Electricity System Operator Incentives BSUoS Seminar Place your - - PowerPoint PPT Presentation

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Electricity System Operator Incentives BSUoS Seminar

Tuesday 15th February 2011

Welcome and Introduction

Alan Smart, Energy Operations Manager

3

Agenda

Welcome and Introduction Overview of SO Incentives Review – David Smith BSUoS methodology – Colin Williams BSUoS Forecasts and input assumptions:

Energy – Katharine Clench Constraints – Guilherme Susteras

BSUoS Reporting – Jo Faulkner Closing remarks and next steps – Alan Smart

4

Things to note

Health and Safety Feedback forms

Overview of the Electricity SO Incentives Review

Place your chosen image here. Turn on the Grid and Guides

• ption under View and

check the ‘display drawing guides on screen’ box for position.

David Smith, Electricity Codes Manager

6

Where are we in the SO Incentives Review process?

Phase 1 (6 weeks) Phase 2 (15 weeks)

Review of current modelling approach (Ofgem-led with consultancy support) Development by NGET of revised forecasting methodology based

• n recommendations

from Phase 1

Phase 3 (8 weeks)

Examination of NGET’s proposed methodology, including models and modelling approach

7

Summary of Phase 1 key findings

Ofgem and Frontier suggested clear way forward:

Aim: Multi-year scheme:

• Promote system operation efficiency
• Reduce regulatory and industry burden

New constraint model and revised energy models to provide reliable analysis to support setting scheme parameters Ex-post treatment of unpredictable external factors beyond NGET’s control to remove windfall potential

8

Evolution of the proposed incentivisation approach

Current Proposed Target IBC Ex-ante Ex-ante forecast updated ex-post Adjustments to Target IBC Two ex-post adjusters Multiple ex-post adjustments Adjustments to out- turn costs Ex-post NIA None BSUoS Charges Ex-ante forecast Ex-ante forecast

9

Existing scheme

Profit Loss IBC No (or limited) dead-band (e.g. to cover modelling errors) Higher profit cap Lower loss floor Steeper sharing factors

New scheme structure

We believe the proposed approach will remove volatility and allow for sharper scheme parameters:

BSUoS Charging Methodology – Impact of BSIS Initial Proposals

Colin Williams - Charging and Revenue

11

Agenda

Calculation of BSUoS Charges Impact as a result of BSIS 2011/13

Internal Incentive External Incentive

12

BSUoS – Calculation and Billing

Charges apportioned on a £/MWh proportionality basis £/MWh - one price per HH period, paid by all Calculated half-hourly Billed Daily Two stage Financial Settlement

Daily, Settlement Day + 14 months Reconciliation Final RF Daily, Settlement Day + 16 working days Settlement Final SF Settlement Day + 5 working days *No invoice sent Interim Initial II*

Processing / Billing Timescales Definition Run Type

This will remain unchanged

13

BSUoS Charges - Calculation

Two main components of BSUoS

Internal - internal SO costs e.g. staff, buildings, IS External - costs of the services used to balance the system

Electricity related products

Balancing Services Contract Costs Balancing Mechanism Bids and Offers

Both Internal and External Costs have an Incentive Scheme Adjustment

14

BSUoS Calculation – Simplified

BM Unit Metered Volumes Contract Costs / Other Costs External BSUoS Charge Customer BSUoS Charges HH BMU Volume £/MWh x HH BSUoS Charge = HH BSUoS (£) HH Volume (MWh) = £/MWh Total BSUoS

For all HH periods of a Settlement Day

Internal BSUoS Costs BSIS BM Costs Internal Incentive Internal BSUoS Charge Total BSUoS Charge

15

BSUoS Calculation – Simplified

BSIS Incentive Internal Incentive BM Unit Metered Volumes Contract Costs / Other Costs External BSUoS Charge Customer BSUoS Charges† HH BMU Volume £/MWh x HH BSUoS Charge = HH BSUoS (£) HH Volume (MWh) = £/MWh Total BSUoS

For all HH periods of a Settlement Day

Internal BSUoS Costs BM Costs Internal BSUoS Charge Total BSUoS Charge

16

Incentivised Balancing Costs – Current Methodology

2010/11 IBC Calculation To determine the value of the incentive adjustment to BSUoS Charges the average IBC is calculated. Against this number the incentive adjustment is calculated by comparing against the Incentivised Target

IBCd = Σj (CSOBMj + BSCCVj + NIAj + TLICj ) + BSCCAd – OMd – RTd

Balancing Services Contract Costs Costs to SO of Balancing Mechanism (Bids / Offers) Net Imbalance Adjustment Transmission Loss Adjustment Reconciliation & adjustment Terms

