Transmission Access Review Industry Workshop

1
Transmission Access ReviewIndustry Workshop

• Honiley Court Hotel, Warwick
• 10 April 2008

2
Introduction

• Chris Bennett
• Future Transmission Networks Manager
• National Grid

3
Introduction

• Government commitment to meet its share of
  European 2020 target of 20 of energy from
  renewable sources
• Unprecedented challenge for electricity networks
• Transmission access review has potential to play
  a key role in
• Increasing amount of renewable energy
  contributing to electricity demand
• Ensuring that GB customers continue to enjoy high
  reliability at reasonable cost

4
A different approach

• National Grid is looking to propose a suite of
  framework changes that could be used to implement
  each of the 3 access straw men
• Why?
• Industry engagement on formal framework changes
  is required to move debate forward
• Consideration of all options more likely to
  result in the right answer
• Consideration of theory and practice together

5
Industry governance process

• 18 March Industry Seminar
• NG outlined a suite of framework changes that
  could be used to develop and potentially
  implement 3 access straw men
• Connect manage (with socialised costs)
• Evolutionary change
• Capacity auctions
• NG proposed a different process for the
  development of these changes, with CUSC and
  charging issues considered together
• Today
• Further development of the suite of framework
  changes and the associated process
• Opportunity for industry to contribute
• 25 April CUSC Panel
• NG to raise CUSC amendment proposals

6
Draft timeline
2008

2009 Mar Apr May Jun Jul Aug
Sep Oct Nov Dec Jan Feb
18 March High-level industry seminar
10 April Workshop on draft mods
25 April Raise CUSC mods
CUSC Working Groups
CUSC consultation period
26 September CUSC panel vote
Amendment reports to Ofgem
29 April Transmission Charging Methodologies
Forum (TCMF)
26 June TCMF
22 August TCMF
Charging Working Groups
Charging consultations
Charging conclusions reports to Ofgem
7
Agenda
8
Aims

• Were hoping everyone gets the opportunity to
• Review the suite of framework changes
• Contribute to the drafting of the CUSC amendment
  proposals
• Discuss the process that will be used to develop
  the framework changes further
• Were hoping this leads to everyone having a good
  understanding of
• The suite of framework changes being proposed
• The process that will be followed

9
Proposed suite of framework changes

• Hêdd Roberts
• Electricity Charging and Access Development
  Manager
• National Grid

10
Proposed suite of framework changesAgenda

• A reminder of the straw men and associated
  framework changes
• Framework changes in more detail

11
What can be achieved with access reform?

• Improvements to the access regime can deliver
• A level playing field for all generation
  technologies
• More efficient use of the existing transmission
  assets
• Improved signals to invest in new transmission
  assets
• But cannot deliver additional transmission
  capacity
• Significant investment in transmission system
  extension still required
• Subject to planning, etc.

12
Whats wrong with the existing regime?

• New generation cant get timely access to the
  transmission system
• GB queue stretching out beyond 2015
• Closure uncertainty
• May not be appropriate with increased volume of
  renewable generation
• Characteristics of wind mean that sharing of
  capacity (between wind and conventional) much
  more important

13
What are the models?
Straw men
Connect manage
Evolutionary change
Capacity auctions
Building blocks
Access allocation
All models get new generation connected more
quickly
Secondary trading
Different consequences for ongoing regime
Nature of rights
Pricing
14
The suite of proposed framework changes
Charging Methodology
Other
CUSC
SO release of short-term rights
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
Local asset charging
Local only applications
SQSS nnnnnnnnnn
/kWh residual charge
15
Connect manage straw man

• Allocate then invest for long-term rights when
• accompanied by suitable long-term commitment
• Eligibility criteria must be met (e.g. 3 years
• after connection offer accepted local works
• complete)

Access allocation
Secondary trading

• No secondary trading

Nature of rights

• Nodal long-term rights

• Full TNUoS (local and wider)

