Relatively minor changes in transmission charging and constraint management on the grid could result in significant steps being taken towards reaching net zero emissions, according to a new report.
Commissioned by SSE and written by consultancy Cornwall Insight, the report looks at how Transmission Network Use of System (TNUoS) charging arrangements could be reformed, as well as how constraint management could be improved.
The authors make a series of recommendations to explore how a system designed for an era of centralised fossil fuel generation could better accommodate low carbon technologies, including renewables and energy storage.
However, they argued that the recommendations represent a series of “evolutionary” changes, rather than more “revolutionary” ones that would require significant overhauls of current practices.
TNUoS charges are levied to recover the cost of installing and maintaining the GB transmission system, including offshore resources, and apply to various classes of grid-connected assets including generators, suppliers, transmission demand directly connected to the grid and embedded generators.
The TNUoS regime is currently being considered for strategic reform by regulator Ofgem, as reported by Current in September. The reforms would be aimed at ensuring the regime remains fit for purpose and Ofgem has created a specific task force to work on the issue.
At the same time, the government is considering what Cornwall Insight described as “revolutionary energy market reforms” to the electricity market, through the ongoing Review of Electricity Market Arrangements (REMA). The TNUoS and constraint management reforms recommended in the report could also have a big impact, but over a much shorter timeframe and with less disruption, Cornwall Insight claimed.
“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,” Cornwall Insight principal analyst Adam Boorman said.
“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,” Boorman said.
Reforms include storage-specific TNUoS tarrif, demand turn-up auctions
Calls to overhaul TNUoS charging have been heard for some time, with Scottish Renewables saying in 2021 that the present regime results in “volatile and unpredictable” charges that could hamper progress in reaching net zero policy targets.
Two of the key reforms to TNUoS suggested by Cornwall Insight in its new report include a new credit scheme to be created, whereby demand connected to the network could be incentivised if it is in areas of the grid where it benefits the system. This would be similar to an existing credit scheme for generation that steps in where it is needed.
The report also suggests the creation of an energy storage-specific tariff, which would be a “relatively small change” but could be more reflective of the costs and benefits of grid-connected storage, rather than arbitrarily having to include storage asset charges within the three other existing tariffs.
Current network charging methodology “does not align” with the direction in which the UK’s energy sector is heading, that of a “strategic, coordinated approach” to building low carbon infrastructure, SSE market development director Angus MacRae said.
“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.”
In terms of reforming constraint management, Cornwall Insight suggested three key reforms and two additional options.
The top three were: to expand National Grid ESO’s ongoing Constraint Management Pathfinder programme, which seeks innovative ways to handle constraint; incentivise participation in the Balancing Mechanism (BM); and improve data provision at an ESO level.
The other options, meanwhile, were to enhance the level of detail BM participants would be required to provide on their expected volumes of participation on a rolling basis for the coming 24-hour period, and auctions for demand turn-up so that demand users would be contracted to consume energy from surplus renewable energy generation that would otherwise go to waste at a cost to the system and ultimately to billpayers.
Another report, published by management consultancy AFRY in September, recommended that changes to the energy market should indeed be “evolutionary not revolutionary”, particularly with regard to REMA.