Electric power transmission costs per kWh transmission / National Grid in the UK (note this excludes distribution costs)

Info from National Grid on Capex of UK Transmission system

( this would appear to confirm that transmission charges are based on replacement costs, not written down / depreciated.

I’m not an accountant / economist but if you divide the £11.5b over say 30 years repayment and add in the 4.5% and divide by kWh delivered (4 x 10exp11)  you should get an approximation of the kWh cost of the transmission – I get ( 0.09 + 0.115 ) = 0.2 p/kWh delivered as the amortised capital cost of the transmission per kWh.

Can any one do an better calculation?

Lower down Dr Czisch shows that the cost of the european supergrid is about 0.4p/kWh.

So much for renewables imposing large costs due to the need to increase invetment in transmission costs over and above the connection costs of a given project which are paid for by the developers.

Admin)

———- Forwarded message ———-
From: Duffield, Mark, National Grid
To: dave andrews

Dave

I’m afraid how Transmission Charges are formed isn’t my area of expertise, however from what I have been able to discover this afternoon, our Transmission Network Use of System Charges recover our Maximum Allowable Revenue (MAR) each year, which is set at each Transmission Price Control Review.  The last such was agreed in December 2006 – details are in the following press release – note that all the figures in this are for the combined gas and electricity transmission businesses:

http://www.nationalgrid.com/NR/rdonlyres/DA5D5158-AF7E-4803-A49F-B791451A6C2C/13654/NGTPCR4overview15DEC06FINAL.pdf

The MAR is calculated using a number of variables.  It looks at forecasts of capital expenditure, operational expenditure, tax, pension costs etc.  I am still uncertain as to the exact process, however my very heavily caveated view is that this is how it is calculated, the heavy caveat being that this may not be correct!

Regarding Capital Expenditure (“CapEx”) a Regulatory Asset Value (RAV) is set at the start of each price control review period, which equates to the asset value in current terms of all regulated assets owned by the National Grid transmission business (£8.9billion as of 1 April 2007).  The RAV is then adjusted year on year by for example adding forecast expenditure on assets, subtracting the depreciation of existing assets in the ground and adjusting for inflation.  This then gives a year on year profile for the RAV.  In the attached you can see it rising from approx £8billion in 2005/06 to approx £11.5billion in 2011/12.  National Grid is then allowed a return on this which is currently at 4.4% in post tax real terms.  This return is then added to our operating expenditure allowances and those of the other allowances (e.g. tax and pensions) set by Ofgem to give our Maximum Allowable Revenue, which we then charge to those connected to and/or using our transmission system.

If you need a more expert opinion then I suspect your best option is to email charging.enquiries@uk.ngrid.com and someone who is more of an expert on all of this will hopefully get back to you!

Hope this helps

Mark

Mark Duffield

Senior Account Manager

Contracts and Settlements

UK Transmission – Network Operations

National Grid

National Grid House

Warwick Technology Park

Gallows Hill

Warwick CV34 6DA

Internal: 7474 4971

External: +44 (0)1926 654971

Mobile: +44 (0)7881 903184
From: dave andrews

To: Gregor Czisch

Gregor – ah yes but i was only looking at what would happen within the UK – ie disregarding any super grid – so I think my figure is a reasonable estimate of what you might have to do with no extra interconnectors – ie a piffling amount.

As to your figure, which I am sure is the right way to go, what you are saying is that the capital cost of your supergrid is a mere 0.5 €ct/kWh.- is that correct? – another piffling amount.

Of course if we built your supergrid, then you would not need much of an upgrade of internal UK transmission presumably becasue you would design the supergrid connection nodes around the optimum connection points?

By the way, I am sure the UK national grid has to charge on replacement costs – not written down or depreciated costs.  (Mark D are you able to confirm this please?)

Kind regards

Dave Andrews

On 9 February 2010 11:17, Dr. Gregor Czisch

I think your calculation is a bit simple since the transmission system has an age of many decades and therefore is depreciated or written off (I am not sure how to say this correctly in English.) New AC systems are more expensive – meaning specific costs of capacity – than HVDC.

In the long run the grid capacity might have to be much more than doubled. Therefore HVDC is the appropriate means. In my base case scenario the transnational HVDC-Supergrid is used to transport 42% of the whole electricity between the countries and causes 11% of the total costs of electricity (before it is fed into the national AC-grids). 11% = 4% (cost of losses) + 5% (cost of overhead lines and cables) + 2% (cost of HVDC converters). So the costs for this part are around 0.5 €ct/kWh. This is for the fully optimised electricity supply according to my base case scenario. In a real world everything might be a bit less optimal. But on the other hand the scenario is based on some very conservative intrinsic “assumptions” (No cost reduction of renewable technology and HVDC technology, the best sites for production unknown, low relation between rotor diameter and rated capacity of wind mills … ). Furthermore, since the electricity could be fed into the AC grid at the most appropriate places the use of the existing AC grid might be much better than today. But this needs planning and I do not see that there is any coherent strategic planning in the field of renewable electricity supply.

Am 09.02.2010 11:01, schrieb dave andrews:

This means therefore, that even if say the grid were doubled to deal with renewables (which it wouldn’t) it would add a max of about 0.8p/kWh.  In fact it would be less since the transmission charges include money for grid access and grid exit points which would not need to be upgraded. (I think?)

Kind Regards

Dave A

On 9 February 2010 09:42, Dr. Gregor Czisch

This is also roughly the cost of the current transmission in Germany. It already includes the costs or redispatching power plants because of grid caused reasons. (The distribution is much more expensive.)

Am 08.02.2010 19:58, schrieb dave andrews:

Bernard – am I correct in interpreting your excellent paper    Typical Power Distribution and Transmission Costs

indicates that the entire cost of the transmission system is about 0.7p/kWh/

Thanks

Dave