k network management activities, such as inspections, maintenance and investment are carried out in Operational Production Groups; and k there is a strong emphasis on work
being in-sourced and carried out by directly-employed people.
Operations – customer service reward scheme
In August 2009, SSE received an award of £200,000 under Ofgem’s Customer Service Reward Scheme 2008/09 ‘in recognition of the breadth of its corporate responsibility programme which was seen to go beyond core business drivers’.
Electricity network investment and RAV growth
The key responsibility of SSE’s electricity networks businesses is to maintain safe and reliable supplies of electricity and to restore supplies as quickly as possible in the event of interruptions. The Distribution Price Control Review for 2005-10 resulted in substantially increased allowances for capital expenditure to maintain and improve the networks’ performance. By earning a return from this investment, SSE is able to increase its revenue from the networks and the efficient delivery of this enhanced investment programme was one of its priorities for 2009/10. Investment is focused on renewing SSE’s networks, which were largely built in the 1950s and 1960s, and thereby reducing the number and duration of
SHEPD 17 SEPD 35 SHETL 8
SGN (50% share) 40
power supply interruptions. It is also geared to providing the infrastructure to accommodate customers’ demand for power. Capital expenditure in the electricity networks during 2009/10 was £334.5m (comprising £274.8m in distribution and £59.7m in transmission). In the 2005-10 electricity Distribution Price Control period, SSE invested £1,084.8m in its distribution networks (which excludes metering) and a further £208.1m in its transmission network. This represents an 88% increase compared with the previous Price Control, 2000-2005.
One feature of the 2005-10 Price Control that was widely welcomed was the ability to place under ground electricity lines which were previously overhead, to help restore views in national parks and areas of outstanding natural beauty. For example:
k in early 2010, SSE engineers removed a 30 metre electricity pylon in Langstone Harbour as part of a £1.6m project to remove 700 metres of overhead line from the harbour and from the road linking Langstone with Hayling Island and replacing it with under ground cabling – the area is a Site of Special Scientific Interest; and
k in the autumn of 2009, SSE placed under ground 500m of cable to replace an overhead line at Sligachan on Skye, thus enhancing the classic view from Sligachan Bridge towards the Cuillins.
The need for further significant investment in Great Britain’s electricity distribution networks, to maintain and/or replace ageing assets or to provide additional capacity was a key feature of the electricity Distribution Price Control for 2010-15 and it allows for total investment of £14bn in the networks over the next five years. For SSE, this is likely to mean investment of around £210m in its distribution networks in 2010/11.
Distribution Price Control review 2010-15
In December 2009, SSE decided, on balance, to accept Ofgem’s final proposals for the electricity Distribution Price Control for the five years from 1 April 2010 in respect of Scottish Hydro Electric Power Distribution and Southern Electric Power Distribution.
SSE assessed Ofgem’s final proposals against the combined impact of three key criteria:
k the scope to earn additional revenue through operational efficiency and excellence;
k the treatment of ongoing pension costs; and
k the allowed return for shareholders as measured by the weighted average cost of capital.
On its own, the headline-allowed weighted average cost of capital contained within the proposals (4.0%, on a post-tax, real return on capital basis) would not be enough to provide an adequate return on investment in electricity distribution or transmission. In addition to the cost of capital, however, Ofgem’s proposals contained enhanced incentive mechanisms in areas such as customer service. They also reduced further the level of risk associated with energy network businesses by ensuring that the volume of electricity distributed will no longer affect companies’ income.
The overall package should, therefore, allow SSE, the most efficient operator in Great Britain, to add to the return it earns from its electricity distribution assets by delivering good operational performance and innovations in network management. Examples of SSE’s activities which should support the achievement of a sufficient return include:
k dynamic line rating that allows the overhead line network to be operated to its maximum capacity rather than to constraints based on design assumptions;
k protective coatings and enhanced condition assessments that allow the life of assets to be extended without risking performance degeneration; and
k trench-less cable-laying technology, which reduces the public disruption and costs associated with cable-laying. In addition, SSE will seek to secure a significant proportion of the new £500m Low Carbon Network Fund, designed by Ofgem to support larger-scale trials of advanced technology, including smart grids. It will also seek to manage effectively the new arrangement under which 100% of support costs are deemed to be expenses and 85% of network costs are deemed to be capital, with associated output measures in place.
Smart grids
SSE and Smarter Grid Solutions Ltd have commercially deployed smart grid technology on SSE’s power distribution network on Orkney, allowing the connection of 15MW of extra new renewable energy generation, an increase of one third, with the potential for this to grow further. The Orkney Smart Grid is based on the principle that capacity exists in real-time on the power distribution grid due to variation in demand for electricity and diversity in the output of grid- connected generators. This innovative smart grid technology permits greater numbers of renewable generators to be connected to the existing electricity network, in a cheaper and faster way than traditional means, by allowing generators to access power network capacity not normally available under conventional network planning requirements. Smart grid technology has the potential to improve significantly the efficiency of the electricity distribution and transmission networks in the UK and this deployment provides a blueprint for how smart grids can be used to connect high penetrations of renewable generation in a cost effective way and resolve grid congestion as a result. The connection of similar levels of renewable generation on Orkney by the conventional means of network reinforcement would have cost around £30m, compared with smart-related costs of less than £1m. In other words, the total cost of developing and delivering this innovative solution has been substantially cheaper and much faster than the alternatives.
Energy network regulation – future developments
In January 2010, Ofgem published its ‘Emerging Thinking’ document on the
future of electricity and gas network regulation. It suggests that the RPI-X price control mechanism needs to be changed as it will not be able to cope with the pace, uncertainty and scale of change needed to deliver sustainable energy supplies for customers. The document’s proposals are designed to change the focus of regulation from companies’ costs to looking more at what companies can deliver in terms of reliable networks, safety and investment to support low-carbon generation and meet the needs of customers. This approach builds on the electricity Distribution Price Control 2010-15, and could amount to a form of contract between Ofgem and the regulated network company, with the emphasis on delivery of certain key outputs. Ofgem is consulting on its ‘emerging thinking’ before more ‘concrete and detailed’ proposals are published in the summer of 2010.
Electric vehicles
Electric vehicles will be an essential part of the move towards a low-carbon transport infrastructure. The next decade is likely to see a significant uptake of such vehicles, which some reports have suggested could reach around 1.5 million in the UK as early as 2020. They also have the potential to influence dramatically the demand profile and quantity of electricity required by customers, and will impact on all aspects of SSE’s business, including electricity distribution.
For this reason, SSE is taking part in the Technology Strategy Board’s Ultra Low Carbon Vehicle Demonstration (ULCVD) project, which consists of eight consortia bringing over 300 vehicles to trial. The two consortia in which SSE is involved are with:
k BMW UK Ltd, Oxford Brookes University and the South East England Development Agency: 40 MINI E vehicles are being trialled by members of the public, SSE employees and fleet users in southern England. SSE has installed 32 Amp domestic charging facilities at the homes of the drivers, together with the smart metering to gather usage data. SSE is also installing public charging posts at selected locations; and k Ford, Strathclyde University and
the London Borough of Hillingdon: 20 prototype electric vehicles are being introduced and SSE will be providing the private and public charging infrastructure.
When their numbers become significant, electric vehicles could change greatly the volume and pattern of electricity demand, and it is for this reason – in addition to supporting the low-carbon objectives behind them – that SSE is so actively involved in the ULCVD project.
Future transmission developments
Scottish Hydro Electric Transmission