managing inefficient bypass in charging: national grid proposal...ngg proposal provides a 90%...

25
Managing Inefficient bypass in Charging: National Grid Proposal NTSCMF/UNC0670R: 11 February 2020

Upload: others

Post on 06-Aug-2020

2 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

Managing Inefficient bypass in Charging:National Grid Proposal

NTSCMF/UNC0670R:

11 February 2020

Page 2: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

2National Grid NTSCMF / 0670R 11 02 2020

Agenda

01 Introduction 03

02 Discount Curve Rationale 10

03 Sensitivities / Impacts 17

04 Contact details 24

Page 3: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

Introduction

01

Page 4: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

4National Grid

This is an opportunity to discuss and provide feedback on an initial

proposal from National Grid for a new charging mechanism to provide

optionality in the Charging Methodology to assist in managing potential

inefficient bypass of the NTS

Minded to position for 0678A would mean, without further modification(s)

there would be no such product should 0678A be implemented.

For 0670R this is presented for awareness and discussion.

As a modification proposal it would be presented as a new modification

separate to 0670R.

This expands on the material of 28 January to provide additional detail and

initial analysis to inform our current thinking

NTSCMF / 0670R 11 02 2020

Overview

Page 5: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

5National Grid NTSCMF / 0670R 11 02 2020

Focus of the proposed new product is that it be simple,

targeted and proportionate.

Emphasis is placed where it could be considered more likely

for potential bypass, with a generic methodology.

The resulting product would have a more predictable

resulting impact on other charges.

Provides an approach than can be delivered for October

2020 and reviewed and updated over time through UNC

change process.

Key principles

Page 6: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

6National Grid

Summary of key components

• Provides a discount to Transmission Services Capacity Reserve Prices (Entry and Exit)

for Eligible Quantities

• Transmission Services Revenue Recovery Charges and General Non Transmission

Services Revenue Recovery Charges remain payable

• Logarithmic curve to determine the discount based on distance and linked to proportion of

revenues effectively being levied on others

- Shorter the distance the larger the discount

- Discount collared at 10% (limit linked to interruptible discount)

• Existing Contracts not eligible for discount, these capacity prices are fixed

• Storage points and DN offtakes are not eligible Entry/Exit points for the product

• Limitations on flexibility once route nominated

Overview of product: Key components

NTSCMF / 0670R 11 02 2020

Page 7: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

7National Grid

Eligible Quantities

• Principle based on minimum of Shipper specific Firm Entry Capacity, Entry Flows, Firm Exit

Capacity, Exit Flows at the nominated Entry and Exit point at a starting level.

- Firm capacity entitlements will need to take into account secondary trades

• There are two Eligible Quantities, one for Entry and one for Exit.

- Existing Contracts would not be eligible for the capacity discount product. This would

therefore only adjust the Entry eligible quantity. Providing there is primary firm capacity

for Exit, an Exit discount would be applied.

Overview of product: Key components

NTSCMF / 0670R 11 02 2020

Page 8: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

8National Grid

Eligibility

• Once applied for, eligibility is enduring (i.e. do not need to reapply).

- Once selected, if changed or removed, the original route cannot be re-nominated within

that gas year.

- Once selected, can not change the Entry point to the associated Exit point within that

gas year.

• Application process ahead of the gas year, using the current SPA (Supply Point

Administration) process. Must nominate the route from an Entry point to an Exit point.

• Cannot have multiple Entry points to one Exit point. Can have multiple Exit points from one

Entry point.

• If the nominated route (Entry point to Exit point) at the start of the gas year has less

discount than lower limit due to a parameter change the route will be removed from product

and Shipper informed.

Overview of product: Key components

NTSCMF / 0670R 11 02 2020

Page 9: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

9National Grid

Accessibility and use

• Available to all within a flexible distance band linked to proportions of revenues that are, in

effect, incorporated into other charges

• Would be requested via the SPA process

• Changeability:

- Once requested expectation for that nomination to remain.

• Use and access to product:

- If no flows or no capacity bookings at either the specified Entry point or Exit point the no

discount will be applied.

• Reasonable nature of product – challenging to build in actual risk of bypass. Takes a

reasoned approach to reflect on distances over which it may be used and the potential

impact on other charges

Overview of product: Key components

NTSCMF / 0670R 11 02 2020

Page 10: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

Discount

Curve

Rationale

02

Page 11: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

11National Grid

• Here we explore the basis of using a curve in the proposal.

• We also expand on how costs are considered in the thinking behind the

proposal

• Provide the basis for the discount curve being applied

• Show the equation for the discount

NTSCMF / 0670R 11 02 2020

Likelihood of Bypass

Page 12: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

12National Grid

1. Using the General Flow Equation; with constants taken from TPD Section Y

2.5.2, current MNEPOR, and Pipeline Distances, a Pipe Diameter for all

potential routes was calculated

2. Using a formula published by the Council of European Energy Regulators in

paper “PROJECT CEER-TCB18 - Pan-European cost-efficiency benchmark

for gas transmission system operators – 17.07.2019”, pipeline costs have

been calculated based on Pipeline Distance and Pipe Size

NTSCMF / 0670R 11 02 2020

Likelihood of Bypass

Page 13: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

13National Grid

1. Using timescales inferred from the PARCA process, construction timelines

have been estimated for each route based on Pipeline Distance and Pipe

Size.

2. Costs of using the NTS during construction period were calculated, based on

Entry & Exit FCC and Standard 2020/21 0678A Reserve Prices.

