storage resources should meet the needs of
the whole electricity system. A decentralised
electricity system may not be able to provide
adequate information to investors on system
needs, raising the risk of inefficient investment. A coordinated approach to investment
can mitigate this risk.
• Open-access, public data on system conditions and resources: Market participants need
access to market information to facilitate a
level playing field for competition. A data
exchange could be part of an efficiently
functioning energy system, but would need to
be both secure and accessible.
• Accommodate future innovations: Recent
innovations in electricity networks include
new network structures and peer-to-peer
electricity trading, which may offer significant benefits. These innovations can be facilitated through pilots and early stage funding.
(1) Strategic generation zones
The decarbonisation of electricity generation and
the wider energy system heightens the challenge
of planning and delivering network infrastructure. The amount of new transmission investment
needed will be more difficult to determine due to
greater uncertainty over the level of total electricity demand. This uncertainty is due to: (a) the
electrification of end-use sectors and improvements in the efficiency of electrical appliances;
and (b) peak demand, as flexible resources contribute to smoother generation and consumption
profiles. The degree to which generation will be
centralised, that is, connected to the transmission
network, will be difficult to forecast.
In many countries, renewable energy resources are located in areas that are distant from large
population centres, and thus require large-scale
transmission investment. For example, in the
UK, most electricity demand is located in the
south of England, while a large proportion of
onshore wind resources are located in Scotland
and offshore wind resources in the North Sea.
In a liberalised electricity system, investors in
generation and network investment face a coordination problem. While vertically integrated
utilities can plan generation and network
investment simultaneously, in a liberalised electricity system, generation and network investment are carried out by different institutions.
Generation investors face the risk that their revenues may be lower due to inadequate network
investment, and network investors face the risk
that generators will underuse their new network
investments. This can lead to underinvestment.
This coordination problem can be mitigated
with strategic generation zones. If a strategic
decision is made to exploit a large renewable
resource that is distant from large population
centres, generation investors may be given
incentives to invest there. This may require an
overarching strategic plan to be developed by an
institution, such as a government agency, with
sufficient authority to determine the location of
both transmission and generation investment. It
may also require a credible, long-term regime for
network connection to be developed to reduce
stranded asset risks for generators. For example,
in the UK, nine offshore wind farm zones of
varying sizes with the capacity to deliver 33 GW
were identified within British waters. The Crown
Estate, the statutory owner of seabed rights,
asked renewable energy developers to bid for
exclusive rights to develop offshore wind farms
within the zones. The Electricity Networks
Strategy Group, a high-level forum of key
stakeholders in electricity networks, including
the Crown Estate, then identified the key transmission investments needed to meet future
demand, given the expected location of future
generation. The areas identified by this exercise
are shown in Fig. 33.
(2) Markets for flexibility services
Decarbonisation will require flexible resources,
electricity storage and demand response, which
offer non-network alternatives to new transmission assets. Electricity networks are costly,
long-lived assets. Investment in them is made
with uncertainty over the future spatial and
temporal profile of generation and demand. It
will be increasingly valuable to substitute flexible
resources like electricity storage and demand
response for new network investments where
possible, or defer new network investments until
96
W. Xiaoming et al.
the whole electricity system. A decentralised
electricity system may not be able to provide
adequate information to investors on system
needs, raising the risk of inefficient investment. A coordinated approach to investment
can mitigate this risk.
• Open-access, public data on system conditions and resources: Market participants need
access to market information to facilitate a
level playing field for competition. A data
exchange could be part of an efficiently
functioning energy system, but would need to
be both secure and accessible.
• Accommodate future innovations: Recent
innovations in electricity networks include
new network structures and peer-to-peer
electricity trading, which may offer significant benefits. These innovations can be facilitated through pilots and early stage funding.
(1) Strategic generation zones
The decarbonisation of electricity generation and
the wider energy system heightens the challenge
of planning and delivering network infrastructure. The amount of new transmission investment
needed will be more difficult to determine due to
greater uncertainty over the level of total electricity demand. This uncertainty is due to: (a) the
electrification of end-use sectors and improvements in the efficiency of electrical appliances;
and (b) peak demand, as flexible resources contribute to smoother generation and consumption
profiles. The degree to which generation will be
centralised, that is, connected to the transmission
network, will be difficult to forecast.
In many countries, renewable energy resources are located in areas that are distant from large
population centres, and thus require large-scale
transmission investment. For example, in the
UK, most electricity demand is located in the
south of England, while a large proportion of
onshore wind resources are located in Scotland
and offshore wind resources in the North Sea.
In a liberalised electricity system, investors in
generation and network investment face a coordination problem. While vertically integrated
utilities can plan generation and network
investment simultaneously, in a liberalised electricity system, generation and network investment are carried out by different institutions.
Generation investors face the risk that their revenues may be lower due to inadequate network
investment, and network investors face the risk
that generators will underuse their new network
investments. This can lead to underinvestment.
This coordination problem can be mitigated
with strategic generation zones. If a strategic
decision is made to exploit a large renewable
resource that is distant from large population
centres, generation investors may be given
incentives to invest there. This may require an
overarching strategic plan to be developed by an
institution, such as a government agency, with
sufficient authority to determine the location of
both transmission and generation investment. It
may also require a credible, long-term regime for
network connection to be developed to reduce
stranded asset risks for generators. For example,
in the UK, nine offshore wind farm zones of
varying sizes with the capacity to deliver 33 GW
were identified within British waters. The Crown
Estate, the statutory owner of seabed rights,
asked renewable energy developers to bid for
exclusive rights to develop offshore wind farms
within the zones. The Electricity Networks
Strategy Group, a high-level forum of key
stakeholders in electricity networks, including
the Crown Estate, then identified the key transmission investments needed to meet future
demand, given the expected location of future
generation. The areas identified by this exercise
are shown in Fig. 33.
(2) Markets for flexibility services
Decarbonisation will require flexible resources,
electricity storage and demand response, which
offer non-network alternatives to new transmission assets. Electricity networks are costly,
long-lived assets. Investment in them is made
with uncertainty over the future spatial and
temporal profile of generation and demand. It
will be increasingly valuable to substitute flexible
resources like electricity storage and demand
response for new network investments where
possible, or defer new network investments until
96
W. Xiaoming et al.