Contractors ready for renewable energy boom

With the planned changeover of our electricity system to one based on renewables and nuclear, workloads in the UK remain buoyant. And the next few weeks will provide important clues to network infrastructure spending, explains Janet Wood.

Investment in the UK's electricity networks remains buoyant, despite the economic downturn. That is partly the nature of regulated businesses: companies are required to complete the spending programmes that are set over each five-year period – if not, they face the regulator Ofgem.

But add to that a Government commitment to the EU to switch our electricity system to one based on renewables, in less than a decade, and it is clear that massive investment will be required.

National Grid has said that it is investing £2.5bn annually into its electricity network in England and Wales, and it expects that to continue.

With the Government's strategy for meeting its renewables commitment not yet finalised, the UK is in an interesting position: huge extension of the high- and low-voltage electricity networks will certainly be required – and soon. But where and how is unclear.

The extent of the investment should begin to become clear later this month. That is when National Grid and other transmission system owners (Scottish Power, and Scottish and Southern Electricity) will submit their assessments of the networks required to support the energy revolution to the industry's Electricity Networks Strategy Group.

Urgent expansion

Regulator Ofgem has already signalled that it accepts the urgency of the network expansion and it says proposals to speed up investment, by giving transmission network owners more freedom to invest ahead of need, are under discussion.

Even ahead of that change, additional funding may be made available for some of the most urgent projects.

Chris Bennett is future energy networks manager at National Grid Electricity Transmission. He says his company has developed a range of scenarios for the long-term future of the network. They vary widely, but there are at least five areas that arise in every scenario.

These are key to any expansion, and preparatory work must begin this year. These "no regret" projects are:

• New links between Scotland and England. New infrastructure will be required to bring power from wind farms in the north of Scotland. Bennett names Hunterston to Deeside as the first on that list (aside from Scotland's key Beaully to Denny line, which is still in the planning process). A second route on the east coast, from Peterhead to County Durham, is likely to follow.
• Strengthened links from Wales. Wylfa in Anglesey now seems a likely site for new nuclear - it has already been named by one consortium – and power from offshore wind is also likely to be brought ashore here. Upgraded transmission lines will be required. Upgrades will also be required in mid-Wales, where there are no suitable transmission lines to export power from planned wind farms.
• More capacity on the east coast. This will be required to handle extensive offshore wind off the coast of East Anglia and in the Wash, plus likely new nuclear at Sizewell and possibly Bradwell.

Bennett says investment this year is in the "millions, not billions" range, including technical studies and sea-bed surveys – but it can't start too early.

As the industry gears itself up for major change, it is still managing "business as usual". On the transmission network, National Grid, Scottish Power and Scottish and Southern are more than two years into the current five-year price control period and high-level relationships are firmly in place.

Alliance contracts

National Grid has signed "alliances" with a suite of companies (see list below) for both new-build and replacement work.

The alliance contracts were signed in March 2005, after similar alliances had been in place for two years to manage its gas networks.

Martin Grant is managing director of energy and power at Atkins, which is an Alliance partner in the midlands. He has seen similar long-term alliances employed in the oil and gas industry where they were successful, but their use has declined after relationships within one or two contracts soured.

The alliance arrangements clearly limit the field of operation, both for those outside the fold and those inside. Grant says his company "would not think of looking outside our area" for new projects.

The alliance has to be carefully built, he says, and "both parties have to have some skin in the game". Two years into the agreement with National Grid he says the long-term nature of the agreement has given both sides stability and longevity.

However, he says that has required considerable investment during the contract, "not financial, but it does take a lot of investment in management time. You take on their management problems as well."

Distribution networks

Grant adds that the structure may be replicated at the distribution level, where some of the distribution network operators (DNOs) may set up similar alliances.

That will become clear when DNOs have submitted their plans for the next five-year price control period, due to begin next year, to Ofgem. That is imminent: DNOs have until 15 February to submit detailed spending plans to the regulator.

With both a long-term strategy for investment in transmission networks and detailed spending plans for distribution networks due, the coming month will set the pattern for investment in electricity networks for many years to come.

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National Grid's Electricity Alliance partners

• ABB
• Amec
• Areva
• Atkins
• Babcock
• Balfour Beatty
• Jacobs
• Mitsubishi Electric
• Morgan Est
• Morrison
• MottMacDonald
• Murphy
• PB Power
• Siemens
• Skanska

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Are you counting carbon?

From April most of the electricity supply industry will be signed up to the Carbon Reduction Commitment (CRC) - a carbon-cutting measure that ranks companies across a raft of industries on their carbon emissions.

Companies that cut their emissions year-on-year will be rewarded, while those which increase emissions will pay a penalty. Suppliers will be scrutinised on their green performance and this may translate directly into their scores when tenders are assessed.

The green message comes direct from the top, as National Grid shows. Asked how committed his company was to a "green" procurement strategy, the company's chief executive Stephen Holliday said National Grid wanted the message to get to its supply chain and eventually it would move to enforcing green practice on its suppliers.

He acknowledged that there was a question over how far that could go – would a company like National Grid examine its suppliers' manufacturing base, and their suppliers in turn.

"We have a responsibility to try to exert influence through our procurement practices," Holliday said, and he added that he would be "perturbed" if a major supplier was not already doing that.

Nor was he willing to say that National Grid would pay an extra premium for "green": he said that there were business benefits to taking that approach and suppliers should be aiming to compete on price.