Capacity Market – Introduction & Illustration November 2016 PRESENTATION TITLE ( FOOTER CAN BE PERSONALIZED AS FOLLOW: INSERT / HEADER AND FOOTER") 00/00/2015

EMR & the Capacity Market Security of Supply Affordable Energy De-Carbonisation The Government’s Electricity Market Reform has three main objectives: The Capacity Market, is ultimately designed to secure the supply of electricity Competitive auctions are held four years (T-4) and one year (T-1) ahead of the year that capacity is expected to be in place Bidders (generators and consumers) provide the price at which they’re willing to provide capacity to the network The final tranche of capacity which is procured sets the clearing price for all bidders

Who Takes Part & When? Costs started accruing in August 2014, when an office was created and administrative tasks began Participants first started offering capacity in the form of demand reduction (DSR) for the Winter of 2016/17; DSR can only take part in the T-1 auctions Generators are due to first offer capacity in the Winter of 2017/18; Generators participate in both the T- 4 and T-1 auctions with the vast majority of capacity being secured in the T-4 auction

Illustrative Customer Cost Cost Expectations Capacity Market Costs will start in earnest in November 2017 Charging Year Annual Industry Cost £ Illustrative Customer Cost p / kWh November 2015 ~ £4 m 0.0009 November 2017 > £1bn ? > 0.3 ? You can estimate Capacity Market Costs by dividing the Annual Industry Cost by the Industry Consumption in the Time of Use (ToU) period, and multiplying by the customer’s ToU consumption… 100 kW baseload customer consumes 25,000 kWh over the ToU schedule and 876,000 kWh over a year Assume national demand is 50 GW, and so consumption over ToU schedule is 12,500,000,000 kWh Industry Annual Cost X Customer ToU Consumption Industry ToU Consumption = £1,000,000,000 x 25,000 12,500,000,000 = £2,000 per annum

How does ENGIE Quote / Invoice? Year 1 Cost Estimated Industry Yr 1 Cost X Customer Yr 1 ToU Quoted Consumption Estimated Industry Yr 1 ToU Consumption = £26,000,000 x 25,000 12,500,000,000 = £52 Year 2 Cost Estimated Industry Yr 2 Cost X Customer Yr 2 ToU Quoted Consumption Estimated Industry Yr 2 ToU Consumption = £1,000,000,000 x 23,000 12,000,000,000 = £1,840 ESTIMATE FOR THE QUOTE = £1,892 Additional Calculation Estimated Annual Capacity Market Volume (EACV) = Customer Yr 1 ToU Quoted Consumption INVOICE Monthly Invoice in Year 1 Actual Industry Yr 1 Cost X EACV Estimated Industry Yr 1 ToU Consumption = £26,054,036 x 25,000 12,500,000,000 = £52.11 = £52.11 = £0.14 per Day 365 Days MONTHLY INVOICE (30 Day month) = £4.28 Monthly Invoice in Year 2 Year 2 Industry Annual Costs and Industry ToU Consumption; EACV is updated with Customer Yr 1 ToU Actual Consumption

How does ENGIE Reconcile? Year 1 Invoiced Cost RECONCILIATION Year 1 Actual Cost = £43.27 Actual Industry Yr 1 Cost X EACV Estimated Industry Yr 1 ToU Consumption = £26,054,036 x 25,000 12,500,000,000 = £52.11 Actual Industry Yr 1 Cost X Customer Yr 1 ToU Actual Consumption Actual Industry Yr 1 ToU Consumption = £26,054,036 x 21,375 12,782,511,270 RECONCILIATION VALUE = - £8.54 Note an ad hoc adjustment will be included on the May 2017 reconciliation to account for amounts invoiced in the previous system