electricity market currently has 4GW of interconnector capacity:

1. 2GW to France (IFA)

2. 1GW to the Netherlands (BritNed)

3. 500MW to Northern Ireland (Moyle)

4. 500MW to the Republic of Ireland

(East-West)

Britain’s current interconnection

1

2

3

4

Connection agreements with National Grid = 5.8GW - 2.8 GW to Norway (NorthConnect + HVDC Norway-UK) - 2 GW to France (ElecLink + IFA2) - 1 GW to Belgium (Project NEMO /Belgium Interconnector)

Other proposals = 3.8GW - 1.4 GW to Denmark (Denmark Interconnector) - 1.4 GW to France (FABLink) - 1 GW to Iceland (IceLink)

13.6 GWin potential interconnection

New interconnectors are planned

Current interconnectors = 4GW

New interconnector plans

Other proposed interconnectors

Proposed interconnectors with connection agreements with National Grid

Icelink

NorthConnect

HVDC Norway

Denmark Interconnector

IFA 2

ElecLink

Project NEMO/ Belgium Interconnector

FABLink

Adapted from Policy Exchange (2014)

• More interconnection reduces reliance on imported fossil fuels and helps balance renewable energy sources by providing flexibility

• As Britain faces a security crunch, interconnection helps bring down energy prices

Benefits I: SecurityAs interconnection increases supply,the price falls

price

supply

demand

volume

Supply+ IC

IC volume

pricereduction

Importing region

Additional consumer surplus

Adapted from Policy Exchange (2014)

Benefits II: Decarbonisation

• 6GW of extra interconnection means three fewer gas-fired power plants (3GW)1

• Additional interconnection capacity reduces fossil fuel reliance depending on: - Gas price - Level of capacity in exporting market

• Interconnection with Norway and Iceland scores best because they have large volumes of hydro and geothermal capacity

1 Poyry (2014)

Benefits III: Affordability• In the long-run, interconnection reduces

reliance on volatile fossil fuel prices - A doubling of current capacity by 2020 would unlock benefits for British energy consumers through reduced wholesale electricity prices of up to £1 billion per year.2 - This saving could result in a reduction in household bills of £13 per year.3 - Increasing the amount of interconnection causes prices to fall by 2-3%.4

• Interconnection is cheaper than other forms of new capacity

2 National Grid (2014) 3 Policy Exchange (2014) 4 Poyry (2012)

Cost of capacity (£/MW)

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Inte

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or h

igh

OCG

T

CCG

T

Nucle

ar

Ons

hore

win

d

Offs

hore

win

d

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Adapted from Policy Exchange (2014)

But Britain isn’t the only country realising these benefits

Two futures are possibleRadial Meshed solution

Advantages of a meshed solution IMeshed (or networked) systems reduce costs by increasing efficiencies.

• An integrated approach to the development of the North Seas Grid leads to €25 to €75 (£19 to £56) billion of savings in operation and network investment costs over the next 25 years.5

• In context: over €100 (£75) billion is already planned for investment in power transmission infrastructure in the North Seas region over the next 15 years. A flexible but planned approach reduces the risk of incurring stranded assets. The potential regret associated with ‘over-building’ the grid of €1 (£0.75) billion is much lower than the regret associated with ‘under-building’ the North Seas Grid for fear of low amounts of offshore wind generation being developed of €30 (£22) billion.6

5 Imperial College and E3G (2014) 6 Ibid

Advantages of meshed solution II

The private market is historically poor at building networks

• The UK rail network was almost entirely privately delivered during the C19th.

• A “battle of the gauges” took place and was won by Stephenson against Brunel. Today we have a uniform narrow gauge which means trains are slower because their centre of gravity is higher.

• A free market approach contributed to a ‘dash to London’. There are now 18 major rail stations in an area of central London measuring just 6 by 4 miles.

• Tracks cross each other to reach these stations.

The benefits for Europe are clear• In time, increased interconnection could lead to a North Seas Grid -

connecting Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway, Sweden and the UK.

• There is a particular benefit to these countries if the amount of offshore wind in the North Sea increases from 5GW to as much as 150GW.

• Estimates of benefits:

7 Policy Exchange (2014) 8 European Commission (2014) 9 E3G (2014) 10 Ibid

» Much deeper interconnection across Europe could yield savings on the Europe-wide cost of decarbonisation of up to €426 (£318) billion between 2020 and 2030.7

» Annual net benefits of integrating the European electricity benefit could reach €12.5 to €40 (£9.3 to £29.9) billion by 2030.8

» Savings could be €25 to €75 (£19 to £56) billion in the period to 2040, compared to the current incremental member-state approach.9

» A proactive approach that plans offshore wind locations at the same time as grid design could increase these benefits to €30 to 80 (£22 to £60) billion.10

Business as usual in the North Sea is leading to a radial grid

Existing interconnections

Connections to offshore wind farms

Adapted from Cole et al (2014)

Progress has been steady but slowDe

c 20

09

Dec

2013

July

2014

Oct

201

4

North Seas Countries’ Offshore Grid Initiative (NSCOGI) established.

European Commission publishes ‘Vision of an interconnected Europe’ Energy and

Climate Change Committee publishes ‘A European Supergrid’

DECC publish ‘More interconnection: improving energy security and lowering bills’ European

Commission publish ‘Study of the benefits of a meshed offshore grid in Northern Seas Region’

European Council conclusions:

“urgent measures in order to ensure the achievement of a minimum target of 10% of existing electricity interconnections, as a matter of urgency, and no later than 2020”

“objective of arriving at a 15% target by 2030, as proposed by the Commission

Mar

ch 2

011

Mar

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So what now?

What Britain and Europe need to doTake a lead in brokering agreement between Member States on North Seas Offshore Grid

Establish a high-level Ministerial body for cooperation on North Seas Offshore Grid Initiative Push for free trade

zone for North Seas

Deliver as part of Commission President Juncker’s €300 (£225) billion ‘Jobs and Growth’ package

Create a special purpose financing vehicle

Deliver intergovernmental agreement on interconnection and North Seas Grid specifically

Make a core part of the Energy Union and major focus of work for Commissioner Canete and Commissioner Sefcovic

ReferencesCole S et al (2014) Study of the benefits of a meshed offshore grid in Northern seas region: Final report European Commission

DECC (2013) More interconnection: improving energy security and lowering bills Department for Energy and Climate Change

Moore S (2014) Getting interconnected: How can interconnectors compete to help lower bills and cut carbon? Policy Exchange

National Grid (2014) Getting more connected: The opportunity from greater electricity interconnection A paper by National Grid Interconnectors

Poyry (2012) Impact on EMR of interconnection: A report to the Department for Energy and Climate Change Poyry Management Consulting.

Strbac G et al (2014) Strategic Development of North Sea Grid Infrastructure to Facilitate Least-Cost Decarbonisation Imperial College London and E3G