17

BSIS – 2010/11 - Summary

• 20
• 15
• 10
• 5

5 10 15 20 350 400 450 500 550 600 650 700 750

Incentivised Balancing Costs (£m) Profit / Loss (£m)

Scottish Generation and IFA Adjusted Scheme

15% Upside Sharing Factor 15% Downside Sharing Factor Max £15m Profit Min £-15m loss Deadband (£0 profit or loss)

Summary of Current Scheme One Year Scheme Fixed Incentivised Cost Target Cap and Collar Sharing Factors

18

Impact on Incentivised Balancing Costs from Initial Proposals

2011/13 IBC Calculation Proposed changes to calculation of IBC

Remove NIA and potential removal of RT

IBCd = (CSOBMj + BSCCVj + NIAj + TLICj ) + BSCCAd – OMd – RTd

Balancing Services Contract Costs Costs to SO of Balancing Mechanism (Bids / Offers) Transmission Loss Adjustment Reconciliation & adjustment Terms Net Imbalance Adjustment

NIAj

Σj

19

BSIS – 2011/13 – Initial Proposals

Incentivised Balancing Costs (£m)

Revised Target

Summary of Initial Proposals Two Year Scheme Ex-Post Updated Target Fixed variances from Target Cap and Collar Sharing Factors

Upside Sharing Factor Downside Sharing Factor Target - y Target + y Limited or no Deadband (£0 profit or loss)

Scheme Profit of Loss (£m)

20

BSUoS – Internal Incentive 2010/11

FSOINt (£) Fixed Target £55,262,715 Summary of Current Scheme Five year scheme Annual adoption of BSIS sharing factors Fixed Target No Cap or Collar Sharing Factors

15% Upside Sharing Factor 15% Downside Sharing Factor

21

BSUoS – Internal Incentive 2011/12 & 2012/13

FSOINt (£) Fixed Target Summary of Scheme Remain as five year scheme Annual adoption of BSIS sharing factors Fixed Target per year No Cap or Collar Sharing Factors

Upside Sharing Factor Downside Sharing Factor

22

BSUoS Charges – BSIS 2011/13 Impact Summary

Sharing Factor Remains to be considered

• n an

annual basis

X

Calculation of Internal Incentive

No Change to method No Change to method Two Year External Scheme Variable Target with cap, collar and sharing factors Removal of NIA

Change Detail

X X

• Any

Change? Billing BSUoS Methodology of Charging and Apportioning Calculation of External Incentive

23

BSUoS Charging – Contact

Any BSUoS Charging Questions please contact: Colin Williams Colin.Williams@uk.ngrid.com Tel: 01926 65 5916

BSUoS Forecast - Energy Components

Katharine Clench, BSIS Commercial Analyst

25

Content

Headline Energy forecast Ex ante/ ex post inputs and assumptions Model sensitivity Black Start and Transmission Losses Waterfall diagrams

26 All Categories £m 2005/6 Year End 2006/7 Year End 2007/8 Year End 2008/9 Year End 2009/10 Year End 2010/11 Latest View

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance 6.1

• 27.6

19.9

• 71.5

11.6

• 37.9
• 28.0
• 27.9

Margin 194.9 159.1 183.1 358.4 186.6 155.9 159.2 174.8

• Op. Reserve

126.3 59.9 100.3 205.9 78.6 46.7 42.4 45.0 STOR 47.4 69.4 57.6 75.1 85.4 87.1 88.5 99.7 BM Start Up 7.4 11.9 14.8 28.9 10.8 8.1 9.7 10.1 CMM 13.8 17.9 10.4 48.5 11.8 14.1 18.6 19.9 Energy + Margin 201.1 131.6 203.0 287.0 198.3 118.0 131.2 146.8 Footroom

• 5.5

9.2 5.2 5.7 30.2 13.9 28.3 31.0 Fast Reserve 51.0 58.4 58.3 60.8 63.3 69.4 75.3 77.8 AS Response 65.5 124.3 126.0 129.5 111.5 139.1 126.3 126.5 BM Response 71.2 36.3 31.8 71.3 50.4 27.9 54.1 48.3 Reactive 54.5 53.1 47.0 61.9 42.8 48.1 59.3 60.5 Blackstart 14.5 15.5 13.6 16.9 14.5 16.8 28.4 29.0 Total (less Constraints and TLA) 471.0 442.9 497.3 655.4 532.0 448.6 521.2 539.1

Headline Energy Forecast

27 All Categories £m 2005/6 Year End 2006/7 Year End 2007/8 Year End 2008/9 Year End 2009/10 Year End 2010/11 Latest View

