Investment workstream

19 May 2009

Cross-border gas transmission

Investment project GRI NW (I1)

Opening of the Day

2nd Investment workshop GRI NW

Investment workstream2

NW GRI Project Objectives (*): By end 2008: understand existing incentives on TSOs to make additional capacity available efficiently By end 2009: an agreed regional framework for new cross border (**) investments should be in place By end 2009: begin to establish and implement co-ordinated incentive mechanisms

Success Criteria summary: Efficient TSOs can recover their costs & earn a reasonable return commensurate with risk Adequate cross-border investment leading to increased trade & greater price convergence Regulatory regimes support investment in capacity beyond contractual commitments from network

users, if adequate

* A Vision and a Roadmap for the Gas Regional Initiative North West, 4 April 2008

* Based on ‘A Vision and a Roadmap for the Gas Regional Initiative North West’, 4 April 2008* * Leading to in/decrease of capacity at a regional interconnection point

1. Reminder roadmap: this project is about path to agreed regional framework…

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2. Visualising virtual test steps and outcomes (1)

A published “Economic Test”

“Market-based Allocation”

Basis of decision (e.g. NPV test) to share risks, costs and benefits, agreed between regulators, TSOs and others

Bidding process for capacity determines level of build plus allocation of initial (mid/long-term) capacity.

Step 1 (Brussels => Dublin)

Step 2

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2. Visualising virtual test steps and outcomes (2);the regional investment climate is asum of national climates working

Expected outcomes test case (to be recorded in a test report):A shared model and a better appreciation for (cross-border, NW) pipeline investment risks and how they should be distributed, including:

- stress testing key elements of current regulatory frameworks and some innovative improvements to cross-border investment processes like EFETs bidding process/economic test concept.- assessing are “the outcomes acceptable from a regulators, tso’s and stakeholders perspective”(*) and, if relevant, potential advise on enhancement of the regional investment climate.

* See the ToR 8 January 2009, page 4.

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3. Key decisions today focus at confirming test design and going for it….

1. Approval of generic test design and, sub sequentially, a GO for it based on:

• Test model and parameters level of detail required (including potential for high level key national detail(s))

• Test bidding process and detailed timetable (May – September ‘09; including selecting between alternatives to shipper participation in bidding)

• Confirming the test questions – enable risk distribution dialogue based on shared model, while stress testing regulatory key parameters and innovative approach to investment process – and way of results recording (test journal).

2. Formation of new working Core group of TSO/Regulator(s)/ (observing) shippers to do Virtual Test tasks on way to September workshops, i.e. running the actual test.

3. Confirming the reference group to assist and advise the Core group.

4. Assignment of detailed tasks and respective timings needed to complete the Virtual Test process to the respective groups (see points 2 and 3).

5. General confirmation of any other crucial details (if any).

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Horatio Philips

Philips Multi Plane Mk I (1904) Philips Multi Plane Mk II (1907)

Perseverance may be needed!

Modern airplanes carry millions of happy customers today!

Innovation succeeds only after trial – today we do even more

Source: Kema presentation

Investment workstream

ANNEX

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Main relevant documents (excl. other EU discussions going on in parallel, setting the context)Current

• Roadmap

• ToR as approved

• VT document for Brussels

• Our common presentation Brussels: why are we here and road ahead… See also other presentations, eg on importance of incentives …

• Conclusions Brussels, 1st workshop

• Developed Excel model

• Developed bidding sheet

Potential (in “pipeline”)

• Manual (with 4 (9) frameworks)

• Test “journal” report with findings on the way Including outline of followed process

• Advise (report) on bidding process test from “Tilburg” experiment

• Finally, advise to all stakeholders on enhancing regional framework for investment (if required, by end of 2009)

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Remarks

We must be clear on differences to current world. Proposal for list Bundled product at borders

Proven congestion, test of societal need out of scope Dedicated pipeline: in relaity pipeline is often incremental to existing pipes

- This applies below 2-3 bcm, not at 10-20 like with us.

Transparency on investment model at all levels

Simplified frameworks, adopted to the “virtual purpose” (currently 1 parameter fits all)

100% same bidding process for all 4 “test” countries With a price schedule and flexible contracts durations

Pre-defined investment trigger: “when is it economic to invest” If trigger is met, capacity comes Trigger is per definition set illustratively as risk dialogue is not finalised

Open discussion on principles of settling potentially “uncovered” by contracts part of investment => risk distribution/risk dialogue

No other constraints like NIMBY (permits); finance etc…