National Grid owns and operates the electricity and gas networks (the pipes and wires). Here we explain how we connect people to the energy they use.
Our role in the electricity industry
"The unexpected can happen on the electricity network."
A decline in generator availability will lead to tighter margins which can make our role in matching generation and demand more challenging.
Source: National Grid
National Grid owns and operates the electricity and gas networks (the pipes and wires) that connect people to the energy they use.
On the electricity network, we are the System Operator and responsible for managing the flows of electricity to homes and businesses on a real time basis. Once electricity is generated and enters our network, our job is to ‘balance’ the network, ensuring supply and demand are matched second by second, calling on suppliers and generators to make up the difference. We are not responsible for building power stations – or ensuring sufficient generation is available to meet consumer demand – this is the role of the electricity market and the policies and framework that support that market.
The unexpected can happen on the electricity network – power stations can experience faults and stop generating, or electricity demand can be higher than originally forecast. As System Operator, we can ask the market to make more generation available (spare capacity) to help cover any shortfall. Spare capacity is also referred to as margin or plant margin and means the amount of generation available over and above what is needed to meet electricity demand.
What is changing in electricity generation?
A large amount of coal and oil generation has/is retiring due to age and environmental legislation (Large Combustion Plant Directive). The continuing challenging economics for gas generators means some are closing too. A decline in generator availability will lead to tighter margins which can make our role in matching generation and demand more challenging.
National Grid has agreed with DECC and Ofgem to publish an informal consultation on the design of two measures to provide an ‘insurance policy’ that could be deployed in the unlikely event that there is a shortfall of electricity in the market.
These measures would deal with tightening margins ahead of the proposed Capacity Market coming into effect under Electricity Market Reform. They involve National Grid buying additional reserves – demand-side reserves from large consumers, and generation reserves in the form of power stations that would otherwise be closed or mothballed.
The role sits outside of National Grid’s usual system operator role but given our position in the industry and our experience, we’re happy to propose and consult on solutions.
The proposed solutions are:
Demand Side Balancing Reserve – This involves seeking large consumers (or demand side aggregators) to reduce (or shift) electricity use during times of high demand (between 4 and 8 pm on weekday evenings in the winter) in return for a payment.
Supplemental Balancing Reserve – This involves contracting with generators that would otherwise be closed or mothballed. National Grid would only deploy this reserve as a last resort in lieu of taking emergency action to balance the system. It’s unlikely that this would be used but it would be there as a backup to be brought online if needed. It is designed specifically not to interfere with the market, or impact on the commercial activities of generators who are active in the market.
These measures are subject to Ofgem [GEMA] approval, who would need to be satisfied that any such measures would be in the interests of customers in terms of ensuring the reliability of their energy supply.
Who does what in the electricity Industry?
Electricity generation is the production of electricity from fossil fuels and nuclear power stations as well as renewable sources such as wind, biomass and hydro. Electricity generators sell the electricity they produce in the wholesale market to electricity suppliers.
The supply of electricity involves buying electricity and selling it to consumers. Electricity suppliers have contracts with electricity generators to provide the energy their customers use.
The Department of Energy & Climate Change (DECC) is the Government department that works to make sure the UK has secure, clean, affordable energy supplies. DECC are responsible for setting energy policy and responsible for energy security; making sure UK businesses and households have secure supplies of energy for light and power, heat and transport.
In 2011 the Government published its White Paper on Electricity Market Reform (EMR).
The 2012 Energy Bill which is currently progressing through parliament will provide the necessary legislation for the reforms to come in to force.
Ofgem is the Office of Gas and Electricity Markets. While a Government agency, it works independent of Government and the energy industry.
Ofgem has a duty to protect the interests of consumers. They have a responsibility to ensure customers receive value for money for the energy they use and that their energy is delivered efficiently and reliably.
Ofgem supervise market activity, and regulate the energy networks as well as deliver Government schemes. Ofgem can take steps to ensure energy security in the event that the market does not deliver.
National Grid is/does not
But what can often be confused…
|In the UK National Grid is not an electricity supplier. We do not buy or sell the electricity we transport around the country.||Power stations can experience faults and stop generating, or electricity demand can be higher than originally forecast.
As System Operator, responsible for the day to day operation of the network, we need to be prepared for any unplanned activity. Therefore we have contracts with generators to provide electricity quickly should a plant fail. These are short term measures for operating the system day to day.
|In the UK National Grid does not generate power or own or operate any power stations.||National Grid is responsible for the operation of the high voltage network day to day.|
|National Grid does not own or operate the electricity distribution companies.||National Grid owns the high voltage network in England and Wales and operates the system across GB. Once power is generated, it enters the high voltage network and we transport it around the country where it feeds off into local electricity distribution networks.|
|National Grid is not responsible for the long term supply of energy.||While we are responsible for the day to day flow of energy on our network, we are not responsible for ensuring there is enough generation capacity connected in the long term. New generators wishing to connect to the high voltage network will apply to National Grid for a connection agreement, and generators wishing to shut down will also inform us of their plans. This means we are privy to a lot of data, and we publish many reports to the market annually so that the market can make commercial decisions and plan for the future.|