Kintyre Hunterston Link. The upgrade of grid access in Kintyre

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1 The upgrade of grid access in Kintyre

2 About us Scottish Hydro Electric Transmission plc (SHE Transmission), part of Scottish and Southern Energy Power Distribution (SSEPD), is the licensed electricity Transmission Owner (TO) in the north of Scotland (Figure 1). SHE Transmission owns the 5,000km high voltage electricity network of underground cables and overhead lines that serves customers in the northern part of Scotland, and connects to central and southern Scotland and the rest of Great Britain. SHE Transmission is responsible for maintaining and investing in this transmission network, which serves around 70% of the land mass of Scotland. Electricity transmission businesses like SHE Transmission are natural regional monopolies. As a result, they are regulated by Ofgem through a price control. Amongst other things, this determines the amount of revenue they are able to earn from network users and the framework for the capital investment they are able to spend in maintaining and developing the network As part of this process, Ofgem has accepted SHE Transmission s Business Plan 2 which sets out, amongst other things, our expected network expansion over the coming decade. This expansion is primarily to facilitate the substantial increase in renewable generation in the north of Scotland and hence to support the growth of the low carbon economy. Whilst we have some specific forecasts of what reinforcements will be required, we recognise that the exact size, timing and location of new renewable generation is uncertain. As customers pay for investment in the transmission network, it is important that we ensure investment is made at the right time rather than too early or too late. In order to manage this uncertainty, we have agreed with Ofgem, to submit each large reinforcement project for funding at the point which we are satisfied that the project is required and can be delivered. It is then for Ofgem, on behalf of customers, to review our analysis and determine whether or not funding for the project should be allowed. Ofgem are in the process of finalising the next price control, which runs from 1 April 2013 to 31 March 1 Link to Ofgem s RIIO-T1 Final Proposals: r=networks/trans/pricecontrols/riio-t1/conres 2 Link to SHETL s RIIO-T1 webpage: Page 2

3 This process is called the Strategic Wider Works mechanism. It applies to all projects in the SHE Transmission operating area that cost more than 50 million. We have separately agreed with Ofgem how much we are allowed to spend on our other activities such as our day-to-day operations and providing customer connections. One such Strategic Wider Works project, which is described in our Business Plan, is the Kintyre Hunterston Link, which will provide additional transmission capacity and strengthening of the network in Kintyre. We believe that there is now a strong case that this project is required and, as such, are commencing the funding determination process with Ofgem. We expect Ofgem to reach a view on whether to allow funding for the project in summer This document explains the reasons we are proposing to build the and we are seeking feedback from our customers and wider stakeholders. Our contact details can be found on page 16. Figure 1: Transmission areas in GB Page 3

4 Contents Project overview 05 Why are we proposing to build the link? 07 Economic appraisal why invest now? 12 Deliverability 17 Page 4

5 Figure 2: Proposed Kintyre-Hunterston Link Project overview We propose to reinforce the transmission system in Kintyre by establishing a twin 220kV AC subsea link between Crossaig in Kintyre and Hunterston in Ayrshire (Figure 2). This link will require a new substation at Crossaig and 13km of new 132kV overhead line between Crossaig and Carradale. The existing 132kV overhead line between Crossaig and Carradale will be dismantled, following commissioning of the subsea link. The need for this reinforcement is driven by the growth of renewable generation in Kintyre and the growing stress on the existing transmission network in the area. We have already connected or contracted 454MW of generation and we foresee around 170MW of potential additional connection applications on the near horizon. During the pre-construction phase of this project, we have assessed a number of different technical solutions, routes and delivery dates. This assessment included micro-siting, pre-construction scoping, environmental and marine analysis and we undertook substantial public consultation during that period. Potential solutions included a 275kV rebuild of the 176km existing overhead line from Carradale to Windyhill, and also considered a variety of different configurations of subsea link from Crossaig to Hunterston. After extensive assessment, the proposed reinforcement comprises - 2 x 220kV 240MVA AC subsea cables from Crossaig to SP Transmission s existing substation at Hunterston; A new 132/220kV substation, including Quad Boosters, at Crossaig; Construction of 13km of new 132kV double circuit overhead line between Crossaig and Carradale; and, The dismantling of the existing 132kV overhead line between Crossaig and Carradale. Taking into account the requirements of both connected and committed generation, and the practical deliverability of the project, we believe that the optimum timing for delivery of the link is Q This is the forecast availability date for the assets, although construction will continue until early 2017 to complete subsea cable burial works, dismantling of the existing overhead line and land-based reinstatement works as appropriate. The project is largely located in SHE Transmission s licensed area but 3.5km of land cable and associated substation works are located in SP Transmission s Page 5

