RG0291 – NTS Licence SC27 – Balancing ArrangementsLinepack – Commercial Considerations/Options

Review Group 291 – 19th July 2010

Contents

1. What is the C27 Linepack Product?

2. Key Measures

3. End-of-Day Linepack Product - assumptions

4. Pricing Mechanism

5. Options

6. Options scored against Key Measures

7. Issues

8. Recommendations

What is a C27 Linepack product?

What is the C27 linepack product?

NBP EoD balance transfer

When are Users most likely to need the product?

To benefit from a more favourable D+1 price?

Benefit from a more favourable export price on D+1 (arbitrage between European prices and UK market)?

To balance Users portfolio within day and avoid cashout on D, carryover imbalance to D+1.

Others?

Consider interactions between the development of a Linepack product and the SMP defaults.

National Grid NTS believes;

SMP default, and any proposed revision or replacement, places a value on Linepack.

SMP default is a component used to establish the value for an interday Linepack product

Key Measures

Relevant Objectives

Better facilitates competition

Efficient and economic operation of the system

Viable commercial opportunity

No adverse impact on Physical Linepack and other flexibility utilisation

Doesn’t prevent future potential development of additional within day flexibility products

No adverse effect on the Residual Balancing Role

Should not impact Safety Case/obligations

EoD Linepack Product Assumptions

Inter-day product

NBP product

Made available within day

Park and Loan

NG NTS is the counter-party to all LP product transactions

NG NTS will have a Linepack account

Linepack released as a discretionary quantity

One or Multiple Linepack releases within day to be discussed

Timing of release (within business hours/ after hours) to be discussed

Pricing Mechanism options

Price determined through;

Administered price Fixed price

SAP differentials How is the price derived?

differential between: ?

D and D+1 Cashout price

OCM cashout price on D and TTF price on D+1

Market based Auction

Determined by participants

If a release is oversubscribed, how will product be allocated ?

Options

1. EOD Linepack product made available within day:

a) Single release

b) Multiple releases

2. EOD Linepack product made available within day through a single release (out of hours)

3. Hybrid Model (hybrid of SMP default cashout and C27 Linepack product)

Option 1a) EOD Linepack made available within day:single release

1. Single product release within business hours

2. Discretionary release of product

Considerations;

- Appropriate time of release?

Pros - Product available to all User within business hours

Cons - Less certainty of linepack volumes available within day may mean less product quantity is made available.

Option 1b) EOD Linepack made available within day:multiple release

1. Multiple product releases within business hours

2. Discretionary release of product

Considerations;

- What quantity is made available in each release?

Pros - Facilitates opportunities to adjust User imbalance positions through the day.

- Additional releases could be available closer to EoD when available quantities are clearer.

Cons - Multiple releases may represent less product quantity available in each release.

- Possibly more complex to administer

Option 2 - EOD Linepack made available late in the day through a single release

1. Single product release at [24:00]

2. Discretionary release of product

Consideration;

- Time of release

Pros

- Increased confidence of flexibility available

- Mitigates impact on physical operation and flexibility management

- After hours release may reduce potential conflicts with Residual Balancing obligations

Cons

- May exclude Users that do not operate out of hours

Flow/demand information and timing of product release

upside and down side associated

with release time

Later Release Early Release

Accuracy of flow/demand information

Risk of getting it wrong

Incentive to release quantity

Option 3 – Hybrid Model

1. Hybrid of SMP default cashout and C27 Linepack product

2. Seeks to value linepack through applying a charge or cashout differential to a User’s EoD imbalance position, which reflects the cost using linepack to absorb the imbalance.

3. Application of the price differential for short, long or balanced positions may be different depending on whether or not the User’s imbalance position was in line with the movement in linepack position for the D.

4. National Grid Transmission would enable linepack to move more between days to accommodate the service, linepack incentive revisions would be required.

5. This is not a Park and Loan service

This hybrid option does not fit with the assumptions of the EoD Linepack Product. National Grid Transmission proposes to discuss this in greater detail at the August review group session.

Options initial scoring against Key Measures Options 1(a) 1(b) 2Discretionary Release Within day Single

releaseWithin day Multiple release

Late day single release

Key MeasuresRelevant Objective:

Facilitates Competition

Relevant Objective:

Improves Operation of the Pipeline System

to be discussed to be discussed to be discussed

Does not impact NG NTS Residual Role

to be discussed to be discussed

Commercial opportunities to be discussed to be discussed to be discussed

Does not impact on Safety to be discussed to be discussed

No impact on Physical Linepack and flexibility utilisation

to be discussed to be discussed

Minimal impact on development of additional within-day flexibility products

to be discussed to be discussed

Interactions

Interaction between Linepack Product with Residual Balancing Role

Impact on, and trade-offs with, future potential development of additional within day flexibility products

Recommendations – Way Forward

NG NTS would like to further develop Option 2

NG NTS believes that the development of this option:

May be achieved at potentially minimal system development cost

Dependent on the costs associated with the development of a Bulletin Board on Gemini systems

Compliments the Default SMP developments

Option 3 to be discussed at the next Review Group session in August, in conjunction with SMP default cashout discussions