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Explore the gas reserve arrangements and demand response strategies during the peak winter months of November 2005 to March 2006, focusing on customer responses, market benefits, and the need for gas demand side response to prevent deficits. Learn about electricity's demand side participation and how schemes are evolving to meet future demands.
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Introduction of Gas Reserve Arrangements Mark Bailey Gaz de France ESS
Winter 2005/06 • Actual demand below seasonal normal during peak winter months • Demand above seasonal normal • Late November 05 • Middle March 06 • Rough Storage • Unavailable from 16th February 06 • Minimal demand response
Demand Side Response - Gaz de France ESS • Response entirely price driven • Reliant on customers who were exposed to short term prices • Limited response from customers who had hedged • Concerns regarding next winter • Buying behaviour may alter to move away from Day Ahead • Customers are much less price responsive to potential opportunities rather than avoiding costs • Our Customers response • 13th March 170,000 therms (P70) • More response on 14th and in the rest of the week
Customer’s Response • Why was response higher after 13th March • Day Ahead Prices for 14th onwards much higher than for the 13th • 13th - 59.8p/th vs 14th - 195 p/th • Customers need time to respond • Decide on their own trigger level • Discover the amount of alternate fuel available • Under the present regime there is no incentive to prepare • Without appropriate planning switching may take time
Why do we need gas demand side response? • Prevent progressing into a gas deficit emergency and: • Expands the choice of NGG re residual balancing • Introduces certainty and visibility around deliverable demand reduction • Establishes incentives for customers to actively participate • Supplies may not meet demand due to: • Very cold weather • Supply side failure eg. Storage, Beach, LNG, Interconnector • How much demand side response is needed? • NG Gas 1 in 10 scenario for winter 06/7 requires 50-60mcm demand side response • Relatively low levels of demand response seen so far • 75% volume CCGT, 25% volume from customers
Market benefits of demand response certainty • Gives better knowledge of firm customers that may be available to respond • Facilitates economic and efficient operation of the pipeline system • Achieves greater certainty about actual demand reduction deliverable on the day as it gives better knowledge of firm customers that may be available to respond • May allow upward adjustment of GBA trigger level • Customer response avoids passing through problems to electricity market • Diversifies risk away from storage only options – hedges reliability (eg. Rough) • Restore confidence in supply/demand balance which may reduce wholesale market volatility and smooth market prices
How did electricity accomplish demand side participation? • Demand Side Ancillary Services were created • Large electricity supply customers began to provide services in competition with generators • Increased competitiveness • Increased volume of response made available • Standing Reserve • Delivered in 20 mins, run for 2 hours • Availability and utilisation payments made. • Frequency Response • Instantaneous trip, load management 30 mins • Availability payments only
Demand Side Portfolio • Through our involvement within the I&C supply market, we were able to offer large volumes of MWs to NG • Our total Ancillary Services business brought to NG to date is; • FCDM – 200MW • Standing Reserve – 760MW • This growth is due to customers being incentivised to make load available via guaranteed payments • Energy only payments would not have produced these volumes (see Demand Turndown) • NG are keen to develop further in this area and have been reported to be looking for an additional 250MW in 2006/7
Growth of Schemes from Existing and New Participants • Customers initially ‘test’ participation, offering limited volumes • Increased response from existing providers is evident on both schemes; • Stems from participants’ experience and confidence in service provision grows. • Growth in some cases as high as 75% • Companies in similar industries are also encouraged to participate
How do we see the scheme working? • Product structure • Quasi-storage - aggregated bundles to mirror storage deliverability (by storage type or facility type) • NGG run a tender process – number of times a year to be agreed • NGG contract with shipper but dispatch customer directly to avoid time delay • Prices structured to best encourage investment in switching fuels by offering an Availability and Utilisation Payment • Customers shouldn’t be limited to contracting with their supplier
Cost Recovery Route • Cost Recovery Route • Cost recovery would be targeting on those who have caused the system action to be taken i.e. those who are out of balance • The Availability Payment element will be known immediately NGG decide how many participants there are known • The cost of the flat fee will flow through to SMP buy price • The Utilisation Fee element will be individually agreed between NGG and each participant agreed bilaterally during the economic assessment period of the tender process • The cost of the utilisation fee will feed through to SAP • Non delivery will be discouraged via events of default and associated contractual consequences
Summary • It is time for action now ahead of winter 2006/07 • Improved scheme vital to enable demand side response to prevent emergency measures • Incentive on customers to participate • Provide a mechanism to reflect the true value of their services • Follow the lead given by electricity • Increased demand side response would • Increase security of supply • Dampen price spikes