1. Mod 621A Supporting analysis
Nick Wye
Mod 621 Meeting
28 March 2018

2. Mod 621A - refresher
Proposes an increase in the “storage discount” from 50% to 86% for both implementation phases
Proposes non-application of capacity-based revenue top-up charge, in the enduring phase, on storage capacity bookings

3. Justification
Numerous reasons why discount should be greater than 50%
CWD model is simplistic based on the premise that revenue should be allocated on the basis of capacity and distance.
It does not reflect costs (or benefits) incurred by the NTS
It is based on average flows rather than peak/off-peak flows, so again difficult to marry with cost reflectivity, where system is built to meet peak flow/demand expectations
It is based on average distances rather than actual distances between entry and exit points (see relative prices of exit points close to entry points with those with lower average distances between all entry points and individual exit points)
The above can be remedied by shorthaul and/or diluting the overall distance impact, but storage cannot access shorthaul and is both an entry and exit point.
Storage is embedded in the UK network and its operational relationship is symbiotic with the SO
Gas which is delivered, stored and redelivered to the system has already paid transmission access charges at entry and exit points

4. WWA/GSOG paper – July 2017 Main points
Storage is a parking service (confirmed by Ofgem in its GTCR conclusions). Ofgem argued that commodity charges (and we presume revenue top-up charges) should not be applied to storage as it has already contributed to historical costs.
This could equally apply to all transmission charges as CWD is a methodology for recovering historical, current and future costs all of which are paid by gas entering and exiting (but not parked) in the system…….charges on storage result in double counting and overcharging.
Storage can be compared to linepack. It is embedded and injects during “low” demand and delivers during “high” demand. As such, it provides balancing assistance to National Grid.
If charges are to be more cost-reflective then given the system is built to meet peak demand levels then it could be argues that storage should be exempt from exit charges (as storage delivers on peak days).

5. Main points (cont)
Storage provides transmission benefits of between £40m to £70m p.a. through investment savings
Storage produces significant externalities (societal benefits) not realised by storage owners. These translate into security of supply benefits which can be allowed for in accordance with the EU TAR and Authority’s principal objective

6. Why 86%?
An assessment based on a shorthaul type tariff with storage satisfying local demand to ensure improved cost-reflectivity in charging. See WWA paper 14 Dec
Modelling looked at costs of injection and delivery to and from storage to an exit point, compared to costs of transporting gas directly to the same exit point
The average increase in unit cost of transportation for all storage points was 36%
In total, applying the min. 50% discount and the additional 36% discount to ensure fairer treatment for storage the total discount is 86%

7. Transitional Phase impacts
Entry
Storage discount
Expected Revenue Recovery Entry
Total Under-recovery
CRRC
IP Top Up
50%
-£49m
-£252m
0.0302
0.0231
86%
-£78m
-£253m
Change
59%
0.4% 0%
Exit
Storage discount
Expected Revenue Recovery Exit
Total Under-recovery
CRRC
IP Top Up
50%
-£26m
-£175m
0.0204
0.0182
86%
-£38m
-£177m
0.0206
0.0183
46%
1.1%
0.98%
0.54%
0.0

8. Enduring 50% discount – entry prices

9. Enduring 86% discount - entry

10. Enduring 50% discount - exit

11. Enduring 86% discount - exit

12. Enduring firm entry price comparison

13. Enduring firm exit price comparison

14. Increasing the discount to 100%
Repeated the modelling using same underlying assumptions with an increased storage discount
Results show little impact, due to relatively low levels of storage bookings combined with significant levels of existing entry capacity acquired at these points

15. Transitional Phase impacts
Storage discount
Expected Revenue Recovery Entry
Total Under-recovery
CRRC
IP Top Up
50%
-£49m
-£252m
0.0302
0.0231
100%
-£89m
-£253m
Change
81%
0.4% 0%
Storage discount
Expected Revenue Recovery Exit
Total Under-recovery
CRRC
IP Top Up
50%
-£26m
-£175m
0.0204
0.0182
100%
-£43m
-£181m
0.0211
0.0188
65%
3.4%
3.3%
0.0

16. Enduring firm entry price comparison

17. Enduring firm exit price comparison