National Grid's projection puts the overall cost of accommodating 40% wind at between £500 million and £1 billion, which corresponds to an increase in the cost of wind power of EUR 4.2-EUR 8.4 for each megawatt hour generated, or a 10% hike, if wind plant operators are charged for their part in raising National Grid's balancing costs. The wide range of the estimate is not so much due to uncertainty as to the parameters used by National Grid. The lower end of the range assumes that payments for reserve services remain at current levels in real terms, while the upper end of the range takes into account possible constraints on generation due to network congestion. Increased use of demand management, where consumers agree to constrain demand in specific periods in return for lower electricity rates, could also lead to a reduction in balancing costs.
Significantly, rising fossil fuel prices have pushed up the costs of reserve power services for all system operators and National Grid's latest projection of balancing costs may well be the first to reflect these increases.
In addition to reporting on balancing costs, National Grid estimates that required reinforcements to the transmission network on land would cost about £3.5 billion (EUR 4.4 billion). It is unable to say what percentage of the total bill for transmission reinforcement to 2020 the renewables element might be, but says £3 billion will be spent overall for the five years up to 2012. At the same time, the system operator contends that the proposed regulatory regime for getting transmission built for offshore wind power may not be the most efficient. It describes the current system for competitive bids to build the needed wires as "overly complex with many areas of the regulatory arrangements still uncertain and undecided." A strategic approach is the best way to deliver a cost-effective grid, argues National Grid, not one that relies on market forces. The system operator's comments and cost estimates were made to a parliamentary select committee looking into the economics of renewable energy.