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance 6.1

• 27.6

19.9

• 71.5

11.6

• 37.9
• 28.0
• 27.9

Margin 194.9 159.1 183.1 358.4 186.6 155.9 159.2 174.8

• Op. Reserve

126.3 59.9 100.3 205.9 78.6 46.7 42.4 45.0 STOR 47.4 69.4 57.6 75.1 85.4 87.1 88.5 99.7 BM Start Up 7.4 11.9 14.8 28.9 10.8 8.1 9.7 10.1 CMM 13.8 17.9 10.4 48.5 11.8 14.1 18.6 19.9 Energy + Margin 201.1 131.6 203.0 287.0 198.3 118.0 131.2 146.8 Footroom

• 5.5

9.2 5.2 5.7 30.2 13.9 28.3 31.0 Fast Reserve 51.0 58.4 58.3 60.8 63.3 69.4 75.3 77.8 AS Response 65.5 124.3 126.0 129.5 111.5 139.1 126.3 126.5 BM Response 71.2 36.3 31.8 71.3 50.4 27.9 54.1 48.3 Reactive 54.5 53.1 47.0 61.9 42.8 48.1 59.3 60.5 Blackstart 14.5 15.5 13.6 16.9 14.5 16.8 28.4 29.0 Total (less Constraints and TLA) 471.0 442.9 497.3 655.4 532.0 448.6 521.2 539.1

Headline Energy Forecast

£521.2m £539.1m 2011/12 2012/13

28

New Modelling Approach

Scheme Target (bundled)

Forecast Inputs Modelled Relationships Ex-Ante Actual Data Inputs Ex-Post

Ex-Ante/Ex-Post Approach

29

Ex ante Inputs

Modelled relationship STOR volume and price Trend 2009/10 Volume Weighted Price Reserve for wind % Demand Energy Imbalance Static Response/ FFR Constraints - CMM Reactive Power Margin Fast Reserve Footroom Frequency Response

30

Ex post Inputs

Power Price NIV Headroom Wind generation Nuclear generation RPI Energy Imbalance Frequency Response Fast Reserve Footroom Margin Reactive Power Ex ante inputs

Assumptions and Sensitivities

32

Ex Post Input Assumptions Power Price

20 40 60 80 100 120 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 £/MWh SPNIRP (Avg) BM Price (Avg)

FORECAST ACTUAL

33

Ex Post Input Assumptions Power Price Scenarios

Power price by:

50%

~£79m increase to each year

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

+36% +25% +~16%

34

Ex Post Input Assumptions Power Price Scenarios

Power price by:

50%

~£60m decrease to each year

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

• 36%
• 15%
• 27%
• 21%

35

Ex Post Input Assumptions Headroom

500 1000 1500 2000 2500 3000 3500 4000 4500 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 MW Headroom (Avg)

FORECAST ACTUAL

36

Ex Post Input Assumptions Headroom Scenarios

Headroom and by:

40%

± ± ± ± ~£26m to each year ± ± ± ± 6% ± ± ± ± 17% ± ± ± ± 24%

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

37

Ex Post Input Assumptions Wind Generation

1000 2000 3000 4000 5000 6000 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Wind mean generation (MW) 2012/13 2011/12 2009/10

38

Ex Post Input Assumptions Wind Scenarios

Wind output and by:

15%

± ± ± ± ~£10m to each year ± ± ± ± ~6% ± ± ± ± 8%

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

39

Ex Post Input Assumptions Net Imbalance Volume (NIV)

• 1200
• 1000
• 800
• 600
• 400
• 200

200 400 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 MW

FORECAST ACTUAL

40

Ex Post Input Assumptions NIV Scenarios

NIV and by:

100MW

± ± ± ± ~£90m to each year ± ± ± ± ~300%

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

± ± ± ± 4 %

41

Ex Post Input Assumptions Nuclear Generation

1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 MW Nuclear (Avg)

FORECAST ACTUAL

42

Ex Post Input Assumptions Nuclear Scenarios

Nuclear output to and to 8800MW

• £33m and

+£10m to each year

• 43% and +14%
• 47% and +13%

All Categories £m

THIS MODEL (Apr/11 to Mar/12) THIS MODEL (Apr/12 to Mar/13)

Energy Imbalance

• 28.0
• 27.9

Margin 159.2 174.8 Operating Reserve 42.4 45.0 STOR 88.5 99.7 BM Start Up 9.7 10.1 CMM 18.6 19.9 Energy Imbalance + Margin 131.2 146.8 Footroom 28.3 31.0 Fast Reserve 75.3 77.8 AS Response 126.3 126.5 BM Response 54.1 48.3 Reactive 59.3 60.5 Blackstart 28.4 29.0 Total (less Constraints and TLA) 521.2 539.1

