Presentation on theme: "Mod 0333: Update of default System Marginal Prices Review Group 029111 August 2010 Transmission Workstream 07/10/2010."— Presentation transcript:
Mod 0333: Update of default System Marginal Prices Review Group 029111 August 2010 Transmission Workstream 07/10/2010
Contents Background Points raised at UNC Panel Development of Mod Next Steps
Background Mod 0333 raised following C27 Licence obligation and Review Group 0291 discussions 2 Main elements of proposal; Introduce new method for calculating default System Marginal Prices (SMPs) Calculate and if necessary revise and publish new default SMPs on an annual basis – calculate in Q1 each year, publish by March 1 st, go live with updated prices on 1 st April each year Output from new methodology is an update of current SMPs to 0.0544p/kWh from 1 st April 2011
Points raised at UNC Panel 16/09 How does this proposal link with EU requirements? Article 21 of the Gas Regulation 715/2009: “imbalance charges to be cost-reflective ‘to the extent possible’, whilst providing appropriate incentives on network users to balance their input and off-take of gas. Imbalance charges must also avoid cross-subsidisation between network users, and not hamper new market entry” ERGEG Draft Pilot Framework Guideline on gas balancing rules: “imbalance charges which are based on the costs of TSOs balancing the system are important to the development of competitive and well functioning gas markets.” Consider notice periods for changing prices? Mod states that new prices would be published no later than 1 March for implementation on 1 April New proposal is to provide 2 months notice i.e. notification by 31 January for implementation 1 April (in line with charging notifications)
Points raised at UNC Panel 16/09 Is this a User Pays Proposal? Licence Condition C8G provides the option for NG NTS to “log up” charges for Agency costs related specifically to “Energy balancing” changes Given the complexity of identifying & levying a separate User Pays charge, NTS feels it is appropriate to recover costs via the Licence Condition above Compressor Cost: Is this published separately from OUG? Costs used are actual cost of gas (and electricity) used to operate compressors. Proposal will obligate NTS to publish this info to coincide with annual review Does this proposal time out on 1st April if it is not implemented? No. Licence condition is to use reasonable endeavours to update figures by 1/04/2010. If date lapses obligation to update still stands Further implementation timeline to be discussed post development but may have to consider certain IS release windows to avoid risk to other pending reforms etc
Methodology What other options did we & Review Group 0291 look at? Setting default SMPs to 0p/kWh (cashout at SAP) Updating current Storage Bundled Unit (SBU) based methodology with new storage prices % SAP Reflect operational costs incurred Proposal maintains that SMPs may also be set by Market Balancing Actions (if outside the envelope of the default SMP) NTS is of the opinion that setting default SMPs using a proxy of operational costs is the correct route because…..
Mod 0333 Methodology Justification for including a TO element in the methodology? Mod 0333 uses one of many possible methods to derive a proxy for the costs of accommodating shipper imbalance positions using the following assumptions; To manage an imbalance without undertaking a Market Balancing Action a TSO requires two things; Storage Space – i.e. a High Pressure pipeline (with unutilised capability) to store or release the imbalance gas Compressors to inject or withdraw gas into / out of the above space The ability to accommodate shipper imbalances through a change in linepack levels is a consequence of under-utilisation of the system at various points along the supply and demand curve. On the peak day there is little or no ability to accommodate daily imbalances Away from peak the ability to accommodate daily imbalances varies with supply and demand patterns, maintenance, outages etc
Operational Cost Methodology Current Mod 0333 methodology Injection & Withdrawal costs based on Compressor Fuel costs Marginal cost = Compressor Cost / (Throughput + Imbalance) System ‘storage space’ costs Based on TO allowed revenue less under/over recovery Pipeline space cost = TO cost / (Throughput + Imbalance) Is this the best method to reflect the costs of providing this “storage space”?
Area for development Mod 0333 methodology attempts to derive unit cost (p/kWh) of NTS system to reflect unit cost of space One alternative National Grid would like to discuss and develop with help from Workstream is using the prevailing average NTS Entry and Exit capacity charges Why use NTS Entry & Exit capacity charges? Mod 0333 and these slides include numerous references to pipeline “space” i.e. NTS Capacity NTS Capacity Charges already seek to derive p/kWh of pipeline capability Clear, “transparent” and published methodology Regular thorough review and publication of supporting numbers Numbers reflect forward looking costs At least one update per annum Methodology regularly approved by the Authority
Rough overview of NTS Capacity charging Charging calculations still based on allowable revenue (the cost of pipeline assets + applicable returns) but split across peak demand Forecast Entry Cap =TO Allowed Revenue + Exit Cap 1 in 20 Daily Demand x 365
Indicative default SMP using NTS Capacity Charges Cost of Storage Space (October 2010 figures); Average NTS Entry Capacity price = 0.0138 p/KWh Average NTS Exit Capacity price = 0.0094 p/KWh Cost of injection or withdrawal (09/10 figures) Compressor Cost / (Throughput + Imbalance) = 0.0029 p/kWh Possible default SMP = 0.0261 p/kWh Default applied equally (+ & -) to both sides of SAP
Any further areas for development? OptionDefault SMP Buy (p/kWh) Default SMP Sell (p/kWh) Current defaults0.02870.0324 Updated current methodology 0.04520.0442 Current Mod 0333 methodology 0.0544 Solely compressor costs 0.0029 Alternative operational cost (NTS Capacity) 0.0261
Next Steps Transmission Workstream recommendation on proposed methodology Amend Modification Proposal 0333 based on Transmission Workstream feedback Discuss possible new implementation timescales & costs with xoserve Transmission Workstream November? UNC Panel November / December? Submit FMR to Ofgem by December?