How much would it add to electricity bills to put transmission lines underground?

Stour Valley Underground are deeply indebted to Adam Sedgwick of the Dedham Vale Society for the following calculation. For those who are not that keen on maths perhaps we should start by telling you that the calculation shows that total undergrounding from Bramford to Twinstead would in fact cost around £1 per year on everyone’s electricity bill. Quite a bargain we feel!

The Calculation

Transmission companies are allowed 4.4% after-tax return on capital in real terms by Ofgem.

This implies a before-tax return of about 4.8%.

Their transmission lines will have a life of 50 years or so, so an amortisation rate of 2%.

So the additional capital cost of undergrounding represents an extra annual cost to the consumer of 4.8% + 2.0% = 6.8% per year of that additional capital cost.

Assume 100% undergrounding Bramford – Twinstead in tunnel costs £600 million more than pylons (half way between National Grid’s 12 – 17 times the cost of pylons). Please note that we are using National Grid’s inflated underground cable costs as quoted in their “consultation” here and not those derived from recent actual underground cable projects in London which suggest that the figure is far lower! See our page “Underground Costing” for details.

6.8% of £600 million is £41 million per year.

National Grid’s income from electricity transmission in Britain is about £2.6 billion per year.

£41 million is 1.6% of £2.6 billion.

So recovering £41 million per year means an increase in their charges to the electricity consumer of 1.6%.

The typical annual household electricity bill is now £500 per year.

Transmission costs represent 3% of this, or £15 per year.

1.6% of £15 is 24p.

So 100% undergrounding of the new Bramford – Twinstead link (even based on National Grid’s inflated cost multiplier) would add to the typical household electricity bill 24p per year, or 2p per month.

There is also an indirect effect, via the electricity used in other goods and services, about three times the direct effect.

So the total effect is about £1 per year on each households electricity bill.

What would it cost to implement underground cables in the otgher important lanscape areas of the UK?

Bramford – Twinstead is about 30 kilometres.

The total length of existing high-voltage transmission in National Parks is about 180 km ie 6 times the Bramford – Twinstead distance.

6 times £600 million is £3.6 billion.

If all existing high-voltage transmission in National Parks was put underground over 12 years, the typical household would pay, directly and indirectly, an extra 50p per year, each year i.e. an extra £6 per year by the end of the 12 year period.

CONCLUSIONS

Individuals are free to judge whether these figures represent a bargain or the opposite.

Given that all of us are already paying the cost of undergrounding electricity transmission for those who live in large towns, we are entitled to argue that these figures are a bargain.

What is crucial is that this approach is the only valid way to make a judgement:

What will it cost me?

What will I get for the money?