National Grid 2015 Annual Report Download - page 10

Strategic Report
The electricity industry connects generation sources to homes and businesses
through transmission and distribution networks. Companies that pay to use
transmission networks buy electricity from generators and sell it to consumers.
What we do – Electricity
System operator
As system operator (SO) for England and Wales,
we coordinate and direct electricity flows onto
and over the transmission system, balancing
generation supply and user demand. Where
necessary, we pay sources of supply and demand
to increase or decrease their generation or usage.
We have the same role for the two high voltage
electricity transmission networks in Scotland
andwe are SO for the offshore electricity
transmission regime.
Our charges for SO services in the UK are subject
to a price control approved by Ofgem. System
users pay us for connection, for using the system
and balancing services.
As electricity transmission SO, our price control
includes incentives to minimise the costs and
associated risks of balancing the system through
buying and selling energy, as well as procuring
balancing services from industry participants.
In the US, similar services are provided by
independent system operators.
1 Generation
Generation is the production of electricity from fossil
fuel and nuclear power stations, as well as renewable
sources such as wind and solar. In the US, we own
and operate 50 fossil fuel-powered stations on
LongIsland and 4.6 MW of solar generation in
Massachusetts. We do not own or operate any
electricity generation in the UK.
We sell the electricity generated by our plants on
Long Island to LIPA under a long-term power supply
agreement. The contract allows us to recover our
efficient operating costs and provides a return on
equity on our investment in the generation assets.
For solar generation, we recover our costs and a
reasonable return from customers in Massachusetts
through a solar cost adjustment factor. This is added
to the electricity rate, net of revenues earned from the
solar assets.
2 Interconnectors
Transmission grids are often interconnected so
thatenergy can flow from one country or region to
another. This helps provide a safe, secure, reliable
and affordable energy supply for citizens and society
across the region. Interconnectors also allow
powersuppliers to sell their energy to customers
inother countries.
Great Britain is linked via interconnectors with France,
Ireland, Northern Ireland and The Netherlands.
National Grid owns part of the interconnectors with
France and The Netherlands. We are also now
entering the construction phase fortwo new
interconnectors, between the UK and Belgiumand
Norway. We are continuing to work ondeveloping
additional interconnector projects, which we believe
will deliver significant benefits toconsumers.
Theseinclude opportunities for interconnection with
Iceland, Denmark and a furtherlink withFrance.
We also jointly own and operate a 224 kilometre
interconnector between New England in the US
andCanada.
We sell capacity on our UK interconnectors through
auctions and on our US interconnector through
wholesale markets and bilateral contracts.
3 Transmission
Transmission systems generally include overhead
lines, underground cables and substations. They
connect generation and interconnectors to the
distribution system.
We own and operate the transmission network in
England and Wales. We operate but do not own the
Scottish networks. We are also working in a joint
venture with Scottish Power Transmission to construct
an interconnector to reinforce the GB transmission
system between Scotland and England and Wales.
In the US, we jointly own and operate transmission
facilities spanning upstate New York, Massachusetts,
New Hampshire, Rhode Island and Vermont.
4 Distribution
Distribution systems carry lower voltages than
transmission systems over networks of overhead
lines, underground cables and substations. They
take over the role of transporting electricity from the
transmission network, and deliver it to consumers
ata voltage they can use.
We do not own or operate electricity distribution
networks in the UK.
In the US, our distribution networks serve around
3.5million customers in upstate New York,
Massachusetts and Rhode Island.
5 Supply
The supply of electricity involves buying electricity
and selling it on to customers. It also involves
customer services, billing and the collection of
customer accounts.
We do not sell electricity to consumers in the UK.
All our customers in the US can select a competitive
supplier for the supply component of electricity utility
services. Where customers choose National Grid,
they pay us for distribution and electricity costs.
Where they choose to buy electricity from third
parties, they pay us for distribution only and pay
thethird-party supplier for the electricity. Our base
charges for electricity supply are calculated to
recover the purchased power costs.
Our business
model
pages 12–13
Overhead line
replacement in
ourUSbusiness,
page 35.
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