1. Supply Assumptions for Investment Planning Transmission Planning Code Workshop 1 3rd April 2008

2. Introduction  Aim of this presentation to describe how supply forecasts are used for investment planning  Demand assumptions and network analysis techniques will be covered in more detail in a future workshop

3. Transporting Britain’s Energy (TBE) process  Annual consultation process with industry  Consensus on likely supply and demand patterns over the ten year planning horizon  Conclusions published in Ten Year Statement each December  Base Case scenario  Range of potential supplies

4. UK Supply Outlook  Considerable uncertainty present in supply outlook  Diversity of supply sources and therefore behaviour  Supply capacity far exceeds forecast demand e.g. by 2011 sufficient supplies signalled through TBE to meet 150% peak day demand  Global drivers for supply e.g. LNG markets, arbitrage between Continental European and GB markets  What possible supply patterns can we expect to see?  How can these be used to inform investment planning?

5. Supply Scenario Development  Scenario-based approach used for investment planning  Scenarios reflect potential generic supply patterns e.g. High LNG Imports, High Storage Flows  Represent sensitivities away from the TBE base case to enable network capability to be determined  Each scenario requires  Supply balancing assumptions  Supply rank assumptions (merit order)  Maximum and minimum supply flow assumptions  Analysis undertaken against each scenario  Supplies matched to different demand conditions  Network capability for each scenario determined (this may be less than the scenario requires)  Reinforcement to meet each scenario fully determined (where required)

6. Development of optimal investment plan  Maximum network capability away from base case flows tested  Existing investment projects are reviewed  Optimal investment plan considers range of supply and demand cases and other available options e.g. constrained LNG, buyback  Sanctioning of new entry investment projects undertaken on strength of long-term auction signals S6 S5 S7 S4 S3 S1 S2 Identification of Scenarios S6 S5 S7 S4 S3 S1 S2 Capability Analysis Optimal Investment Plan S6 S5 S7 S4 S3 S1 S2 Investment Planning Analysis

7. Supply Scenario Development: Balancing and Rank assumptions  Investment planning analysis must start from a balanced supply/demand position...  Supply balancing assumptions  Supplies that are held constant (not used in balancing)  Supplies that can increase  Supplies that can decrease  Supply rank assumptions (merit order of balancing)  Supplies are assumed to have different likelihood based on cost of supply i.e. more price-sensitive supplies only flow at the highest demand/price  New sites ranked within respective “supply type” depending upon the status and likely gas deliveries onto the NTS

8. Supply Scenario Development: Max/Min Flow Assumptions  Max and min supply flow assumptions developed from various data sources e.g.  Observed historic flows (e.g. using 5 th and 95 th percentiles)  Actual max/min flows seen historically  Physical terminal/sub-terminal capability  TBE information  Long-term entry capacity bookings  Different types of supply will require different range assumptions  Ranges modelled at sub-ASEP level

9. Example of max/min flow analysis (1)  Historical data for each sub-terminal or supply type at an ASEP sampled  Most recent data given preference  Maximum, minimum and expected values determined as functions of demand level or NBP price

10. Example of max/min flow analysis (2)

11. Example of max/min flow analysis (3)  Supply behaviour varies significantly  Lack of historical data or changes in observed behaviour require additional information to be used to inform flow ranges

12. Example of max/min flow analysis (4)

13. Why undertake max/min analysis?  Used to estimate minimum likely flows e.g.  What is the minimum flow we can expect at a storage site on a peak day if we assume it is on?  What is the minimum flow we can expect from UKCS gas landed at St Fergus?  Used to understand whether or not a site is likely to flow under any NTS demand condition e.g.  Used to understand price related behaviour NTS Demand % days site is flowing >300 67% >350 91% >400 100%

14. Demand Assumptions  Range of demand conditions studied for each scenario  NTS must meet 1 in 20 peak day requirement  Network must be able to support required flows and pressures at all lower demand levels  Information gathered from various sources  National Grid demand forecasts  Planning data from DNs (OCS process)  Data on directly connected customers

15. Summary  Base Case view of supply outlook for the planning horizon developed after industry consultation through the TBE process  Further supply cases are required for planning due to the diversity and uncertainty surrounding future supplies to the UK  Scenario-based approach is used over a range of demand conditions to ensure NTS can support future peak and off-peak flow patterns  Analysis is undertaken on a balanced network to understand network capability and identify required reinforcement  Investment projects are determined by considering  Reinforcement across supply scenarios for different demand conditions  Other options not requiring capital investment  Long-term signals from users

16. Next Steps  Next workshop planned for 1 May 2008 (after Transmission Workstream)  Suggested topics for discussion:  Demand assumptions for planning  Network Analysis techniques e.g. Capability analysis, Planning analysis  Entry and exit investment planning process and timeline e.g. links to QSEC auctions, OCS process  Consultation timetabled for mid-June start