Entry Capacity Substitution Workshop 2 7 th May 2008 Substitution Example.
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Transcript of Entry Capacity Substitution Workshop 2 7 th May 2008 Substitution Example.
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Entry Capacity Substitution
Workshop 27th May 2008
Substitution Example
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Introduction
2007 TPCR introduced an obligation on National Grid to introduce “Entry Capacity Substitution”.
At Entry Capacity Substitution workshop 1 National Grid agreed to consider providing a worked example to illustrate the impact of Entry Capacity Substitution.
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Introduction
The example is illustrative only and should not be taken as guaranteeing specific outcomes when the substitution processes are implemented.
Example Consider the scenario where incremental entry capacity
is requested at Easington ASEP in a future QSEC auction.
Intended to show processes involved without referring to actual projects.
All values used are indicative whilst being a reasonable approximation to actual capacity levels.
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Assumptions
How capacity substitution is ultimately developed will define the precise processes to be followed and may add a level of complexity.
Hence to illustrate the end-to-end process it is necessary to make a number of assumptions.
A single NPV test applies irrespective of how incremental capacity is made available.
Substitution applies from 42 months after the auction. Capacity available for substitution as defined in Licence. Existing capacity allocations and QSEC bids are
consistent through the QSEC timeframe.
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Overview of QSEC Auction with respect to Substitution
Invitation Auction Allocation Analysis
Available Capacity
“Permits”
P0 to P20 prices
Signal Incremental (and obligated) capacity needs
Quantity & date
Identify substitution opportunities.
Recipient / Donor
Revised allocations
IECR / ECS
Capacity release rules
Subsequent auctions
Revised Obligated Level
Available Capacity
Prices
Incremental Obligated Entry Capacity Proposal
to Ofgem
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Substitution Example - Invitation
• Assumptions• National Grid can meet all expected incremental capacity requests in the 42
month default lead-time; i.e. no “permits” played.• Donor ASEPs will be those with available capacity and greatest interactivity with
the Recipient ASEP. For example, in respect of Easington, the Donor ASEPs could be those identified in the table below.
• No surrender facility.
ASEP Obligated level
mscmd
Baseline
mscmd
Unsold
Easington 130 98 0
Hornsea 21 16 1
Theddlethorpe 56 56 49
Bacton 165 165 96
• “Unsold” capacity is 90% baseline minus the highest sold quantity for any quarter after month 42. For other quarters more capacity will be available for sale at the ASEP but not for substitution.• All unsold capacity is available for Users at the relevant ASEP or, if remaining unsold, for substitution.
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Substitution Example – Assumed Auction Bids
• Easington auction bids received for incremental entry capacity.• Passes NPV test for quantity 10 mscmd from 42 months.
• AN Other ASEP auction bids received for incremental entry capacity. Passes NPV test for quantity 5 mscmd from 42 months.
• Not shown in table below.
• Potential Donor ASEPs: total bids received (plus existing allocations) are less than 90% baseline.
ASEP Quantity bid Quantity of baseline sold
Available for sub i.e. 90% baseline
minus max sold level Easington 10 incremental 88 0
HornseaBids no higher than
existing levels
14 1
Theddlethorpe 2 49
Bacton 52 96
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Capacity Substitution Process Previously Consulted Upon.
Receive NG forecasts
Determine Entry Zone
No Substitutions
Undertake reinforcement and update ASEP capacities
where applicable
No
YesCan
reinforcement be avoided ?
Yes
Accept substitutions and update
ASEP capacities.
No
Do any ASEPs have capacity above
sold levels?
Receive auction results
Optimise reinforcements to
provide most efficient investment strategy
Consider nearest within zone
donor ASEP first.
Incremental requests pass the
NPV test?Yes
No
Consider within zone substitution
s
Consider non-zonal
substitutions
Do any ASEPs have capacity above
sold levels?
Consider nearest donor ASEP in
other zones first.
Can reinforcement be avoided ?
Yes
Yes
No
No
Identify recipient ASEP
with lowest Revenue Driver
Repeat for next
recipient ASEP
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Substitution Example – Recipient ASEP
• Incremental capacity triggered for Easington and AN Other
• Revenue driver at Easington is lower than AN Other so consider this as Recipient ASEP for substitution first.
• Lower revenue driver implies that the ASEP will benefit most from substitution. Hence more likely to minimise need for investment.
• AN Other not considered further in this example.
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Substitution Example – Analysis as per Illustrated Process Diagram
• Donor ASEP identified as nearest ASEP (by pipeline distance) with available capacity
• Hence ranking of Donor ASEPs in example is• Hornsea• Theddlethorpe• Bacton
• Substitutions will be verified by network analysis.• Substitutions will not be permitted where analysis shows
failure to maintain pressure and other network commitments or increases risk of constraint management actions being required.
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Substitution Example - Allocations
• Revised allocations (based on peak quarter)• Users at Easington: 10 mscmd incremental• Users at Donor ASEPs: No change from pre-auction
• Revised obligated levels• Easington: Previous obligated level plus 10 = 140 mscmd• Donor ASEPs: As determined according to methodology
• Revised obligated levels apply from the first date of substitution, i.e. 42 months, and will be available in the next QSEC and relevant MSEC auctions in due course.
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Substitution Example - Allocations
• Role of Ofgem (C8D 9 l)• National Grid will submit to Ofgem its Incremental Obligated Entry
Capacity Proposal• Specifies quantity of incremental entry capacity and whether it
should be treated as:• non-incremental obligated entry capacity (i.e. substitution); or • funded incremental obligated entry capacity.
• Ofgem have 7 days to suspend implementation • If suspended, Ofgem have 28 days to:
• Veto; or• direct to modify (subject to agreement with National Grid).
•Volume at the recipient ASEP to be treated as substituted capacity•First month of substitution
• This could require analysis to be repeated and investment plans revised.•Allocations to be made within 2 months auction closing (UNC
B2.6.7).
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Substitution Example
Incremental Obligated Entry Capacity Proposal.
• National Grid will submit to Ofgem its Incremental Obligated Entry Capacity Proposal.
• In respect of Easington:• Quantity of incremental entry capacity = 10 mscmd; of which
• X mscmd will be met from substitution; and • Y mscmd will be funded.
• National Grid receives no additional revenue in respect of incremental capacity met by substitution.
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Substitution Example – Prices
• Reserve Prices (and step prices for incremental entry capacity) are a function of the obligated capacity level
• Hence, substitution will generally decrease the P0 price at Donor ASEPs; and
• Release of incremental capacity will generally increase the P0 price at Recipient ASEPs
• Revised obligated levels / prices apply from the applicable quarter/month, i.e. from month 42.
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Substitution Example – Prices (to be completed)
ASEP
Initial Prices
p/kWh/day Change in obligated level
mscmd
New Prices
p/kWh/day
P0 P1 P5 P0 P1 P5
Easington 0.0080 0.0082 0.0094 + 10
Hornsea 0.0092 0.0094 0.0098Subject to results of analysis
Theddlethorpe 0.0068 0.0069 0.0073
Bacton 0.0098 0.0099 0.0103
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Potential Timeline for Development of Entry Capacity Substitution7th May 2008
Late JulyDeadline for comments
Q3Formal
consultation on ECS (and IECR if
required)
Potential Timeline
Industry comments to NG
Late JuneDraft ECS for
comment.7th MayWorkshop 2
11th JuneWorkshop 3
Ofgem approval / Impact Assessment
28 plus 14 days
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Next Steps
Next workshops 11th June
National Grid to walk through draft methodology for determining Entry Capacity Substitution quantities / locations.