Posted: 31 January 2014
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Grounds for constraint

The issue of constraint payments – the payments made by National Grid to generators and particularly wind farms to reduce output at certain times – has made the headlines in recent months. Why are these payments necessary and are they in the best long-term interests of the UK? Phil Sheppard, National Grid’s Head of Network Strategy, explains the rationale behind them.

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Grounds for constraint

Grounds for constraint

Large wind farms participate in the Balancing Mechanism, which allows us to balance electricity supply and demand on a second-by-second basis.

"As system operator we believe this is the right decision and that it is in the best interests of the country to get as much capacity on the system as quickly as possible."

Phil Sheppard, National Grid’s Head of Network Strategy

Insight:

The early connection of 15 large-scale wind farms to the National Electricity Transmission System has saved approximately 930,000 tonnes of carbon dioxide.

Source: National Grid

At first glance, the idea of making a payment to an electricity generator to stop producing electricity seems illogical. However, the reality of building and operating a transmission network fit for the 21st century is more complicated.

At National Grid, we often have to weigh short-term cost implications against long-term benefits to the UK as a whole. Constraint payments are a good case in point.

A constraint arises when power cannot be transmitted to where it is needed, usually due to congestion at one or more points on the transmission network. When this happens, we need to take action to ‘balance’ the network. This is similar to occasionally using traffic lights to manage the flow of cars joining a motorway during a busy period. It wouldn’t be economic or sensible to build another parallel motorway so that there was never a traffic jam.

Phil Sheppard, National Grid’s Head of Network Strategy

Phil Sheppard, National Grid’s Head of Network Strategy

These constraint payments are not new. National Grid has been paying coal and gas generators – and for other types of generation – to reduce output on occasion for some time now. We adopted the same approach for wind farms as we cannot discriminate between generators. This is a condition of our Transmission Licence given to us by the Government.

The rationale behind constraint payments

In Great Britain, market generators pay to have firm access to the transmission system 24 hours a day, seven days a week, so they can choose when and how much to generate. When a generator cannot fully use the access paid for, they receive compensation in the form of a constraint payment.

Other approaches that do not offer firm access would increase the risk of developing new generators and therefore raise the costs of people entering the generation market. This increase in costs would result in higher prices for consumers. The Government and the market therefore consider the system of firm access and constraint payments as the most efficient way to keep costs down for consumers.

So why do we need to restrict generation and make constraint payments? To meet our future energy needs, the UK must connect new sources of generation and, at the same time, reinforce the network so that it can accommodate this extra capacity. The UK has also committed to reach a target of generating 15% of all energy from renewable sources by 2020.

We have two options. The first is to hold off on connecting any new generating capacity until the extensive programme of network reinforcement has been completed. This would mean delaying connections by several years.

The second option is to bring on stream these new connections – a large proportion of which are from renewable sources – well ahead of time, but at the expense of some constraints on the transmission system.

Following consultation, the UK Government has decided to adopt the second approach and accelerate the process of new connections.

This new regime, called Connect & Manage, was introduced in 2010. It has increased the rate of new connections by offering generators connection dates based on the completion of ‘enabling works’, or in other words, completion ahead of network reinforcement.

As an example, the Western Link – a £1 billion project being developed by National Grid and Scottish Power to bring renewable energy from Scotland to homes and businesses in England and Wales – should be completed in 2016. This will complete a series of projects that will have more than doubled the capacity from Scotland to England from 2.2GW in 2010 to 5.8GW in 2016.

As system operator, we believe this is the right strategy because it’s in the country’s best interests to get as much capacity on the system as quickly as possible.

It may mean that there are times when we need to pay generators to reduce their output, but the overall benefit to the country of connecting new sources of future generation is hugely significant.

How constraint payments work

Large wind farms are connected to the UK’s high-voltage network and they participate in what’s known as the Balancing Mechanism. This is effectively a trading system run by National Grid that allows us to balance electricity supply and demand on a second-by-second basis.

As demand rises and falls during the day, electricity supply mirrors these peaks and troughs. We need to take this approach because electricity cannot be stored in any significant volume.

Through the Balancing Mechanism, National Grid accepts bids and offers from electricity generators to increase or decrease electricity generation as and when required. We have an incentive to choose the cheapest option, as we share part of the reduced costs that are passed on to consumers. Constraint payments are made when more electricity is being generated than can be accommodated on the transmission system at that moment in time. These are negotiated with the generators as part of the Balancing Mechanism.

