Entry Capacity Substitution Workshop 8 – 7 th April 2009.

Entry Capacity Substitution Workshop 8 – 7th April 2009

2

Agenda

Feedback from workshop 7

Timeline

Further refinement of options

Mechanical approach

Option model

Two stage auction

Worked examples

Next Steps

3

Feedback

At workshop 7 National Grid sought feedback on proposals presented and what was

required for workshop 8, specifically:

What further information would be required to assess the options at this workshop?;

What examples should be considered?; and

Was the level of detail (in the workshop 7 presentation) adequate?

Responses

Only three responses received. Preference to avoid added cost and/or complexity; hence support for Mechanical Approach,

but advantages of other approaches recognised;

No direct responses to the questions posed.

National Grid has made slight developments to the options based on comments made

in workshop 7. More support for 2-stage auction was expressed.

Worked examples have been developed on each proposal.

4

TCMF – Develop Charging Methodology / Pricing Options

Further development of Charging Methodology

Develop Charging Methodology Changes at TCMF

07/11/09Submit Pricing Changes for

Approval

27/07/09Commence informal

Consultation on Pricing Changes

Approval of

Pricing Changes

Draft Timeline – Development of Methodology

Jan 09 Feb 09 Mar 09 Apr 09 May 09 June 09 July 09 Aug 09 Sept 09 Oct 09 Nov 09 Dec 09

Workshops

5 – Review status – explain risks/rewards process5 – High level options – work through of potential options6 – Industry options – review alternatives6 – Review all options – narrow down for development7/8 – Detailed options/examples9 – Finalised options/examples10 - Update industry following Informal Consultation

07/01/09Workshop 6

07/04/09Workshop 8

07/07/09Workshop 10

12/05/09Workshop 9

10/02/09Workshop 7

Develop stage 1 Licence Direction/Changes 01/04/09

Licence Changes Effective

S23 Notice

Develop stage 2 Licence Changes

07/09/09Submit ECS for Approval

07/12/09Approval of

ECS

27/07/09

Impact Assessment as necessary

28D 14DConsult Report

21D 28DConsult Finalise

Start consultationsInformal Formal

08/06/09 24/08/09Close formal consultation

Consult and Report (non-urgent)

Develop UNC Mod Proposals

07/12/09Approval of UNC

Mods

19/11/09Mod Panel Decision

17/09/09Mods to Panel

02/07/09Tx Workstream: present mods

IT Systemsdevelopment

31/03/09Progress

report

Entry Capacity Substitution Mechanical Approach

6

Mechanical Approach

Each substitution opportunity progresses subject to satisfying: Limits set on availability of capacity at potential donor ASEP (referred

to in this presentation as “protected” capacity). Use TBE peak forecast for beach terminals.

Need to consider treatment of Interconnectors, Rough.

Use maximum deliverability for storage sites and LNG. Source of data to be considered. Suitable alternative proposals could be considered. Most LNG and storage ASEPs fall outside the scope for substitution

because they have “incremental” capacity. When this capacity moves

to “baseline” it may be made available for substitution. Effectively limits substitution to specific beach terminals

An exchange rate cap: Suggest 5:1

An economic assessment: Suggest no economic assessment in the mechanical approach.

7

Mechanical Approach Capacity available for substitution

All ASEPs not included in the table have zero capacity available for substitution

A. Figures obtained from the LicenceB. Figures obtained from http://www.nationalgrid.com/uk/Gas/Data/CMR/C. Includes sold incremental capacity, but excludes non-obligated capacity releasedD. Protected capacity determined as 100% TBE forecast (except Avonmouth - deliverability)D. As 10% baseline is withheld from QSEC, 90% TBE could be used as an alternative for Protected CapacityE. Figures obtained from Table A2.3A from 10 Year Statement (except Avonmouth - obtained from Platts)F. Avonmouth is the only storage/LNG ASEP with 90% baseline greater than deliverability

ASEP Peak soldAll units in GWh/day (note C)

Smallest ASEPs and most with zero baseline excluded.

