Hello! Welcome to the first lesson in our new module, "System Inefficiencies: Network Constraints."
In the previous module, we focused on the retail side of the electricity industry, looking at how suppliers manage customer accounts, billing, and the switching process. Now, we're shifting our attention back to the physical high-voltage grid and some of the major technical and economic challenges it faces.
Today's learning outcome is to describe network congestion problems and the constraint payments system. You may have heard in the news about wind farms being paid to not produce electricity. This lesson will explain exactly why that happens, what it means for the grid, and who ultimately pays for it. This is a fundamental issue in the operation of the modern UK grid, especially as we rely more and more on renewable energy.
1. What is Network Congestion?
Imagine the UK's high-voltage transmission network as a system of motorways. Power stations are like factories producing goods, and cities are the markets that need them. The electricity flows from the power stations to the cities along these "motorways" (the transmission lines).
But just like a real motorway, each transmission line has a physical limit on how much traffic—or in this case, electrical power—it can carry at any one time. If you try to push too much power through a line, it can overheat and get damaged, risking blackouts.
When the amount of power that needs to be transported exceeds the capacity of the lines, we get a "traffic jam." In the electricity industry, this is called network congestion or a network constraint.
This problem is becoming more common due to the changing location of our power generation. To understand why, please watch this short video from Sky News.
Wind Power: Why some wind farms are being paid to stop producing energy
This clip, titled 'Wind Power: Why some wind farms are being paid to stop producing energy', clearly explains the main cause of network congestion in Great Britain.
Please watch from the beginning until 01:15. Focus on the explanation of where electricity is generated versus where it is needed, and the term the presenter uses to describe the problem.
As the video explains, a major cause of congestion is a geographical mismatch:
- Generation: A huge amount of our wind power is generated in the windiest places, like Scotland and the North Sea.
- Demand: A large portion of the country's electricity demand is far away, concentrated in the south, particularly around London.
The transmission lines connecting the north of Great Britain to the south act as a bottleneck. On a very windy day, Scottish wind farms can generate more electricity than the network can physically transport southwards.
To understand the technical reasons for these limits and the official definition of a constraint, let's turn to the National Energy System Operator (NESO) itself.
What are constraints payments?
This page from NESO, 'What are constraints payments?', explains why these physical limits exist and what happens when they are reached.
Please read the text starting from the heading 'What are constraints payments?' down to the end of the paragraph that begins 'In that case, either we need more infrastructure...'. Focus on the safety reasons for limits and the example NESO provides.
So, to summarise, network congestion occurs when the physical limits of the grid's equipment prevent electricity from flowing freely from where it's generated to where it's needed. This is not a theoretical problem; it's a daily operational reality for the grid operator.
2. The Solution: The Constraint Payments System
When the grid operator foresees a bottleneck, they have to take action to prevent the system from becoming overloaded. The solution involves two steps, as mentioned in the Sky News video:
- Constrain Off: Ask a power generator on the "congested" side of the bottleneck to reduce its output.
- Constrain On: Ask another power generator on the other side of the bottleneck (closer to the demand) to increase its output to make up for the shortfall.
Of course, you can't just ask a commercial power station to change its output for free. The grid operator has to pay them to do so. These payments are known as constraint payments.
The entire process is managed through a system called the Balancing Mechanism (BM). This is the primary tool the ESO uses for fine-tuning supply and demand in real-time.
To see how this works, let's watch an explainer video.
How the Balancing Mechanism works (The Energy Academy - S3 E8)
This video, 'How the Balancing Mechanism works' from Modo Energy, explains the market system that underpins constraint payments.
Watch the section from 00:53 to 03:10. Pay close attention to the definitions of a 'bid price' and an 'offer price' and who submits them.
As the video explains, generators submit two key prices into the Balancing Mechanism:
- Bid Price: The price at which they are willing to be paid to reduce their generation. When the ESO accepts a "bid" from a wind farm in Scotland to solve a congestion problem, the payment made is a constraint payment.
- Offer Price: The price at which they will charge to increase their generation. When the ESO accepts an "offer" from a gas plant in England to replace that wind generation, this is also a constraint payment.
The "constraint payments system" is therefore not a separate entity; it is the process of using the Balancing Mechanism to solve physical network constraints.
Test your understanding!
It's a very windy and sunny Sunday afternoon. Demand for electricity is low, but wind farms in Scotland and solar farms in the South West of England are generating a lot of power. The ESO's control room sees that the transmission line heading into London is reaching its maximum safe limit.
A gas power station near London has submitted an offer price of £100/MWh. A wind farm in Scotland has submitted a bid price of £50/MWh.
What action will the ESO likely take through the Balancing Mechanism to solve this problem, and what are the financial consequences?
Show answer
The ESO needs to reduce the flow on the congested line into London. They will likely accept the wind farm's bid, paying them £50 for every MWh they reduce their generation by. This is known as "constraining off" the wind farm.
However, they still need to meet demand elsewhere. They may also accept the gas power station's offer, paying them £100 for every MWh they increase their generation by. This is "constraining on" the gas plant.
The total cost of this constraint action is the sum of both payments.
3. The Costs and Controversies of Constraint Payments
Constraint payments are a significant and growing cost. The Sky News video mentioned these costs could rise to £2.5 billion per year. This money is ultimately paid by consumers through their electricity bills. This has, understandably, led to public debate.
To get a more nuanced understanding of this issue, let's address some common questions.
An overview of constraint payments
This article from the trade body RenewableUK, 'An overview of constraint payments', provides important context on who gets paid and why it costs so much.
Please read the sections 'Do constraint payments apply to all forms of electricity generation?', 'Do generators profit from constraint payments?', and 'But why is it so expensive?'. These sections directly address common misconceptions.
Let's pull out the key points from that article:
- Is it just for renewables? No. In fact, the article states that the vast majority of constraint costs (around 76%) are for paying fossil fuel (mainly gas) generators to turn up their output.
- Do wind farms profit? No. For a wind farm, the payment is compensation for lost revenue. They have already sold their power in the wholesale market, and the constraint payment is designed to make them financially "whole" for not being able to deliver it. It is not extra profit.
- Why is it so expensive? The biggest driver of the cost is not the payment to turn wind farms off. It's the price charged by gas power stations to turn on. When the wholesale price of gas is high, their "offer price" in the Balancing Mechanism is also high, making it very expensive for the ESO to replace the constrained wind generation.
Conclusion
In this lesson, we have unpacked one of the biggest challenges for the modern grid.
Key Takeaways:
- Network Congestion (or a constraint) is a physical "bottleneck" in the grid where a transmission line cannot carry all the power that needs to flow through it.
- A primary cause is the geographical mismatch between where renewable energy is abundant (e.g., windy Scotland) and where demand is highest (e.g., Southern England).
- The National Grid ESO manages this in real-time via the Balancing Mechanism by paying some generators to reduce output (bids) and others to increase output (offers). These are constraint payments.
- While payments to wind farms to "constrain off" get attention, the largest share of the cost is often paying gas plants to "constrain on" at a high price. The payments are compensation for lost revenue, not a source of extra profit.
Preview of the next lesson:
The act of forcing a generator, particularly a renewable one, to reduce its output is known as curtailment. Today we've learned that network congestion is a major reason for this. In our next lesson, we will explore this in more detail, looking at the other technical and market-based reasons for renewable generation curtailment.