4500MW

43

Ex Post Input Assumptions RPI

• 2.00%
• 1.00%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13

FORECAST ACTUAL

44

Black Start and Transmission Losses Transmission Losses

£29m 2012/13 £28.4m 2011/12

Black Start

£57.4m Total Availability fees Capital Testing

5.5TWh ± 0.5TWh

45

Energy Forecast - Range

£448.6m (latest view) 2010/11 £539.1m £521.2m Mid £785m £377m 2012/13 £767m £361m 2011/12 High Low Low = combined output of lower case scenarios High = combined output of upper case scenarios

46

Waterfall 2010/11 to 2011/12

£9.9 £3.3 £14.4 £5.8 £26.1 £11.2 £11.6 £2.9 £521.2 £448.6 £12.7 £400 £420 £440 £460 £480 £500 £520 £540 2010/11 Energy Imbalance Margin Footroom Fast Reserve AS Response BM Response Reactive Blackstart Other 2011/12 £m

47

Waterfall 2011/12 to 2012/13

£0.1 £15.6 £2.7 £2.5 £1.2 £0.6 £1.0 £539.1 £521.2 £0.1 £5.8 £510 £515 £520 £525 £530 £535 £540 £545 2011/12 Energy Imbalance Margin Footroom Fast Reserve AS Response BM Response Reactive Blackstart Other 2012/13 £m

48

Energy Summary

Energy forecast for 2011/12 and 2012/13

Ex ante and ex post inputs Ex post assumptions Model sensitivities Waterfall diagrams

£539.1m £521.2m Mid £785m £377m 2012/13 £767m £361m 2011/12 High Low

Constraints Forecast

Gil Susteras, Future Requirements Manager

50

Agenda

Model overview

Unconstrained calibration

Ex-ante assumptions Ex-post assumptions Forecast Scenarios and waterfalls

51

• 1. Unconstrained Run (simplified)

Ex-ante Ex-post Model output

Generator FPNs and Interconnector flows to meet forecast demand (assuming infinite Transmission System

capability)

Simulation of interconnected (non-GB) markets Generator Availability Generator Dynamic Parameters, efficiencies etc Fuel/ Carbon Prices Wind Output Demand Forecast

52

• 2. Constrained Run (simplified)

Generator FPNs and Interconnector flows to meet forecast demand (assuming infinite Transmission System

capability) Transmission System modelled by a number of zones divided by boundaries Each boundary has a limit Forecast generation and demand levels assigned to each zone IF: zone generation – zone demand > zone boundary capability The model re-despatches generation in order to satisfy each boundary limit (or constraint) based on BM Prices

Unconstrained calibration results

Sample results for key boundaries

54

Scotland

20 30 40 50 60 2000 3000 4000 5000 6000 7000

Scotland Peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW 20 30 40 50 60 2000 3000 4000 5000 6000 7000

Scotland Off-peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW

55

Thames Estuary

20 30 40 50 60 1000 2000 3000 4000

Thames Estuary Peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW 20 30 40 50 60 1000 2000 3000 4000

Thames Estuary Off-peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW

56

South Wales

20 30 40 50 60 1000 1500 2000 2500 3000 3500

South Wales Peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW 20 30 40 50 60 1000 1500 2000 2500 3000 3500

South Wales Off-peaks solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW

57

French Interconnector

20 30 40 50 60

• 2000
• 1000

1000 2000

France (IFA) off-peak [Positive=flow into GB] solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW 20 30 40 50 60

• 2000
• 1000

1000 2000

France (IFA) peak [Positive=flow into GB] solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW

58

Moyle Interconnector

20 30 40 50 60

• 400
• 200

200 400

Ireland (Moyle) peak [Positive=flow into GB] solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW 20 30 40 50 60

• 400
• 200

200 400

Ireland (Moyle) off-peak [Positive=flow into GB] solid=FPN 2009/10; dashed=Plexos 2009/10

Week MW

Assumptions

60

Ex-ante assumptions

Generator Availability: OC2 + stochastic failure rate Generator Dynamic Parameters, efficiencies etc: BM submissions + publicly available information Simulation of interconnected (non-GB) markets: simplified stack (Redpoint’s experience) Demand Forecast: National Grid well established process Transmission zones and boundaries: National Grid experience and expected outage plan Generation/demand per zone: Diagrams + GSP historic levels Boundary limits: Power System Studies and operational experience