Avonmouth 179 161 0 22 159 2Bacton 1783 1,605 0 895 1,488 117

Burton Point 74 66 0 13 11 53Barrow 309 278 0 278 90 0

Easington (inc Rough) 1062 956 345 1,301 1,310 0St Fergus 1671 1,504 0 472 1,272 232Teesside 476 428 0 162 337 91

Theddlethorpe 611 550 0 20 90 460

Baseline (note A)

Release Obligation (see note B)Previous

Incremental90%

Baseline

Available for substitution

(90%baseline - max of [protected,sold])

Protected capacity

(see notes D & E)

8

Mechanical Approach

Storage sites to be based on Max Deliverability. From external source. References to capacity above TBE mean above sold level if higher.Exchange rate cap to be proposed at 5:1

Publish QSEC auction invitation -

including entry zones, ASEP distance order and TBE Maximum Flow Forecast

Figure per ASEP from 42 months

Hold QSEC auction

Determine whether any requests pass

the NPV test?

No

Finish

Yes

Identify recipient ASEP with lowest

revenue driver auction

Do any ASEPs within zone have unsold capacity above protected

level?

Yes

Consider all within zone donor ASEPs with

unsold capacity above protected

level together

Undertake Network Analysis.

Can all reinforcement be avoided and is the

aggregate XR below 5:1?

Accept substitutions and

update ASEP obligated levels

Are there any other recipient ASEPs?

Yes

Finish

No

Consider non-zonal substitutions

Yes

Do any remaining ASEPs have

unsold capacity above protected

level?

No

Consider next nearest out of zone ASEP with unsold

capacity above protected level

Yes

No

Yes

Yes

Consider nearest within zone donor ASEP with unsold

capacity above protected level

Undertake Network Analysis

Can all reinforcement be avoided and is the

specific XR below 5:1?

Yes

No

Undertake Network AnalysisCan all

reinforcement be avoided and is the specific XR below

5:1?

Reject all partial substitutions

No, but retain partial valid substitutions

No, but retain partial valid substitutions

Do any ASEPs within zone have unsold capacity above protected

level?

Entry Capacity Substitution Option Model

10

Option Model

Capacity at an ASEP would be prevented from being substituted in response to an incremental signal elsewhere. This would be subject to an “option”.

The option

does not give rights to the Shipper to use the capacity covered by the option;

does not give the Shipper first option to buy the capacity; but

it would reserve capacity at the relevant ASEP for any Shipper to obtain at a later auction.

11

Option Model – What is the Option?

Which “option” for the Option should be considered?

Proposal - Simple option with no further rules e.g. no economic test:

the option excludes the capacity from substitution processes thereby protecting capacity for the duration of the option;

the option nominally applies in respect of Q3 Y+4, i.e. from the 42 month lead-time (or later if relevant incremental capacity is triggered from a later date).

simple to apply, understandable, provides certainty

Option is placed ahead of QSEC and applies for 12 months,

i.e. only covers (normally) one QSEC and any ad-hoc QSECs before next option

window.

Option does not prevent other Shippers (or that Shipper) buying capacity at that ASEP.

Options permitted only up to the quantity available in QSEC (usually 90% baseline – sold).

Fixed option price: options pro-rated if available capacity is exceeded.

Exchange Rate Cap

An exchange rate of 4:1 is proposed.

12

How much should the Option cost?

Needs to be high enough to discourage speculative options, but not too high that it encourages discontinuous single quarter bookings.

Propose that Option Price = Q x 0.0001p/unit x 32 quarters and is the same for all ASEPs regardless of specific reserve prices.

ExampleFor an option over 10 mcmd at any specified ASEP:

Option Cost =

10 * 10.8 * 10^6 (convert to kWh/day) * 0.0001 * 365 * 8 / 100 (convert p to £) = £315,360

This value seems appropriate as it is of the same order as a PWA required to progress works for a year for delivery of incremental capacity.

Refunds Given if the capacity covered by the option is sold for any quarter (at 42 months or more from QSEC), in the year covered by the option, to any Shipper.Given if the capacity covered by the option is bought by the User in any QSEC or AMSEC. Recurring option fees (multi-years) would all be refunded.

Option Model – How Much?

These criteria are National Grid’s initial Proposal and will be subject to consultation

13

Option Model - Option & Single Quarter Costs

Option Price = £315,360 for 10 mcmd (may be subject to refund)

ASEPReserve Price

p/kWh/DCost for 10 mcmd for single quarter

St Fergus 0.0378 £3,725,190

Teesside 0.0083 £817,965

Bacton 0.0084 £827,820

Isle of Grain 0.0006 £59,130

Burton Pt 0.0001 £9,855

Barrow 0.0070 £689,850

Theddlethorpe 0.0082 £808,110

Hatfield Moor 0.0028 £275,940

Avonmouth 0.0001 £9,855

14

Option Model.


including entry zones, ASEP distance order

Hold QSEC auction

Are there any requests from the QSEC auction that pass the NPV test?

