Rationale for the treatment of electricity transmission and distribution losses for the purpose of greenhouse gas emission public reporting

18/06/2008

Background

The World Resources Institute, Greenhouse Gas Reporting Protocol’s Corporate Accounting and Reporting Standard, Revised Edition, March 2004 ("the Standard") recommends that greenhouse gases are reported in three ‘scopes’ (Scope 1, Scope 2 and Scope 3). These scopes are defined on page 25 of the Standard as follows:

"Scope 1: Direct GHG emissions: Direct GHG emissions occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned or controlled process equipment. Direct CO2 emissions from the combustion of biomass shall not be included in scope 1 but reported separately (see chapter 9). GHG emissions not covered by the Kyoto Protocol, e.g. CFCs, NOx, etc. shall not be included in scope 1 but may be reported separately (see chapter 9).

Scope 2: Electricity indirect GHG emissions: Scope 2 accounts for GHG emissions from the generation of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated.

Scope 3: Other indirect GHG emissions: Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of sold products and services."

By its very nature, the Standard is generic. It sets out to provide guidance to all industrial sectors on a global basis. Management are responsible for applying judgement to interpret the Standard and therefore we need to apply judgement to classify National Grid’s own emissions between scope 1, 2 and 3. Some sector guidance is provided, however, the Standard does not take into account (or provide by example) the various ownership structures relevant to National Grid.

The Standard states that GHG accounting and reporting shall be based on the following principles: relevance, completeness, consistency, transparency and accuracy. These principles are intended to underpin all aspects of GHG accounting and reporting, and in particular to guide the implementation of the Standard when the application of the standards to specific issues or situations is ambiguous.

The key area of our interpretation relates to the classification of emissions related to losses on our electricity transmission and distribution networks. Our interpretation, with its supporting basis, is provided below, with explanation of the resulting reporting treatment. Relevant contextual information is provided to assist understanding of the rationale.

National Grid’s electricity transmission and distribution (T&D) networks

National Grid owns and/or operates electricity T&D networks in both the UK and US, and these can be summarised as follows:

UK: National Grid owns and operates the electricity transmission network in England and Wales. It does not generate, purchase for sale or supply electricity.

US (Networks acquired with KeySpan): National Grid manages on behalf of the Long Island Power Authority (LIPA) the electricity networks on Long Island. It also owns generation plant on Long Island (100% of output is contracted to LIPA), but the fuel (natural gas and oil) for these is purchased by LIPA. National Grid does not own the electricity generated or transmitted across the LIPA network.

US (excluding KeySpan): National Grid owns and operates electricity transmission and distribution networks in several New England states. In contrast to the previous two ownership structures, National Grid is obligated by regulation to purchase and supply some of the electricity transmitted across its network in its role as "supplier of last resort". However, it does not derive any profit from this supply business – the cost of the electricity purchases being treated as a pass through cost.

Classification of the indirect electricity greenhouse gas emissions resulting from losses on the electricity T&D networks

The Standard states, "Consistent with the Scope 2 definition, emissions from the generation of purchased electricity that is consumed during transmission and distribution are reported in scope 2 by the company that owns or controls the T&D operation" (page 27). We believe that, in substance, the Standard is seeking to focus reporting on those emissions that the company has ability to control.

It also states that, "An important aspect of relevance is the selection of an appropriate inventory boundary that reflects the substance and economic reality of the company’s business relationships, not merely its legal form. The choice of the inventory boundary is dependent on the characteristics of the company, the intended purpose of information, and the needs of the users" (page 8).

Against that context, management has classified the indirect electricity greenhouse gas emissions resulting from losses on the electricity T&D networks as Scope 3 on the following ground on the grounds that National Grid has limited ability to control the reduction of these losses.

The key matters impacting the extent of the T&D loss-related emissions include the type of fuel burnt in generation and the physical distance between source of generation and supply National Grid’s ability to influence or control these matters are as follows:

  • National Grid has no control or influence over the selection of fuel burnt at these power plants in order to generate electricity.
  • National Grid has either no or only limited / weak influence over the location of power plant with respect to centres of demand and thus magnitude of resistance losses (the location of which are also outside of its control).
  • As the percentage of renewable generation increases, the associated greenhouse gas emissions resulting for T&D network losses decreases (recognising that the kWh losses remain the same).
  • In the US, where National Grid is obliged to purchase and supply some of the electricity transmitted across its network, the regulatory requirements restrict its ability to select sources of the electricity that would help reduce losses.

Reporting treatment

We provide consolidated reporting of our Scope 1 and 2 emissions. We separately disclose the total electricity T&D losses as part of Scope 3 with an explanation of the key reasons for classification, enabling the user of the report to assess our total emissions performance.