Understanding the UK power market
National Grid owns and manages the transmission network, which transports electricity at high voltage, suitable for large power generators and industrial-scale consumers. One of the many roles of National Grid is to balance energy generation and demand in real-time, whilst ensuring that the frequency of the grid remains at 50 Hertz. It is also responsible for providing and maintaining the transmission network infrastructure (but not providing power stations).
When there is too little generation (or low demand) or too much generation (or high demand), National Grid takes appropriate actions to match generation to demand levels. As electricity is not always generated where it is needed, National Grid must also balance power on a locational level. A common action is to reduce generation (or increase demand) in the north of the UK where generation often exceeds demand and to increase generation (or reduce demand) in the south where demand often exceeds generation.
The Distribution network transports electricity at a lower voltage to businesses, homes and embedded generators. The UK is divided into 14 licenced DNOs (Distribution Network Operators) and each operator is responsible for maintaining its grid infrastructure and setting up new grid connections for embedded generators in its area.
DNOs are transitioning to become DSOs (Distribution System Operators), which means they adopt a much wider role of managing the energy, as well as the infrastructure, in their areas.
Licensed Electricity Suppliers
Licensed electricity suppliers are companies that are responsible for managing the power supplied to every home, business, embedded generator and public facility, such as street lamps. Most suppliers source some or all of their power through Power Purchase Agreements.
Electricity suppliers are required to forecast the power and demand in their accounts and to notify National Grid of their position. If their actual energy position is different from what they have forecasted, National Grid charges them for their imbalance.
Power Purchase Agreements
A Power Purchase Agreement is a contract between a renewable generator (e.g. wind farm) and a licensed electricity supplier, which sets out the terms that the power, renewable benefits and embedded benefits will be passed through by the supplier to the generator.
Projects that are connected directly to the lower voltage Distribution Network rather than the higher voltage transmission network are also known as Embedded or Distributed Generators. As these projects are located close to the areas they supply they net off demand and reduce pressure on the system. Such projects are eligible to receive various embedded benefits such as the Generator Distribution Use of System (GDUoS) benefit. The benefits are paid by the DNOs to suppliers and passed through to Generators in their PPAs.