• Coordinated investment in decentralised
resources: Investment in generation and
storage resources should meet the needs of
the whole electricity system. A decentralised
electricity system may not 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
a degree of 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.
• Accommodating future innovations: 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 capacity of new transmission investment will be more difficult to determine due to
greater uncertainty over the level of total electricity demand (due to electrification of end-use
sectors and improvements in the efficiency of
electrical appliances) and 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,
the majority of 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 are able to plan generation and network
investment simultaneously, in a liberalised electricity system, generation and network investment are carried out by different institutions. This
gives rise to a coordination problem, where
generation investors face the risk that their revenues may be reduced due to inadequate network
investment, and network investors face the risk
that generators will underutilise their new
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 size were identified within UK waters to
deliver 33 GW of potential offshore wind
capacity. 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 bringing together key stakeholders in electricity networks, including the
Crown Estate, then identified 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. 69.
570
S. Yaodong and A. Gillespie
resources: Investment in generation and
storage resources should meet the needs of
the whole electricity system. A decentralised
electricity system may not 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
a degree of 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.
• Accommodating future innovations: 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 capacity of new transmission investment will be more difficult to determine due to
greater uncertainty over the level of total electricity demand (due to electrification of end-use
sectors and improvements in the efficiency of
electrical appliances) and 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,
the majority of 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 are able to plan generation and network
investment simultaneously, in a liberalised electricity system, generation and network investment are carried out by different institutions. This
gives rise to a coordination problem, where
generation investors face the risk that their revenues may be reduced due to inadequate network
investment, and network investors face the risk
that generators will underutilise their new
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 size were identified within UK waters to
deliver 33 GW of potential offshore wind
capacity. 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 bringing together key stakeholders in electricity networks, including the
Crown Estate, then identified 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. 69.
570
S. Yaodong and A. Gillespie