1. Frankfurt (Germany), 6-9 June 2011 Dr David Hughes and Paul Barnfather EA Technology UK David Hughes – UK – Session 6 – Paper 0088 Building Risk Based Investment Programmes

2. Frankfurt (Germany), 6-9 June 2011 Approaches to defining/quantifying RISK 1. High level, top down 2. Asset based, bottom up

3. Frankfurt (Germany), 6-9 June 2011 High level, top down risk processes  Define risk categories – network performance, safety, financial, environmental, reputation etc  Create ‘probability v severity’ matrices in each category  Build a risk register Relatively easy – achieved quickly involving a few people Useful – defines corporate values/priorities and identifies significant areas of risk

4. Frankfurt (Germany), 6-9 June 2011 Asset based, bottom up risk processes Use of detailed engineering knowledge, experience and asset data to build asset specific risk models  Reference and refine corporate values  Evaluate specific investment programmes down to individual asset level  Enables comparison of cost/benefit across wide range of investment programmes  Leads to financial optimisation of investment plans

5. Frankfurt (Germany), 6-9 June 2011 Building an asset based risk process  Requires more work than a high level, top down model  Engage with a wide range of engineers, asset managers within a DNO  Access, qualify and use information from (disparate) various sources  But it is quite possible  Inclusive, engaging, empowering process

6. Frankfurt (Germany), 6-9 June 2011 Application to condition based replacement Condition Based Risk Management (CBRM) (papers in CIRED 2003,2005,2007&2009)  Practical process developed and applied with 40plus Electricity Companies worldwide  Define and quantify current and future condition, performance and risk of individual assets – built from detailed engineering knowledge  Risk – multiple categories all expressed in monetary terms - £, €, $

7. Frankfurt (Germany), 6-9 June 2011 Output from a CBRM model  Current and future condition linked to POF  Current and future risk with different investment programmes

8. Frankfurt (Germany), 6-9 June 2011 Optimising investment, balancing cost against risk (both expressed as £, €, $)  Define optimum investment for a single asset group or across multiple groups  Demonstrate major savings for same overall outcome

9. Frankfurt (Germany), 6-9 June 2011 Extending the approach to LOAD related investment Quantify; The consequences of increasing load – network performance consequences/risk The benefits (reduction in network performance risk) of investment options Enable; The clear expression of the synergies between load and non load related issues  Provides a direct means of optimising plans across the 2 major investment streams

10. Frankfurt (Germany), 6-9 June 2011 Further development/opportunities smart grids and low carbon networks  The same approach can be used to evaluate investment options in any area e.g. ‘smart grids’ and ‘low carbon networks’  This is not rocket science, it requires a structured approach to quantifying benefits in well defined, tangible terms

11. Frankfurt (Germany), 6-9 June 2011 Conclusions Asset based, bottom up approaches to risk  Are viable and very effective (see CBRM)  Are being extended to include load related investment  Offer the opportunity to prioritise, justify, optimise programmes across all investment streams If you want build effective risk based processes-: Engage with and trust engineering knowledge and experience (Its one of your most significant assets)

12. Frankfurt (Germany), 6-9 June 2011 Thank you for your attention For further information please contact me via the EA Technology stand (D69) in the exhibition hall