6 licensed area at Hunterston. SP Transmission will be completing the required works in their licensed area. We estimate the capital cost of providing this transmission reinforcement to be in the region of 230m, including SP Transmission s works around Hunterston. There are a number of drivers for this project and these drivers have informed our final technical solution. The following sections describe these drivers, the economic appraisal based on these drivers and deliverability considerations. Page 6

7 Why are we proposing to build the Kintyre-Hunterston Link? The project to reinforce the transmission system in Kintyre is driven, primarily, by the need to relieve the growing pressure on the local network and to support the growth of renewable generation in the region. 1. To comply with the national standards The transmission network across GB is required to comply with electrical planning standards set out in the National Electricity Transmission System Security and Quality of Supply Standards (NETS SQSS). These standards came into effect in 2005 when transmission network in Scotland was harmonised with the network in England and Wales and cover design requirements for the transmission network in respect to connecting generators and serving demand. At that time, it was recognised that, due to the historic design and operation of the network and the increasing volume of renewable generation in the area, the transmission network in Kintyre did not meet the new NETS SQSS standards. However, rather than immediately reinforce the network, SHE Transmission, in consultation with Ofgem and National Grid, proposed that the most cost effective approach would be to temporarily allow derogation from the NETS SQSS and to operate the system safely outside the planning standards. It was agreed to allow a limited volume of renewable generation to connect, over and above that which would be allowed under the standard, thereby deferring reinforcement until such time that reinforcement became absolutely necessary. The alternative to allowing this derogation would have been to commence construction of the proposed Kintyre-Hunterston link several years earlier, thereby imposing costs on consumers earlier than was necessary. Recognising that this proposed solution was the most economic approach to developing the network in Kintyre, Ofgem granted SHE Transmission derogation from the NETS SQSS in 2010, subject to timely development of the Kintyre-Hunterston Link. The construction of the Kintyre-Hunterston Link will return the network to the GB standard and the existing derogation will no longer be required. 2. To avoid expensive constraints At present the Kintyre network accommodates 278MW of connected generation with a further 176MW due to connect before the end of This 454MW of connected and contracted generation is beyond the maximum that the existing network can Page 7

8 accommodate and therefore reinforcement is now required. will increase year on year from 2015/16 if the link is not constructed. When generation is unable to fully access the transmission network due to a lack of available capacity, the generation is said to be constrained. There are costs associated with constrained generation (constraint costs), which come from funding the compensation which must be paid to generators who are prevented from fully accessing the network. These costs are ultimately paid for by consumers. Given that the connected and contracted volume of generation is already beyond the maximum capacity of the network, some of the contracted 176MW of generation will not be able to fully access the system, and will be constrained, if the reinforcement is not complete by the end of The cost of these constraints has been factored into our economic appraisal of the proposed reinforcement via the cost/benefit analysis developed by our consultants, Sinclair Knight Merz (SKM). While this will be discussed in more detail later on, our evidence shows that the cost of these constraints in 2015/16 could be in excess of 18m (SKM forecast). As more generation connects, these costs Completing the proposed reinforcement will avoid these constraint costs as well as returning the network to the GB standard. 3. To allow new renewable generation to connect We have considered the current derogation on the Kintyre network and recognise that the existing volume of connected and contracted generation is already greater than the network can accommodate by the end of 2015, thereby leading to substantial costs to the system. However, there is a significant volume of new renewable generation in the region which seeks connection to the transmission network. The area around Kintyre has an abundance of renewable resources and particularly lends itself to hydro, marine and wind generation schemes both large and small, including community schemes. Argyll and Bute Council, who are responsible for consenting generation schemes in the area, have a very proactive approach to renewable generation. In particular, they have developed a Renewable Energy Page 8

9 Action Plan 3 which outlines their vision for the development of renewable generation in the area. Through this plan and their approach to renewable generation, Argyll and Bute Council have a large volume of renewable generation currently working its way through the consenting process, and there is even more generation in pre-application stage. Although these schemes have not yet applied for connection to the network, given the potential volume and its progress in the consenting process, we consider that it is prudent to take this information into account when developing our best view of future generation in Kintyre. can accommodate, and, in addition to this, there are a number of developers who are in process or preapplication stage with Argyll and Bute Council - Potential connections requiring consent 157MW consent submitted but not determined 271MW consent in pre-application or scoping 365MW consent in pre-scoping Although we do not expect all 793MW of this preconsent generation to connect, it is clear that there is significant renewable generation interest in this region. The current portfolio of generators who are either connected or contracted to connect in Kintyre is as follows Generators connected or contracted 278MW connected 152MW contracted and consented 24MW contracted and pre-consent This 454MW of connected and contracted generation is already more than the existing network in Kintyre 3 Argyll and Bute Renewable Energy Action Plan 2010 to 2013 Powering Scotland s Future, The Kintyre-Hunterston Link will provide approximately 150MW of additional transmission capacity which will resolve the forecast constraint situation and allow new renewable generators to connect to the transmission system. 4. To reduce the cost of system operation and improve reliability of electricity supply to customers In addition to allowing additional renewable generation to connect (which is discussed further in the next section), reinforcing the network in Kintyre provides benefits both to how the system can be Page 9