NoFinish Yes Identify recipient ASEP with lowest


Open options window

Publish Options resultsASEPs & aggregate quantity

Process as for Mechanical Approach except that the protected level refers to that which is sold or covered by an option and the exchange rate cap is

set at 4:1.

Entry Capacity Substitution Two Stage Auction

16

Two Stage Auction

This option needs to be considered as a means to prevent capacity being substituted from a particular ASEP by allowing Shippers an opportunity to respond to perceived vulnerability of certain ASEPs when incremental capacity has been requested elsewhere.

Baseline/obligated and incremental capacity can be obtained in the first stage.

Only baseline/obligated capacity can be obtained in the second stage.

Stage 2 will only be run where an incremental signal has been received in stage 1.

Stage 2 run using AMSEC functionality: so Pay as bid.

Release to Y+15

Stage 2 available capacity

As stage 1 minus any sold in stage 1 or previous stage 2 rounds. No pro-rating across stages / rounds.

Three discrete rounds. No next-day withdrawal / revision of bids.

17

STAGE 2: 3 roundsObligated only

Two Stage Auction – March 2010 timeline

1 2 3 4 5 6 7 8 9 10 11 12 13 14

STAGE 1: Five roundsObligated & incremental

Stage 1closed

Allocations madeon Gemini

Stage 1 QSECopened

Pre-auction activities include invitation letter / notice of prices / IECRInvitation letter – essentially unchanged, but will include substitution information, e.g. entry zones and distances.

Incrementalcapacityidentified

NPVtest

Info published for each ASEP:

Total sold & quantity passing NPV test

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Stage 2 AMSEC opened

Stage 2 closed

Shippers review position

18

Two Stage Auction – Issues

Exchange rate cap set at 2:1 The two stage option does not protect donor ASEP capacity to the extent of

the Mechanical Approach. If capacity is to be protected full financial commitment from the Shipper is required. Hence a lower cap seems appropriate.

How will the process be applied to ad-hoc auctions? Run baseline auction (stage 2 with AMSEC functionality).

Major UNC modification. Re-design of auction processes.

Systems impact. Can use existing functionality but systems changes may be needed if single

quarter bookings need to be prevented.

Possible licence change. Needs review, but may include alteration to IECR annual review dates.

Single Quarter Issue. Potential solution would be to allow “continuous”, but not discontinuous,

bookings; e.g. must have one quarter same level in each of previous two years.

19

Two stage auction


including entry zones, ASEP distance order

Hold "shortened"

QSEC auction - 5

rounds

Are there any requests from the QSEC auction that pass the NPV test?

NoFinish

Yes

Identify recipient ASEP with lowest


Publish incremental signals received

that would pass the NPV test

Hold 3 round pay as bid quarterly auction for obligated capacity for the QSEC auction

transaction period

Process as for Mechanical Approach except that all unsold

capacity may be used for substitution and exchange rate

cap is set at 2:1.

Entry Capacity Substitution Examples

21

Substitution Example: Scenarios

Consider the scenarios

Incremental signal at Barrow

Likely donor ASEPs: Teesside / St Fergus

New ASEP in South East (e.g. Feeder 5 at Farningham offtake)

Likely donor ASEP: Bacton

Examples

Focus on processes, impacted ASEPs

Do not involve Network Analysis of exchange rates and precise impact on donor ASEP quantities.

22

Substitution Example: Data Provision

Pre-QSEC National Grid will issue the invitation letter. This will contain:

Donor ASEP merit order and zones Capacity is first substituted from all within zone ASEPs together (subject to satisfying

exchange rate cap) then out of zone ASEPs in pipeline distance order (nearest first).

For Mechanical Approach the protected quantity will be identified Only capacity in excess of this level will be considered for substitution.

Recipient ASEP Barrow South East

Donor ASEPs in order Teesside* Isle of Grain*

*ASEPs within zone

Some sold-out ASEPs or with zero

baseline ignored

Glenmavis* Bacton*

St Fergus* Theddlethorpe

Fleetwood Hatfield Moor

Partington Garton

Burton Point Partington

Theddlethorpe Avonmouth

Burton Point

23

Substitution Example: Capacity Available for Substitution (Barrow)

ASEP Baseline GWh/Day

A

Protected CapacityGWh/Day

B

Sold GWh/Day(2008 QSEC data

used)

C

Capacity available for substitution.