Pricing
16
Connect manage framework changes
Charging Methodology
Other
CUSC
SO release of short-term rights
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
Local asset charging
Local only applications
SQSS nnnnnnnnnn
/kWh residual charge
17
Connect manage(with socialised costs)
Connect manage

• Users should be able to gain access to the
  transmission system in a fixed time period
  provided they meet certain eligibility criteria
• Completion of local transmission works
• Provision of a suitable user commitment
• Access should be charged at TNUoS
• To facilitate this
• Changes to the CUSC are required to provide users
  that meet the eligibility criteria with long-term
  access rights
• Issues
• Provision of short-term access (prior to the
  completion of the necessary transmission
  reinforcements operational cost) charged at
  TNUoS (based on asset cost) creates a
  cross-subsidy

18
Evolutionary change straw man

• Invest then allocate for long-term rights when
• accompanied by suitable long-term commitment
• Short-term rights identified and auctioned by SO
• Overrun

Access allocation

• Sharing allowed in pre-defined zones with
• 11 sharing factor

Secondary trading
Nature of rights

• Zonal short or long-term rights for a defined
  period

• Residual (/kWh) and local asset charge
• LRMC for long-term
• Pay as bid for SO released ex post SRMC for
• overrun

Pricing
19
Evolutionary change framework changes
Charging Methodology
Other
CUSC
SO release of short-term rights
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
Local asset charging
Local only applications
SQSS nnnnnnnnnn
/kWh residual charge
20
Local only applications and local asset charging
Local asset charging
Local only applications

• In order to make use of the short-term access
  regime, users need to be connected to the
  transmission system
• To facilitate this
• CUSC changes are required to allow users to apply
  for a connection without the associated long-term
  access rights
• Charging Methodology changes are required to
  separate the charges for local and wider
  access Ref pre-consultation
• Issues
• How should local assets be identified for CUSC
  and charging purposes?
• What should the capacity of the local assets be
  based on?

21
/kWh residual charge
/kWh residual charge

• The TNUoS tariff contains a locational and
  residual part
• The residual part recovers the costs of
  non-locational assets (e.g. substations), legacy
  assets and lumpy investments
• All users (with short and/or long-term access
  rights) are making use of these and should
  contribute
• To facilitate this
• Charge residual part of TNUoS tariff on kWh of
  energy used instead of kW of capacity booked
• Issues
• Should this be applied to generation only, or
  generation and demand?
• What period is it recovered over?

22
Charging arrangements today
TNUoS residual element (/kW)
Market hub
TNUoS locational element (/kW)
kW
TNUoS charged on capacity booking
April
March
In zones with positive tariff
23
Potential future charging arrangements
TNUoS residual element (/kWh)
Zonal hub
Market hub
Short-term charge
Local and Wider TNUoS locational elements (/kW)
kW
Local charged on separate nomination
Wider charged on capacity booking
April
March
TNUoS residual element charged on kWh
24
Zonal access rights
Zonal access rights
Zonal definition methodology
Zoning criteria

• The proposed changes to the short and long-term
  access regimes are better facilitated with access
  rights defined on a zonal rather than nodal basis
• To facilitate this
• Changes to the CUSC are required to define
  long-term access rights on a zonal basis, such
  that settlement is performed by company, by zone
• Changes to the zoning criteria in the Charging
  Methodology will be required to achieve
  consistency
• A Methodology Statement will be required to
  define the zones and the circumstances by which
  they may change over time
• Issues
• What is the appropriate balance between zone size
  and socialised constraint cost?
• What are the rules by which zones will be changed?

25
SO release of short-term rights
SO release of short-term rights

• The SO should be able to release short-term
  access when it believes the auction bid price is
  greater than the buy-back risk
• The SO should be incentivised to release
  short-term access rights e.g. the revenues from
  short-term rights release could feed into BSIS as
  a negative term
• To facilitate this
• Changes to the CUSC are required to allow the SO
  to release short-term access rights when the
  auction bid price is greater than the buy-back
  risk
• Issues
• What should be published to facilitate a
  reasonable bidding strategy?