3. Construction and NTS usage costs are combined and split evenly across a 10

year period to create an averaged annual cost of bypass construction.

4. Annual NTS usage costs estimated based on Entry & Exit FCC and Standard

2020/21 0678A Reserve Prices.

5. Ratio of annualised Bypass construction costs vs. Annual NTS costs

calculated.

NTSCMF / 0670R 11 02 2020

Likelihood of Bypass (cont.)

Page 14: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

14National Grid

Likelihood of Bypass vs Distance

Ratio of Bypass construction costs vs. Annual NTS costs calculated, plotted against

Distance (km)

NTSCMF / 0670R 11 02 2020

Routes with a ratio below 1:1 are not

considered to be at risk of bypass

and so are not plotted on the graph.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

0.0

Page 15: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

15National Grid

1. Graph demonstrates a curve and suggests a correlation between distance and

likelihood of bypass based on the construction costs

2. Highest calculated Ratio of bypass costs against NTS usage costs is at 0km,

the ratio is 9.973:1

3. This implies the most likely bypass user, over a ten year period could achieve

an 89.97% reduction on NTS Transmission costs. We have rounded this to

90%.

NTSCMF / 0670R 11 02 2020

Likelihood of Bypass

Page 16: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

16National Grid

Where:

PCD = Provisional Conditional Discount

CSL = Cross Subsidy Limitation

MDA = Maximum Discount Available

SLD = Straight Line Distance

| [Insert document title] | [Insert date]

The resulting equation

𝑃𝐶𝐷𝑟 = 1

𝐼𝐹𝐸𝑅𝑅𝑂𝑅 𝑒1.6094 ∗ 𝐶𝑆𝐿𝑦 ^−1 ,1 ^𝑆𝐿𝐷𝑟 − (1 − (

𝑀𝐷𝐴𝑦

100))

Page 17: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

Sensitivities

/ Impacts

03

Page 18: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

18National Grid

• In this section we demonstrate how, in combination with the other inputs (max

discount, min discount, etc) interact with the amounts paid and, by default, are

socialised.

• This is to illustrate the sensitivities of changing certain inputs such as %

Revenues, Transmission Services and Non Transmission Services, curve

versus straight line discount.

• Using one set of inputs we also summarise the results in the table form

presented under previous analysis.

NTSCMF / 0670R 11 02 2020

Sensitivities / Impacts on the Discount Curve

Page 19: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

19National Grid

Discount vs Distance (km)Based on a level of socialisation as a % of MAR

Straightline distances – 90% discount applied only to Transmission Charges

NTSCMF / 0670R 11 02 2020

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0 10 20 30 40 50

7.0% 7.5% 8.0% 8.5%

8.5% of MAR

allows for

discounts to be

distributed up to

50.3km

Using a socialisation pot equivalent

to 7% of MAR allows for discounts to

be distributed up to 1.3km.

Page 20: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

20National Grid

Curve vs. Straight Discount FormulaBased on a level of socialisation as a % of MAR

Straightline distances – 90% discount applied to Transmission Charges

NTSCMF / 0670R 11 02 2020

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0 10 20 30 40 50

7.5% 8.0% 8.5% 7.5% 8.0% 8.5%

Page 21: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

21National Grid

Discount vs Distance (km)Based on a level of socialisation as a % of MAR

Straightline distances – 90% discount applied to Transmission & General Non-Transmisson Charges

NTSCMF / 0670R 11 02 2020

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0 10 20 30 40 50

10.5% 11.0% 11.5% 12.0% 12.5%

To achieve a similar range of distances when applying

the discount to General Non-Transmission charges

the socialisation pot must be expanded to between

10.5% and 12.5% of MAR

Page 22: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

22National Grid

Discount vs Distance (km)Current Straight-line Distances

Transmission Discounted only. RRC and General Non-Transmission charges remain payable

8% MAR Socialised

Calculated Limitation for discount is 29.11km

NTSCMF / 0670R 11 02 2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00

Page 23: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

23National Grid

All based on Straight line distances.

NGG Proposal provides a 90% Discount to Transmission Charges only.

Analysis

NTSCMF / 0670R 11 02 2020

Prevailing

OCC0678H/J

FCC into

Stage 1NGG Proposal

OCC Contribution (£) £28,695,987.33 £16,993,934.00 £13,612,172.74 £57,355,899.36

Potential TS Socialisation (£) £91,588,511.59 £65,207,293.37 £60,920,174.44 £60,848,400.34

Gen Non-TS Socialisation £55,509,882.68 £42,648,739.22 £39,072,506.45 £0.00

Socialisation as % of MAR 19.4% 14.3% 13.2% 8.0%

Routes Considered 18 14 12 21

Max Effective Rate Discount 99.1% 97.6% 95.7% 62.7%

Longest Route Considered 244.0 53.0 27.0 27.0

Note:

TS refers to Transmission Services

General Non-TS refers to General Non-Transmission Services

Longest route considered only includes options where Firm capacity can be procured for Entry and Exit

Page 24: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

Contact

details

04

Page 25: Managing Inefficient bypass in Charging: National Grid Proposal...NGG Proposal provides a 90% Discount to Transmission Charges only. Analysis NTSCMF / 0670R 11 02 2020 Prevailing OCC

25National Grid

For any queries, comments, or more information please contact:

• Colin Williams ([email protected])

• Daniel Hisgett ([email protected])

• Laura Johnson ([email protected])

NTSCMF / 0670R 11 02 2020

Contact National Grid