Mechanical Approach

D

2-stage auction and Option

ModelE

Barrow 309 90 278 188** 0

Teesside* 476 337 162 91 266

Glenmavis* 99 103 0 0 89

St Fergus* 1671 1272 472 232 1032

Fleetwood 0 No data 650 0 0

Partington 215 224 22 0 172

Burton Point 74 11 13 55** 53

Theddlethorpe 611 90 20 460 530

* Within zone ASEPs** The lower value based on sold quantity would be used for Burton Point (and Barrow if a donor ASEP) under all options.

A, B & C taken from slide 7.D = 90%A – BE = 90%A – C

24

Substitution Example: Capacity Available for Substitution (South East)

ASEP Baseline GWh/Day

A

Protected CapacityGWh/Day

B

Sold GWh/Day(2008 QSEC data

used)

C

Capacity available for substitution.

Mechanical Approach

D

2-stage auction and Option

ModelE

South East 0 0 0 0 0

Isle of Grain* 218 342 666 0 0

Bacton* 1783 1488 895 117 710

Theddlethorpe 611 90 20 460 530

Hatfield Moor 25 26 22 0 0

Garton 0 No data 420 0 0

Partington 215 224 22 0 172

Avonmouth 179 159 22 2 139

Burton Point 74 11 13 55** 53

* Within zone ASEPs** The lower value based on sold quantity will be used for Burton Point under all options.

A, B & C taken from slide 7.D = 90%A – BE = 90%A – C

25

Substitution Example: QSEC Results

Assume incremental signals received at

Barrow for 215 GWh/D

South East for 175 GWh/D

Both pass NPV test.

No additional allocations of obligated capacity at other ASEPs

Consider Recipient ASEP with lowest revenue driver first.

Barrow then South East.

In practice the order should be irrelevant as the two Recipient ASEPs are at different extremes of the NTS.

26

Substitution Example: Mechanical Approach Results

Barrow as Recipient ASEP for 215 GWh/d.

Note: Actual exchanges rate will be determined by network analysis. These will not vary according to the substitution methodology employed (i.e. same for mechanical, option and 2-stage approaches, but different values have been used in this example for illustration.

Within zone substitutions calculated by pro-rating the available capacity at donor ASEPs.

1:1 exchange rate

Quantity required for substitution = 215

5:1 exchange rate


Donor ASEPCapacity

substituted

Teesside - 61 Teesside - 91

St Fergus - 154 St Fergus - 232

Quantity obtained by pro-rating on available capacity (D in slide 23)

Burton Point - 53

Theddlethorpe - 460

Bacton - 117

Total substituted = 215 GWh/d from within zone.Requirements satisfied so 215 GWh/d incremental signal met by substitution.

Max available to substitute = 953 GWh/dThis equates to only 191 GWh/d at Barrow. Under current proposals partial substitutions would not be permitted. All 215 GWh/d would be funded.

27

Teesside Pricing Example: Based on Mechanical Approach with 5:1 Exchange Rate

Impact on Teesside ASEP.

Original conditions After substitution

Baseline 476 385

P0 0.0083 0.0076

Assume in previous example that the substituted capacity satisfies the incremental demand at Barrow.

Action required to recover Teesside baseline Incremental signal needed 91GWh/d50% of project cost £14mStep price = P10 0.0087p/GWh/d

Cost to recover baseline at Teesside ASEP.

Assume current sold levels i.e. cost includes

buying up to revised baseline capacity

Assume all capacity up

to 385 GWh/d is sold

Total cost £m 64 18

Cost per unit p/kWh/d 0.0076 0.0077

For the 1:1 exchange rate example the baseline will fall to 415 GWh/d. To recover original baseline will require a smaller increment with a lower project cost; but the unit cost price will be broadly similar to the above example.

28

Substitution Example: Mechanical Approach Results

South East as Recipient ASEP for 175 GWh/d.

1:1 exchange rate


5:1 exchange rate


Donor ASEPCapacity

substituted

Bacton - 117 Bacton - 117

Theddlethorpe - 58 Theddlethorpe - 460

Burton Point – 53

Teesside – 91

St Fergus - 154

Total substituted = 175 GWh/d.Requirements satisfied so 175 GWh/d incremental signal met by substitution.

Total substituted = 875 GWh/d.Requirements satisfied so 175 GWh/d incremental signal met by substitution.

29

Substitution Example: Option Approach

Assume that Teesside and St Fergus Shippers are aware of potential bids at Barrow and Bacton Shippers of potential South East bids. Shippers at other ASEPs are not aware or choose not to take out option.