Assessing the results

Since 2011, 15 large generation projects have been connected early to the electricity transmission system through Connect & Manage agreements. Between 1st April and 30th September 2013, this resulted in the saving of approximately 930,000 tonnes of carbon dioxide. In total, there are 163 large projects signed up to the process, representing a capacity of nearly 37,000MW.

So far this year, National Grid has paid £33.8m to wind farm operators for limiting their generation output to manage system issues; constraints management was a major contribution to this figure. This represents about 5.2% of the total cost of operating the transmission system. The annual cost of constraints will vary as the amount of new generation increases and as we reinforce the network to move power to where it is needed.

Ultimately it is the available capacity of the network that drives these constraint payments rather than high wind output being expensive to manage. As older power stations close and release capacity – and as transmission reinforcements are delivered – these payments will fall away. The Connect & Manage regime covers power stations of all types, from offshore wind through to biomass and new, highly-efficient gas-fired power stations.

We will still need to make constraint payments in future. But we’re doing everything possible, working together with industry partners, to keep the cost down, to maximise the efficiency of connections and to press ahead with continued investment in the electricity transmission network, such as the Western Link mentioned above.

Read more

How can the UK make sure that it has the right energy infrastructure in place for the future? Phil Sheppard explains why well-timed investment is critical to security of supply. Click here to view.

National Grid’s Peter Parsons explains how the UK can align its future power generation needs with an environmentally sound energy policy. Click here to view.

National Grid’s Stuart Bailey explains why it’s important to be ‘climate positive’, one of the key strands of the company’s environmental sustainability strategy. Click here to view.

  • Roger Thompson

    Gas takes by far the most in constraint payments, doesn’t it?
    More importantly, while Germany does have ‘Power to Gas’ production, you even say nothing here about progress on your http://www.gridgas.co.uk project . So instead of the pointlessly negative bewailing about the current lack of storage for excess wind energy, how about telling us about that instead, Peter Parsons or Stuart Bailey?

  • Jon Lane

    There seems to be an error in the article – I’m sure that £33.8m does not “represents about 5.2% of the total cost of operating the transmission system”.

    Article quote below.

    Best,

    Jon

    So far this year, National Grid has paid £33.8m to wind farm operators for limiting their generation output to manage system issues; constraints management was a major contribution to this figure. This represents about 5.2% of the total cost of operating the transmission system

  • Ivor Ward

    “”this resulted in the saving of approximately 930,000 tonnes of carbon dioxide. In total,…””

    Wow! All that money to save enough of the demon plant food to make a totally insignificant, unimportant and utterly pointless reduction in the global emissions of 31.6 billion metric tonnes. You must be very proud of wasting so much money on such a great mission to save the world.(http://www.reuters.com/article/2013/06/10/us-iea-emissions-idUSBRE95908S20130610)

  • sarah

    Have you been in contact with ITM Power? They already do this in Germany, so why not here? Lets utilise some of these renewables, and not turn them away in favour for fossil fuels and rising consumer energy bills.

  • Alan Thomson

    This does not justify in any way why constraint payments are about 50% more than generation payments.
    Significantly, there’s also no mention of the fact that wind has a de-stabilising effect on the grid due to its unreliability.
    The fact is….notwithstanding all government,greenblob and renewables industry propaganda, the system would be managed more easily and cost effectively without the wind component.
    And all this cost for a derisory saving in emissions of an essential trace gas, which will have no impact whatever on global climate.
    The entire renewables project is driven by a combination of greed, hubris and delusion.
    The economic imperative of feeding the world’s starving dictates that they need the cheapest form of energy available and not be sacrificed on the alter of this green vanity project. After all nobody really knows what or when will be the impact of burning fossil fuels, They can’t forecast next month never mind decades ahead…..and all their attempts thus far have been very wide of the mark.

  • Dr Theodore Holtom

    Pumped hydro energy storage combined with wind power will provide pure renewable energy delivered to grid in a highly controlled way, prefectly responsive to grid demand. We just need to build more pumped hydro energy storage – the large scale (TWh), long lifetime (50 years), efficient (80%), non-polluting, tried and tested solution. It doesn’t pollute our childrens’ lungs and it doesn’t require export of national wealth to unstable distant fossil fuel suppliers. “Simples”.

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