61

Ex-post assumptions

Fuel/ Carbon Prices: Argus forward curve and Bloomberg Wind Output: 2009/10 metered output scaled for expected installed capacity (Gone Green scenario) BM Prices: scaled from SRMC

Forecast

63

Like-for-like run (SRMC based)

2009/10 = 120 2011/12 = 268 2012/13 = 229

64

Pro-rata of values

2009/10 = 120 = £140m 2011/12 = 268 = £313m 2012/13 = 229 = £267m

65

Simplified waterfall (1)

140 313 154 19

• 50

100 150 200 250 300 350 2009/10 Fuel Prices & Generation changes Boundary limits 2011/12 Total Constraint Costs (£m)

66

Simplified waterfall (2)

140 267 104 23

• 50

100 150 200 250 300 2009/10 Fuel Prices & Generation changes Boundary limits 2012/13 Total Constraint Costs (£m)

67

Drivers for variations

System boundaries

Evolving transmission system

Fuel Prices

Snapshot based on forward curve; in reality, ex-post input

Wind generation

Snapshot based on best view of connections; in reality, ex-post input

68

Commodity prices effect

10 20 30 40 50 60 70 80 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2009 2010 2011 2012 2013 SRMC (£/MWh) Old CCGT Typical coal unit Coal unit (LCPD opted out) New CCGT

69

Wind generation

1000 2000 3000 4000 5000 6000 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Wind mean generation (MW) 2012/13 2011/12 2009/10

70

Sensitivity analysis

Commodity prices Wind

71

Effect of Movements in Gas Prices (up by 15% in summer)

10 20 30 40 50 60 70 80 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2009 2010 2011 2012 2013 SRMC (£/MWh)

Old CCGT Typical coal unit Coal unit (LCPD opted out) New CCGT

2011/12 forecast up by 60% 2012/13 forecast up by 50%

72

Effect of Movements in Gas Prices (down by 15% in winter)

10 20 30 40 50 60 70 80 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2009 2010 2011 2012 2013 SRMC (£/MWh) Old CCGT Typical coal unit Coal unit (LCPD opted out) New CCGT

2011/12 forecast down by 9% 2012/13 forecast down by 3%

73

Wind sensitivity 2011/12 (± ± ± ±15%)

500 1000 1500 2000 2500 3000 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Wind mean generation (MW) 2011/12 2009/10

2011/12 forecast up/down by ± 8%

74

Wind sensitivity 2012/13 (± ± ± ±15%)

500 1000 1500 2000 2500 3000 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Wind mean generation (MW) 2012/13 2009/10

2012/13 forecast up/down by ± 8%

75

Constraints Forecast - Range

£161m (latest view) 2010/11 £267m £313m Mid £422m £238m 2012/13 £526m £260m 2011/12 High Low Low = combination of all low scenarios High = combination of all high scenarios

76

Summary

Transmission system evolving in response to new connections Constraint management is a key aspect of the value added by National Grid as System Operator Sharper incentives + Higher requirements = potential increase in CMS contracts Forecast presented is a snapshot based on current best view of controllable and un-controllable drivers

BSUoS Reporting

Jo Faulkner, Balancing Services Manager

78

Waterfall Example

• ! "
• #$
• %

&'( !) !) %'( !* ) +'( (

79

Monthly Forecast & Outturn Example

20 40 60 80 100 120 140

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Month

Monthly IBC (£m) 200 400 600 800 1000 1200 Cumulative IBC (£m)

Intital Scheme Forecast Agreed Scheme Forecast Latest Forecast Outturn

• Cumu. Initial
• Cumu. Revised
• Cumu. Outturn+Forecast

80

Scheme Chart Example

,-./

81

Monthly BSUoS Example 2011/12: £0.95/MWh 2012/13: £1.02/MWh

• 0.20

0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Month BSUoS charge £/MWh Last Year Value Provisional Outturn Latest Forecast

Closing remarks

Alan Smart, Energy Operations Manager

83

Next Steps

Models to be ‘refreshed’ with most recent data prior to scheme start CUSC Modification to update Charging Methodology by removing the NIA concept from the BSUoS calculation Licence methodology statements to be developed Ofgem to publish Final Proposals in March 2011

84

Contact us

On the web: Our dedicated web pages for electricity SO incentives are available at the following addresses: http://www.nationalgrid.com/uk/Electricity/soincentives/ Talk to us: Ian Pashley: Tel: 01926 653446 ian.pashley@uk.ngrid.com General enquiries: SOincentives@uk.ngrid.com