Barrow for 215 GWh/d

South East for 175 GWh/D

Options taken out are such that protected quantities will be available in long term auctions; i.e. 10% baseline quantity withheld is not considered available.

ASEP Scenario A Scenario B

Do nothing Option quantity

(B-C from slides 23/24)

Option

Cost

Quantity of capacity that can be

obtained at reserve price for one

quarter for the option cost.

Teesside No option taken 175 GWh/d £511,000 67 GWh/d

St Fergus No option taken 800 GWh/d £2,336,000 68 GWh/d

Bacton No option taken 593 GWh/d £1,731,560 226 GWh/d

30

Substitution Example: Option Approach Results

Barrow as Recipient ASEP – 215 GWh/d incremental

Donor ASEPCapacity

substituted

Scenario A:No option

Scenario B:Option to TBE at Teesside / St Fergus

1:1 4:1 1:1 4:1

Teesside 41 164 47 91

Glenmavis 14 56 46 89

St Fergus 160 640 122 232

Partington Nil Nil Nil 172

Burton Point Nil Nil Nil 53

Theddlethorpe Nil Nil Nil 223

Total 215 860 215 860 To protect Teesside capacity no more than 91 GWh/d can be substituted away To protect St Fergus capacity no more than 232 GWh/d can be substituted away Under all examples sufficient capacity is available to allow substitution. Note: Increase at Teesside in scenario B is due to effect of pro-rating a lower within zone aggregate available capacity with

a greater proportion protected at St Fergus.

31

Substitution Example: Option Approach Results

South East Recipient ASEP – 175 GWh/d incremental

Donor ASEPCapacity

substituted)

Scenario A:No option

Scenario B:Option to TBE at Bacton

1:1 4:1 1:1 4:1

Bacton 175 700 117 117

Theddlethorpe Nil Nil 58 530


Total 175 700 175 700

To protect Bacton capacity no more than 117 GWh/d can be substituted away Under all examples sufficient capacity is available to allow substitution. This shows that under all scenarios considered an option is beneficial because Bacton is

the only donor ASEP in the SE zone meaning that there are no other ASEPs to share the burden.

32

Substitution Example: 2-Stage Auction

Assume that Shippers see the incremental bids at Barrow and South East in stage 1

Barrow for 215 GWh/d South East for 175 GWh/D

and respond in stage 2 with capacity bids at Teesside, St Fergus, Bacton and Theddlethorpe. Shippers at other ASEPs choose not to take any further action.

Stage 2 bids for obligated capacity (GWh/d) Scenario Bcost for one

quarterF*Res Price*90

Scenario BAdditional cost to

ensure single quarter is

“continuous”

ASEP Scenario A –

no further bids

Scenario B

F (=B-C from slides

23/24)

Teesside Nil 175 - bid up to TBE £1,325,406 £1,726,815

St Fergus Nil 800 - bid up to TBE £27,594,000 £41,873,895

Bacton Nil 593 - bid up to TBE £4,545,345 £9,849,525

Theddlethorpe Nil 160 – bid up to TBE plus Saltfleetby

£1,197,200 £2,050,205

“Continuous” requires at least one quarter in each of the previous two years to be at the scenario B level

33

Substitution Example: 2-Stage Auction Results

Barrow as Recipient ASEP – 215 GWh/d incremental

Donor ASEPCapacity

substituted

Scenario A:No further bids

Scenario B:Bids to TBE at Teesside/St Fergus

1:1 2:1 1:1 2:1

Teesside 41 82 47 91

Glenmavis 14 28 47 89

St Fergus 160 320 121 232


Total 215 430 215 430

Under all examples sufficient capacity is available to allow substitution.

34

Substitution Example: 2-Stage Auction Results

South East Recipient ASEP – 175 GWh/d incremental

Donor ASEPCapacity

substituted

Scenario A:No further bids

Scenario B:Bids to TBE at Bacton

1:1 2:1 1:1 2:1

Bacton 175 350 117 117

Theddlethorpe Nil Nil 58 233

Total 175 350 175 350

Under all examples sufficient capacity is available to allow substitution.

35

Substitution Example: Cost to Recover Baselines

Barrow as Recipient ASEP – 215 GWh/d incremental South East Recipient ASEP – 175 GWh/d incremental

Basis – Shippers take no positive action / exchange rate 1:1

Donor ASEP Mechanical Approach Option Approach & 2 Stage Auction Scenario A

Incremental capacity required

Project cost £m from charging

model

Incremental capacity required

Project cost* £m from charging

model

Teesside 61 27 41 13

St Fergus 154 204 160 254

Glenmavis 0 N/A 14 10

Bacton 117 38 175 61

Theddlethorpe 58 17 0 N/A

* Project costs are taken for the relevant incremental step so would not deliver the exact incremental capacity required.