10 operated and to customers located in Kintyre and the wider Argyll region. At present, the network in Kintyre is a radial design, which means that electricity is transmitted to users in the area by a single branch of the wider network running from the north. This design limits SHE Transmission s ability to take the branch out for maintenance as it is the only way of transmitting electricity to Kintyre and, in some cases, taking the branch out might mean that our customers lights would go out. By constructing the subsea link from Crossaig to Hunterston, the network on the Kintyre peninsula becomes part of the wider interconnected network and Kintyre can then get electricity from both from the north and also from the east via the subsea link. Connecting the Kintyre network to the wider interconnected network in both the north and east means that SHE Transmission can more easily take parts of the network out for maintenance, without having to risk taking a large number of customers off supply. Additionally, in the unlikely event that a significant transmission fault did occur in the south west of Scotland, due to extreme weather for example, the connection of the Kintyre network to the wider network would mean that there are more options for ensuring that electricity can still be transmitted to the region. Rather than the current one way in and out arrangement, there would be several routes along which to transmit electricity in the event of a significant fault and therefore customer supplies are less likely to be affected. 5. To meet stakeholders expectations for the development of Kintyre While there are a number of key drivers for the Kintyre-Hunterston Link, it is important to ensure that the reinforcement aligns, as far as possible, with the development plans of key stakeholders in the region. Argyll and Bute Council have taken a very proactive approach to encouraging renewable generation in their area. The establishment of their Renewable Energy Action Plan sets out their plans for the development of renewable resources across the region. They recognise, in particular, the importance of improving grid access in the region to facilitate the connection of new renewable generation. A key objective of their Renewable Energy Action Plan is in the theme of Connected Argyll and Bute where the council commit to - Page 10

11 Work with Highlands and Islands Enterprise, Highlands and Islands Transmission Network, Scottish and Southern Energy (Power Distribution) and Scottish Government to secure the development of the grid to secure the delivery of the proposed Hunterston to Carradale sub sea cable link as detailed in the NPF 2 Action Programme. They also recognise the impact if the project is not developed Argyll and Bute cannot realise its renewable potential and potential investors go elsewhere. Do not make an optimal contribution to the GES, RAP and Climate change targets. It is clear both from the volume of renewable generation in the planning pipeline and on consideration of Argyll and Bute Council s Renewable Energy Action Plan, that the Kintyre- Hunterston Link is the key to facilitating the connection of renewable generation in the region. Page 11

12 Economic appraisal why invest now? We have identified the key drivers for investment in the Kintyre network Returning the network to GB standards; Avoiding the high constraint costs which will occur in 2015; Providing additional transmission capacity for new renewable generation in the region; Securing the network for consumers; and, Aligning with the development plans of stakeholders in the region. However, it is important to assess the optimum timing for the project to ensure that we don t make an investment in the network too early or too late. The assessment of optimum timing is accomplished through a cost/benefit analysis this analysis ultimately answers the question, Why are SHE Transmission proposing to make the investment now? The project returns the network to the GB standard, thereby relieving system constraints, and provides around 150MW of additional generation capacity in Kintyre. In view of this, the cost/benefit analysis has been established on the balance of the cost of investment, the reduction in system constraint costs and the benefits of the provision of additional transmission capacity. Current constraint assessment In the first instance, it is important to understand the impact of a do nothing approach. By 2015/16, the existing connected and contracted generation in the area will cause significant system constraints. Although we cannot assess precisely the value of these system constraints (as this is the role of the system operator, National Grid), we have, in conjunction with our consultants, SKM, developed an approximation upon which our economic appraisal is based. Our best view projection for the system constraint costs in 2015/16, which will occur if there is no reinforcement to the transmission system, is approximately 18m. National Grid, in the role of system operator, has recognised the potential for high system constraint costs in this period and they support the proposal to reinforce the network. Although we expect our proposed reinforcement, including the works required by SP Transmission at Hunterston, to cost around 230m, we have completed our cost/benefit analysis based on a slightly higher cost to ensure that the analysis is appropriately stretch tested. Our base case analysis Page 12

