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Constraint costs could hit £2.5bn as renewable capacity continues to grow

Image: Getty.

Image: Getty.

Constraint costs could hit £2.5 billion per year over the next decade, as the generation mix continues to change rapidly.

As part of National Grid ESO’s Modelled Constraint Costs Network Options Assessment (NOA) 2020/21 paper released earlier this month (16 June), the operator detailed how increases in renewable energy will ultimately drive down power prices given their zero marginal costs. But the more distributed energy network they are creating requires additional transmission infrastructure, which presents a timing balance and will likely add to consumer bills in the short term.

When generation output exceeds network capacity, generators are paid to constrain their output. The cost of this is factored into National Grid ESO’s NOA, which performs a cost benefit analysis to help produce the optimal strategy for reinforcements that minimises overall consumer costs.

Up to £16 billion of transmission investment will be needed over the next 20 years, the operator found. Constraints costs are expected to peak in the middle of this, falling away towards 2040 as increased network capacity reduces the need for constraining generation.

As such, National Grid ESO’s modelling shows constraint costs growing from c. £500 million per year now, to between £1 billion and £2.5 billion per year at a maximum, before falling away again. Constraints are recovered through the Balancing Service Use of System Charges (BSUoS), while network investment is recovered through Transmission Network Use of System Charges (TNUoS), both of which are ultimately paid for through consumer bills however.

This modelling is in line with the operators Future Energy Scenarios, with the newest installment of the annual document expected out in the coming weeks.

In an effort to minimise constraint costs, National Grid ESO launched the first phase of its constraint management pathfinder in March.

Solar and wind generated 30% of the country’s energy demand in 2020, increasing by a sixth on 2019, to supply over 100TWh of electricity. Both are on track for substantial increases in the coming years too, with the UK targeting 40GW of offshore wind alone by 2030 and more than 1GW of solar expected to be installed in 2021.

With this growth, Britain's electricity system will be capable of being powered solely by zero carbon sources of power by 2025 for periods at a time according to National Grid ESO.

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