36

Conclusions

General

Pro-rating within zones has a deleterious effect on St Fergus. If pipeline distance is used within zone then St Fergus would normally be the last ASEP to be affected.

The number of ASEPs within a zone is important as to the extent that a donor ASEP may be affected.

Mechanical Approach

Limiting substitution at storage/LNG sites to protect “deliverability” significantly limits number of potential donor ASEPs.

But is this a bad thing?

Setting constraints on TBE forecast levels limits total available capacity for substitution. Again, is this a bad effect?

Two moderately sized incremental capacity requests could remove all available capacity from the system (if actual exchange rates are 5:1 and the methodology cap is 5:1).

Subject to exchange rates (actual and cap) an incremental signal on one extreme of the network could have an impact at other extremities

Potential issues with “commercialising” TBE process and obtaining independent, reliable, source for Deliverability.

37

Conclusions

Options Approach

A greater number of donor ASEPs can be affected The extent to which they are affected can be limited by Shippers.

Options allow Shippers to identify and protect their needs.

Shippers need to have some awareness of market developments.

Post-auction analysis may show that options were not required and were taken out unnecessarily. Potential for refunds may make this less significant an issue.

There is a knock-on effect where ASEPs without options get affected more. This is more pronounced with higher exchange rates.

Need to agree option fee and scope / extent of refunds

Single quarter booking may be more economical for ASEPs with low reserve price.

38

Conclusions

Two Stage Auction

A greater number of donor ASEPs can be affected The extent to which they are affected can be limited by Shippers.

Two stages allow Shippers to identify vulnerabilities and to protect their needs.

Shippers need to respond to post-stage 1 auction results.

Post-auction analysis may show that stage 2 bids were not required and were made unnecessarily.

There is a knock-on effect where ASEPs without stage 2 bids may be affected due to bids at other potential donor ASEPs.

Full commitment required by Shippers

Most likely option to encourage single quarter bookings

39

Summary

The cost of protecting capacity from substitution up to the TBE forecast levels for the ASEPs considered in the example would be:

The project cost (used in the NPV test) to recover, up to the protected level, capacity substituted away would be:

ASEPMechanical

Approach

Option

Approach

(may be

refunded)

Two-stage Auction Project value*

One quarterOne “continuous”

quarter

Based on 1:1

exchange rate

Teesside Nil £511,000 £1,325,406 £3,052,221 £nil**

St Fergus Nil £2,336,000 £27,594,000 £69,467,895 £nil**

Bacton Nil £1,731,560 £4,545,345 £14,394,870 £24m

* Applies to Option Approach and 2-Stage Auction. For Mechanical Approach value is nil for all scenarios.** Substitution does not take capacity below TBE level.

40

Summary

The Mechanical Approach protects capacity at all ASEPs to a pre-determined level without Shipper involvement (no User commitment).

It is very restrictive and may prevent genuine opportunities for substitution being taken.

Possible problems with base data (TBE needs to be benchmarked, deliverability defined).

Should less stringent rules be applied? E.g. Protect to 90% TBE/deliverability.

The Option Model protects capacity, but only to the extent that it is genuinely needed as demonstrated by Shippers taking out options.

A commitment is required from Shippers but this may be much lower than buying the capacity. But it will still be higher than for a single quarter booking for some ASEPs.

National Grid is proposing that option fees are refundable if the capacity is ultimately bought by that Shipper thereby making the fee relevant only to speculative options.

The Two Stage Auction protects capacity, but only to the extent that it is genuinely needed as demonstrated by Shippers making capacity commitments.

The commitment may be much greater than the option fee. Would Shippers be encouraged to buy a discontinuous single quarter?

It makes Shippers commit earlier than they want to.

It provides certainty that capacity is available; it is a definitive allocation.

41

Next Steps

Next workshop Tuesday 12th May 2009

10am to 1pm

At Elexon

Is it needed?

• What further information is required?

Informal consultation due to commence 8th June 2009

National Grid still expects to consult on three potential proposals.

Development of associated UNC modification proposals throughout May / June.

Entry Capacity Substitution Workshop 8 – 7 th April 2009.

Documents

Transcript of Entry Capacity Substitution Workshop 8 – 7 th April 2009.