13 has been developed with an assumed upper limit reinforcement cost of 250m. To compare the cost of the link with the cost of constraints, it is necessary to convert the cost of the link into an annual cost. Having done this, and taking into account our assessment of system constraint costs of 18m in 2015/16, we consider that the project demonstrates value for the consumer at the current level of contracted generation in Kintyre. In other words, given the current generation profile, in order to relieve system constraint costs and to provide NETS SQSS compliance for the Kintyre network, we consider that the transmission reinforcement is a prudent investment at this time. Benefits for future generation The current connected or contracted generation volume in Kintyre is 454MW, split into - 278MW connected 152MW contracted and consented 24MW contracted and pre-consent The constraints assessment above is based upon the effect of that 454MW on the existing system and our economic analysis demonstrates that the prudent course of action is to proceed with the reinforcement as proposed. However, along with avoiding constraint costs and securing the network in Kintyre, the reinforcement also provides an upside of around 150MW of additional generation capacity in the region. As previously mentioned, Argyll and Bute Council have a proactive approach to renewable generation and, as a result, have approximately 793MW of generation in the planning pipeline (as at September 2012). Taking our best view analysis of this future generation, we estimate that around 170MW of this generation will progress to connection in Kintyre. This brings the total connected generation in the region to 624MW by 2019/2020. While the proposed reinforcement delivers benefits at the current generation position, the economic analysis demonstrates significant additional benefit when the projected future generation connects. The lifetime net benefit of the proposed reinforcement is forecast to be around 520m. Stretch testing the reinforcement costs Although we estimate the overall reinforcement costs to be in the region of 230m, we have based our economic appraisal on an upper limit cost of 250m. We have completed some additional analysis on the impact of increasing the cost of the project further Page 13

14 and this demonstrates that even at a 30% increase in the upper limit estimate (from 250m to 325m), the reinforcement delivers lifetime net benefits of around 444m. Our conclusions on the economic appraisal The key findings from our assessment which support the case for proceeding with the reinforcement as proposed are as follows - An assessment of the cost of the reinforcement versus the forecast constraint costs, even if no additional generation were to connect beyond the current connected and contracted volume, demonstrates that the reinforcement delivers value to consumers; Even if only 20% of the overall generation currently in the planning pipeline with Argyll and Bute Council connects as forecast, the reinforcement delivers lifetime net benefits of around 520m; and, Even if the capital cost of the reinforcement were to increase by 30% over the upper limit estimate, the reinforcement delivers lifetime net benefits of around 444m. As such, we believe that proceeding with this reinforcement as proposed is the most economic and efficient solution. Page 14

15 Deliverability Any project to construct transmission infrastructure in the north and west of Scotland must take into account the environment, both from the perspective of the project s impact on the environment and the environment s impact on the project. There are some key considerations for the construction of the Kintyre Hunterston link, including The subsea cable route from Crossaig to Hunterston is through particularly deep water, which makes the laying activity challenging; The remote nature of much of the overhead line route and the substation site in Kintyre makes access challenging, particularly in the winter months; and, Environmental considerations, particularly in respect to bird activity in Kintyre and fisheries in the Clyde, constrain the construction programme to certain months throughout the year. These considerations are amongst the wide range of risks assessed, and mitigated where possible, when developing the construction programme. Additionally, the programme must also take into account Planning consents and conditions; Supply chain constraints; and, The alignment of the works to be completed by SP Transmission around Hunterston. Planning consents and conditions The Kintyre - Hunterston link is largely consented and the consenting process is ongoing for the required works in SP Transmission s area at Hunterston. Supply chain constraints The global requirement for subsea cable is particularly strong at the moment, which places constraints on the supply chain availability. However, this project has been tendered and the planned asset availability date of Q is based on our current best view of the supply chain. SP Transmission works around Hunterston The SP Transmission works require to be aligned both with the SHE Transmission programme for cable installation and, additionally, with SP Transmission s work on their Western HVDC project at Hunterston. Our programme of works recognises these dependencies and joint working arrangements have been developed in conjunction with SP Transmission. Page 15

16 Having considered these risks and constraints and factored them into the construction programme, we expect to deliver an operational reinforcement in Q4 2015, with further reinstatement works being completed through to March Page 16

17 Stakeholder contact We would welcome feedback on our proposal. To provide comments, or for further information, please contact: Neil Anderson Communications Manager Inveralmond House Perth PH1 3AQ Page 17