Spencer Thompson, CEO at Eclipse Power, discusses the need for further competition in the transmission network, and how successfully innovating the grid depends on recognising the problem-solving role of independent network innovators.
The UK’s electricity transmission network has a problem. Begun in the 1920s, expanded in the 50s, and designed for an era of coal-fired power, today’s grid is attempting to serve the electricity demands of the 21st century with fundamentals that date back to the coal age.
But coal power has gone, renewables are thriving, and the electrification of heat and transport continues apace. As the nation strives to meet its net zero obligations, the transmission network is fast having to adapt to the variability of wind and solar, large demand customers, new centres of power generation, and new consumer needs.
Is it any wonder cracks are beginning to show? The transmission system needs modernising and rethinking to be fit for purpose now, let alone in a near-future where our power is renewable, and our heat and transport needs are met chiefly by electricity. Yet the transmission network in Great Britain is almost entirely owned by three companies, each a natural monopoly.
A grid history
It pays to understand a little of the history of power transmission in Britain. In its infancy, mains electricity was generated relatively locally and distributed only to nearby users – often municipal streetlights. As generation and use became more distributed, localised grids arose, yet there was no coordinated national system. This changed with the 1926 Electricity (Supply) Act, and in 1938 the first nationwide grid.
The fledgling grid ran at 132 kilovolts (kV), but in 1950 it was upgraded with 275kV interconnectors, offering lower losses and allowing for thinner cables for a given amount of power. By 1965, the need to transmit more electricity over longer distances was addressed with new 400kV links.
This very much became the model for British power transmission through the seventies and beyond, as major coal, gas and nuclear plants provided almost all of the nation’s electricity demands. However, the expansion of renewable energy presents two major challenges.
First, major wind and solar projects aren’t bound by the same fuel needs as coal or gas-fired stations, so big projects, requiring big connections, may be situated far from existing grid infrastructure – and major power users. Second, the output from wind and solar is inherently variable, meaning the power transmission system needs flexibility to ensure balance, consistency, and reliable operation.
New demands, new power
All of this is without reckoning on the additional challenge of changing use and growing demand. The government has set an ambitious target for almost wholly renewable power under the Clean Power 2030 Action Plan, describing this as ‘key to a growing economy, our national security, and improving our standards of living’. Achieving it is vital if renewable electricity is to displace fossil fuels for transport, and for water, space and industrial process heating – all necessary for the UK to meet its net zero commitments.
At the same time, the UK is a front-runner in data centres. It’s the world’s third-largest market for AI (after the US and China), and the leader in Europe. The country has the potential to consolidate its position and benefit from billions of pounds of investment in new data centres, unlocked by the AI Growth Zones envisaged by the government. Yet AI is famously energy-hungry, and delays in connecting new projects could threaten this highly valuable sector.
As the UK leans on clean electricity to decarbonise transport and heat, its commercial and domestic users will need more power, sometimes distributed to new places – such as large-scale EV charging points on the motorway network. These new demands are a far cry from those the grid was built to serve, and it needs rapid change to meet them.
Regulation and oversight – a necessary evil?
And yet, when did large-scale national infrastructure ever move quickly? The British power transmission grid is owned today by three companies: National Grid Electricity Transmission, ScottishPower Transmission, and Scottish Hydro Electric Transmission Limited (SHETL). National Energy System Operator (NESO), the grid operator for the whole of Britain, manages the electricity market – to it falls the challenge of balancing changing supply and demand.
The transmission system is effectively a monopoly, run to strict rules and heavily regulated by Ofgem. The industry is slow-moving and risk-averse – it’s undergone relatively modest infrastructure development since the majority of transmission assets were installed 45-60 years ago.
Despite the urgent need for multiple major upgrades, under the current system transmission projects have limited appeal to investors. They move slowly, face bureaucratic hurdles, and carry the risk of regulatory penalties that can take a huge bite out of the returns.
In this environment, it’s difficult to innovate, and challenging to deliver new capabilities to the grid. Currently it is virtually impossible to build out transmission assets for large single-use customers without a significant change in regulation. We urgently need an updated Electricity Act, and a coordinated approach from industry bodies.
The present setup isn’t what we need to decarbonise the power grid, or to capitalise on investment opportunities in the AI sector and elsewhere. With a lack of flexibility, and a limited track record in delivering major infrastructure upgrades, the incumbents of the transmission industry risk becoming the bottleneck in the UK’s plans. They need support and different non-monopoly solutions to deliver these huge infrastructure upgrades.
Adapt and innovate
If the UK’s power transmission network is to complete its renewables switch, while adapting to fast-changing use patterns, it needs a huge shake up. New grid capacity needs to come online in a matter of years, not decades. Investors in major power-using or generating projects need the reassurance they’ll get connections within a viable timeframe – or they’ll put their money in other countries where they can.
For some years Ofgem has been examining the potential of competition to drive the necessary changes. Indeed, NESO is now pushing ahead with the implementation of competition for selected projects that are:
- Clearly defined (their design and construction can be separated from the system)
- Large, and high-value
- Not integrated with the rest of the grid in a way that means only existing incumbents can deliver them
Key to this is the concept of ‘early competition’, which it’s hoped will drive innovation, and result in fresh ideas and improved technologies. The other objectives for competition include lower costs for consumers, and projects that are more attractive to investors, helping speed up their funding and delivery. It’s certainly progress, but as the first project is tentatively put out to tender, it’s slow going.
Competition time
Yet our experience in the connections space – the so-called ‘last mile’ distribution between the transmission grid and its consumers and suppliers – shows us that competition is exactly what’s needed. In 2000, competition in distribution was opened up so that the established distribution network operators (DNOs) now faced competition from independent distribution network operators (IDNOs) like Eclipse, and independent connection providers (ICPs).
This competition has allowed dynamic market entrants who aren’t bound by geography in the same way as DNOs. Independents can plan, provide and adopt new connections to the grid across the British power network. And while still regulated by Ofgem, we enjoy greater flexibility to design innovative solutions that can reduce cost or delays, or even contribute to the overall viability of new projects.
This has had a measurable benefit for businesses and investors seeking to connect critical infrastructure such as EV charging points, battery electric storage systems, housing and commercial developments and data centres. It’s also positively impacted the service levels of monopoly DNOs, as well as improving cost-effectiveness and service levels for customers.
We need an equivalent change – now – in the transmission network. While steps towards early competition are welcome, they’re too little, too slow, to deliver the changes we need in the time we have. New independent transmission owner-operators should be created, and allowed to build the grid supply points that major power customers demand, delivering projects in two to three years – not the 10 to 15 they might otherwise take.
By leveraging the same innovation and flexibility that independent operators have brought to the distribution market, the UK can get its transmission infrastructure on track. But the status quo doesn’t encourage the incumbent grid operators to drive change, and the regulator is under-resourced and lacks the capacity or remit to do so. Without change, the sector can’t deliver the progress we need, the government’s commitments won’t be met, and the UK will miss out on massive wealth-creation opportunities.