26
Access right sharing
Access right sharing

• Users should be able to share long term access
  rights within pre-defined zones with a 11
  exchange rate
• To facilitate this
• Changes to the CUSC are required to allow users
  to share their access right holdings across
  companies within pre-defined zones
• Issues
• How should rights sharing be administered?
  Options include
• Lead party responsibility
• Contractual hierarchy
• Ex ante or ex post notifications to SO

27
Overrun access and charging
Overrun hhhhh
Ex post cost reflective charge

• Users should be able to generate above their
  holding of long and short-term access rights and
  face the associated cost reflective short-term
  charge ex post
• To facilitate this
• Changes to the CUSC are required to allow users
  to generate above their access right holdings
• Changes to the Charging Methodology are required
  to introduce an ex post cost reflective charge
• Issues
• How should the short-run charge be calculated?
• Are changes to the long-term charging
  arrangements required to ensure consistency (e.g.
  hub position)?

28
Finite rights
Finite rights
Fixed price tariffs

• Users should signal their requirement for
  long-term access rights in the future and provide
  an appropriate commitment
• The quid pro quo may be that the associated
  locational tariffs could be fixed for the
  duration of the finite right
• To facilitate this
• Changes to the CUSC are required to make
  long-term access rights finite
• Changes to the Charging Methodology are required
  to introduce long-term (gt1 year) fixed tariffs
  for finite rights
• Issues
• Impact on generators perceived property rights

29
SQSS
SQSS nnnnnnnnnn

• The SQSS includes a peak security check based on
  long-term access right holdings
• This will need to be reviewed for an access
  regime in which peaking plant may make use of
  short rather than long-term access rights
• The SQSS also includes techniques to scale
  generation output for the purposes of
  transmission boundary assessments
• Work is progressing to develop scaling factors
  for different generation technologies
• Based on static/approximate view of economics
• For an access regime that offers choice between
  waiting for new capacity (_at_ LRMCs) or connecting
  and using existing capacity (_at_ SRMCs), appetite
  for network investment could be discovered from
  the market
• The scaling of generation in the SQSS will need
  to be reviewed in light of these developments

30
Capacity auction straw man

• Long-term rights (invest then allocate)
  auctioned
• Suitable long-term commit required for inc cap
• Short-term rights identified and auctioned by SO
• Overrun

Access allocation

• Sharing allowed in pre-defined zones with
• 11 sharing factor

Secondary trading
Nature of rights

• Zonal short or long-term rights for a defined
  period

• Residual (/kW) and local asset charge
• Pay as bid for long-term
• Pay as bid for SO released ex post SRMC for
• overrun

Pricing
31
Capacity auction framework changes
Charging Methodology
Other
CUSC
SO release of short-term rights
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
Local asset charging
Local only applications
SQSS nnnnnnnnnn
/kWh residual charge
32
Capacity Auctions
Capacity auctions
Auction resultant changes
Capacity release methodology

• Long-term finite access rights should be
  allocated in an enduring pay-as-bid auction
• To facilitate this
• Changes to the CUSC will be required to make the
  allocation of long-term access rights based on an
  auction
• Changes to the Charging Methodology will be
  required to deal with the revenue from a
  pay-as-bid auction
• A Methodology Statement will be required to
  outline the conditions required to trigger the
  release of incremental capacity
• Issues
• Impact on generators perceived property rights
• How should the auction be designed?

33
Any questions?
Charging Methodology
Other
CUSC
SO release of short-term rights
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
Local asset charging
Local only applications
SQSS nnnnnnnnnn
/kWh residual charge
34
Process Issues

• Hêdd Roberts
• Electricity Charging and Access Development
  Manager
• National Grid

35
Process IssuesAgenda

• Handling CUSC, Charging and other issues
• Proposed Working Groups
• Working Group
• Interactions
• Timetable and Membership
• Handling other interactions

