Transmission has a pivotal role even in the most decentralised future

In my first thought piece, I discussed the pivotal role electricity transmission has played in facilitating past change – now I want to look forward to the role we can play in the future.

Did you know that 27% of the electricity generation on the system today connects to the regional distribution networks or behind the meter? Or that, in the Electricity System Operator’s (ESO) latest Future Energy Scenarios (FES), the Community Renewables scenario has distributed generation exceeding 50% by 2034? And did you know that today 190MW of battery storage is connected to the system and by 2020 the scenarios foresee this volume exceeding 1GW at a minimum[i]?

When the ESO published the FES this year, they described these changes in the energy system as a revolution and that’s no understatement! Change is happening now.

In the past 18 months, we have seen a series of remarkable ‘firsts’ on the system, all of which were unpredictable a decade ago. We had the first full day without coal generating on the system. For the first time, solar accounted for over a quarter of the generation output. Transmission demand was lower in the afternoon than overnight for the first time.

You won’t be surprised that we’ve been doing a lot of thinking about this revolution as a transmission owner and what it means for the future electricity transmission network. In my first thought piece, I discussed the pivotal role transmission has played in facilitating past change and the benefits it provides to consumers. Now I want to look forward to the role we can play in the future.

We tested transmission need to the extreme and showed that it will continue to deliver fundamental benefits to consumers.

I don’t think we’re alone in observing the three macro trends driving the revolution:

Decarbonisation – increasing volumes of renewables, storage and electric vehicles
Decentralisation – higher volumes of micro renewables, especially behind the meter
Digitisation – more smart meters and the rise of demand-side aggregators

All the FES scenarios reflect these trends to different extents and from these credible futures we, as the Transmission Owner, build our view on the future of networks. But you might ask ‘what can you possibly say about the future of the transmission relative to these trends?’

As we’ve been preparing our longer-term outlook, we’ve challenged ourselves to test the extremes of these trends. Putting aside conventional thinking, as transmission owner we’ve built a highly-decentralised FES sensitivity from the ESO’s data and asked what it might mean for our network.

The future world we tested is very different from today. By 2040, 65% of the generation could be connected on the distribution system. There might be over 60GW of wind and solar respectively connected by 2050, to add to a whopping 42GW of battery storage! We also asked ‘what do you need to believe about the wider energy market in this future?’ For example, almost all consumers and businesses enthusiastically invest in small-scale generation and commercial models like peer-to-peer trading become default products.

Anecdotally, when we first built the data set we had trouble getting supply to match demand in the late 2020s, with the high volumes of micro renewables and storage. To get the scenario to balance, we tested adding more batteries. To plug the 9.8GW shortfall of supply, over 40 million home storage batteries would be required or 3000 (129MWh) grid scale batteries like the one used in South Australia[ii] – enough to line the M1 from London to Leeds!

As you might expect in this future world, peak demand on the transmission system declines by about 11GW in 2035 vs. today. Intuitively, you might believe the need for transmission investment to be reduced as we have traditionally used peak to determine investment. However, we have found this not to be the case.

In my first blog I outlined three key benefits of transmission and, in a decentralised future, these continue to hold true:

1. Connecting large capacity users to the system – continuing to meet the challenge of decarbonisation
2. Providing bulk transfer of power to meet demand – giving consumers access to lowest-cost sources of energy at all times
3. Providing flexibility for electricity system operation – making sure energy is available when consumers want it

1. Connecting large capacity users to the system

In a highly-decentralised world, large generation and distribution network connections are still going to be needed. In building our data, we still found the model required 50GW of transmission-connected generation in 2035 to ensure we meet demand and decarbonisation targets.

The inclusion of these plants is a decision driven by the underlying economics. For example, the capital cost of offshore wind has been falling dramatically (global average capex has fallen from US$4.1 million per MW in 2016 to $3.7 million per MW in 2017[iii]). Zero-subsidy connections are already materialising in Denmark and Germany. It’s highly likely we are going to see continued growth in offshore wind in the UK and, with their levels of power output, transmission connections will be required to get their output to market and give consumers access to low-cost decarbonised energy.

2. Providing bulk transfer of power to meet demand

Today consumers have access to a single electricity market across Great Britain. In our analysis, we tested the idea of complete regional self-balancing, negating the need for transmission infeed to meet demand.

However, we found this almost impossible to achieve. Take the South West of England in 2037, for example – using just the solar (10GW) and wind (1GW) within region to meet demand across the year, we found an inability to supply demand could occur 78% of the year with shortfalls of up to 3GW. In addition, the ability of consumers in other regions to benefit from times of surplus, near-zero marginal cost, supply is also lost.

One fix would be to build additional battery storage. However, our analysis found that, while 24 (129MWh) batteries could help, this could cost over a £1bn[iv]. Even then, this may still be insufficient, with some periods of concurrent capacity shortfalls lasting over four days and a remaining opportunity cost of not being able to export excess supply in some periods. Bulk transmission is likely to continue to be the most cost-effective solution for consumers who desire broad choice in their energy mix.

3. Providing flexibility for electricity system operation

With greater levels of decentralisation and decarbonisation comes greater reliance on solar and wind power, as well as interconnection with neighbouring markets. Large volumes of power supply driven by weather and foreign market forces have the potential to drive large power swings on the system. Very different from the uni-directional flows of the past.

In our analysis, we see interconnector-driven power swings on the South coast transmission network of 12GW from 6GW import to 6GW export in just 3 hours by 2030 – completely unprecedented! Realistically only transmission has the scale and robustness to ensure this doesn’t cause asset overloads and major operability issues; making sure consumers get the reliability they expect.

In our decentralised world, we tested transmission need to the extreme and showed that, while its role will evolve, much like the past it will remain critical in delivering fundamental benefits to consumers.

This is our view as transmission owner on the pivotal role transmission networks will continue to have in the future.

We’d love to hear your thoughts on our analysis and on the future role of transmission. I would encourage you to engage with our discussion document on the future of networksor join one of our webinars.

[i] Data from 2018 Future Energy Scenarios
[ii] Reuters: Tesla’s big battery races to keep South Australia’s lights on
[iii] Source: Bloomberg New Energy Finance
[iv] Our cost estimate was 300-450 £/KWh for large scale storage, using today’s prices