19 March 2010 energynetworks.org 1 PRESENTED BY Nigel Turvey Workshop on Distributed Generation Connected pre April March 2010

04 March 2010 energynetworks.org 2 Agenda for today Introductions Background Options for integrating pre 2005 generators raised in Is there a need for compensation ? Can there be a common process for amending contracts ? LRIC/FCP issues LUNCH Discussion on way forward Close

04 March 2010 energynetworks.org 3 2.Background Ofgem initial Decision Document on Structure of Charges – November 2003 said; “5.25. As a practical matter, it is therefore proposed that existing generators receive a full rebate against any use of system charges they would otherwise face in the period to 2010, unless they choose to opt-in. The position that will apply after 2010 will be considered as part of the review in 2005/06. No decisions have yet been taken which pre-judge the outcome of that review.” Final proposals for DPCR5 – December 2009 said: “4.7. We have carefully considered the responses to Initial Proposals and we still consider that the existing blanket exemption from GDUoS charges for pre-2005 connected DG should end on 31 March 2010.” It also said: “…. we think that it would be administratively simpler for Ofgem, the DNOs and all DG, if all the DG paid use of system charges on the same basis using a common methodology....…. We would like to see DNOs explore whether they can refund the DG for the relevant proportion of their connection charges in return for paying use of system charges which provide a better price signal to DG about the impact that they are having on network costs. “

04 March 2010 energynetworks.org 4 2.Background Ofgem also sent DNOs a letter on 18/12/2010 which said: “We have been clear as part of DPCR5 Initial and Final proposals that this ‘exemption’ is being removed and that we expect all distributors to review their existing contracts with distributed generators to ensure that users' rights are clear and are not unduly discriminatory in nature. ……… We are aware that there may be some pre 2005 generators who paid ‘deep reinforcement’ costs as part of their connection charge and that in such circumstances it may be inappropriate for DNOs to levy UoS charges without taking these previous payments into account. We expect DNOs to identify these generators and consider what appropriate non discriminatory charging arrangements should be put in place in each instance.”

04 March 2010 energynetworks.org 5 2.Background WPD and SSE submitted modification requests seeking to charge pre April 2005 EHV generators from April WPDs request included provisions to exclude assets paid for as part of the original connection and capping arrangements to charges Ofgem consulted on the WPD proposals and responses raised concerns about: Being charged at all The LRIC method and the proposed capping The lack of consistency across all DNOs Following the responses WPD withdrew the modification proposal (SSE also withdrew their request and resubmitted) and submitted a fresh proposal not charging pre April 2005 EHV generators with the following: “…. following Ofgem’s consultation on our proposal, we consider that it is appropriate to resolve the issues in relation to charging pre-2005 connected DG as part of a collaborative effort amongst the industry. Such collaboration is intended to develop appropriate enduring arrangements for charging DG. This approach is supported by Ofgem.”

04 March 2010 energynetworks.org 6 2.Background CDCM/EDCM CDCM was approved with HV/LV pre April 2005 generators being charged on the same basis as post April 2005 generators – these all have negative unit charges A condition of approval to address generator tariffs in the CDCM in generation dominated areas needs to be completed by 1 September 2010 EDCM in development and needs to be submitted by 1 September 2010 – we will need to include how pre April 2005 EHV generators will be charged in this

04 March 2010 energynetworks.org 7 3.Options raised in 2006 Issue discussed at ISG in 2006 resulted in an Ofgem discussion paper and presentation which considered the following options: (a) Do nothing (b) Introduce GDUoS without compensation (c) Introduce GDUoS with compensation paid either: 1) valuing the right currently being enjoyed to access network e.g. an ongoing rebate to UoS 2) by compensating generators for the change in connection boundary from deep to shallow Ofgem indicated a preference for option c2 but also sought views on other options that met the prime objective of; “Pre-existing generators receive appropriate economic signals” Attendees views on these options or other options ?

04 March 2010 energynetworks.org 8 4. Is there a need for compensation ? In considering compensation is what was paid historically relevant? What do we do if historic data is unclear or missing? Where are the contractual rights for SVA metered generators not to pay UoS? Views on how compensation should be calculated?

04 March 2010 energynetworks.org 9 5. Common process for amending contracts DPCR5 final proposals requires DNOs to have clear, enforceable contracts in place with all DG schemes as soon as practicable UoS for SVA generators is via part A of DCUSA with suppliers – does anything need to change? UoS for CVA generators is bilateral agreements – integrate into DCUSA ? How ?

04 March 2010 energynetworks.org LRIC/FCP issues The decision letter on the EDCM (July 2009) included principles and assumption for both LRIC and FCP – areas requiring further development were highlighted in italics. Those that particularly affect generator charging are: LRIC The approach to generator scaling is to be considered further by those DNOs selecting the LRIC approach The detail around the calculation of sole use asset charges should be further clarified by those DNOs selecting the LRIC approach. FCP The source of the generation forecast will need to be defined in more detail by those DNOs that adopt the common FCP approach The calculation of generation benefits should be considered and, if required, developed further by those DNOs that adopt the common FCP approach The detail around scaling is to be developed by those DNOs selecting the FCP approach The detail around the calculation of sole use asset charges should be further clarified by those DNOs selecting the FCP approach.

04 March 2010 energynetworks.org LRIC/FCP issues A version of LRIC was not vetoed in Feb 2007 and a version of FCP was vetoed in Sept 2008 Main issues raised by Ofgem with LRIC in the non veto decision were: They noted that responses were in favour of charges based on actual generation rather than a theoretical contribution based on P2/6 Capping of negative demand charges They noted concerns over assumed growth rates but supported the use of a long run growth rate Expect WPD to monitor cost drivers (particularly fault levels) Chargeable capacity – observed usage is used for demand, whilst agreed capacity adjusted by P2/6 is used for generation – Ofgem were unclear that there is a strong basis for the difference

04 March 2010 energynetworks.org LRIC/FCP issues Main issues raised by Ofgem with FCP in the veto decision were: The basis of the assumption of the expected level of generation in 10 years time Concerns over the use of the 85 th percentile as a test size generator Concerns that the generation model produces higher charges as the size of the test generator used in the analysis is reduced Concerns over the division of generation reinforcement costs by both existing generation and the test size generator diluting the charge rate and having a detrimental impact on cost reflectivity Use of a 10 year recovery period Different treatment of demand and generation and whether the cost drivers between demand and generation are different

04 March 2010 energynetworks.org LRIC/FCP issues Whilst there will be a consultation shortly on the EDCM, do generators currently have a view on: Which issues with the two methods are of greatest concern to generators? Do generators have other concerns ?

04 March 2010 energynetworks.org Next steps Further information required ? Further meeting(s)? Topics Contractual changes? When is compensation appropriate and how to calculate it? Better understanding of LRIC/FCP in the generation context? Other? Volunteers to lead these meetings

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