36
Handling CUSC, Charging and other issues

• Terms of reference and reporting under relevant
  industry governance
• But, organise suite of framework changes into
  working groups which cover
• CUSC
• Charging
• Other issues
• Use content of working group discussions to
  produce
• CUSC working group reports
• Charging Methodology pre-consultation and
  consultation documents
• Drafts of any other methodology documents
• E.g. Auction Incremental Capacity Release
  Methodology
• Parallel review of SQSS to be taken forward
  separately

37
Making the governance work.

• WG1
• Agenda
• CUSC
• Working Group Terms of Reference will be drafted
  appropriately
• Charging Methodology
• Working Groups will be established as
  Transmission Charging Methodologies Forum (TCMF)
  sub-groups

38
Proposed Working Groups
Charging Methodology
Other
CUSC
SO release of short-term rights
WG1 Short-term
Access right sharing
Overrun
Connect manage
Ex post cost reflective charge
Finite rights
Fixed price tariffs
WG2 Long term
Capacity auctions
Auction resultant changes
Capacity release methodology
Zonal access rights
Zoning criteria
Zonal definition methodology
WG3 Supporting changes
Local asset charging
Local only applications
/kWh residual charge
39
Working Group Interactions 1

• Short-term (WG1) and long-term (WG2) proposals
  require development of supporting changes (WG3)
• All access right holders (short and long term)
  need to be connected by (and therefore be charged
  for) local assets
• Short-term and long-term developments are based
  on zonal access rights
• How should this be organised?
• WG3 is a sub-group (in CUSC terms) to WG1 and WG2

WG1 Short-term access
WG2 Long-term access
WG3 Supporting changes
40
Working Group Interactions 2

• There is an interaction between WG1 and WG2
• e.g. opinions about auctions for long-term
  capacity will be flavoured by nature of
  short-term access regime
• This is an interaction rather than a dependency
• How can this be avoided?
• A working group for each straw man?
• This would involve considerable overlap between
  the working groups e.g. Development of short-term
  access auctions
• How can the interaction be handled?
• WG meeting agenda to include full update from
  other WGs?
• CUSC Panel meetings to cover common assumptions
  and issues registers covering each of the WGs?
• Other measures?

41
Working Group Timescales Timetable

• Meeting Timescales
• CUSC WG maximum timescale is 3 months
• Meeting Timetable
• Avoid more than one meeting on the same day
• Avoid clashes with other industry meetings
• Use successive days as much as possible
• Provisional meeting timetable to be published on
  NG website

42
Working Group Membership

• Membership of WGs
• Should be open to all, but need to be practical
• CUSC 8.17.3 says that a WG shall comprise
• At least 5 persons (who may be panel members)
  selected by the Panel
• Panel shall ensure an appropriate cross-section
  of representation, experience and expertise
• At least one member representing NG
• If Panel believes there is an impact on STC, STC
  committee may be invited to nominate a
  representative
• A representative of the Authority may attend as
  an observer
• NG shall appoint WG chairman in consultation with
  Panel
• NG looking to help from trade associations in
  co-ordinating WG nominations
• All notes, presentations, etc. will be placed on
  NG website

43
Handling other interactions

• Cross code issues
• Interaction between short-term access pricing and
  cash-out
• Offshore transmission
• Development of entry regime must be mindful of
  applicability to offshore transmission networks
• Exit arrangements
• Development of entry regime must consider
  potential extension to exit regime in the future
• NG to publish consultation paper on treatment of
  embedded generation
• Two high-level models will be described
• Net DNO
• Gross Supplier

44
Process Issues

• Questions?

45
Break-out session
46
Break-out Session

• On your table you will find
• An envelope containing
• Draft CUSC amendment proposals for one of the WGs
• Supplementary slides on the charging changes for
  one of the WGs
• A full copy of the slides
• Tablemat
• Post-it notes
• Please review and discuss the material
• Please record any comments or questions, either
• Using the tablemat or
• Using the post-it notes and flipcharts provided
• At 2.50, we will have an open discussion
• All feedback will be collated and published on
  the NG website

47
Break-out session

• Open Discussion