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EDCM Development Workshop

EDCM Development Workshop. Welcome. 18 November 2010. 1 | Energy Networks Association. Introduction. Andrew Neves CMG Chair. 18 November 2010. 2 | Energy Networks Association. Agenda. 18 November 2010. Ofgem Background and governance EDCM Workstream summary

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EDCM Development Workshop

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  1. EDCM Development Workshop Welcome 18 November 2010 1 | Energy Networks Association

  2. Introduction Andrew Neves CMG Chair 18 November 2010 2 | Energy Networks Association

  3. Agenda 18 November 2010 Ofgem Background and governance EDCM Workstream summary Main demand charging issues: • Scaling • Justifying level of charges Questions ----------------------- Lunch -------------------- Break Out Sessions Output from Breakout Sessions Q & A Session Next steps Close 3 | Energy Networks Association

  4. Background / governance Harvey Jones DCMF Chair 18 November 2010 9 | Energy Networks Association

  5. Background 18 November 2010 Original submission date: 1 September 2010 DNOs worked to meet Ofgem requirements and to complete by deadline. Ofgem consulted in August 2010 and decided to extend the deadline to 2011 DNOs published ‘EDCM Information Report’ early September 10 | Energy Networks Association

  6. Decision to delay 18 November 2010 11 | Energy Networks Association

  7. Revised timetable 18 November 2010 12 | Energy Networks Association

  8. Boundary change 18 November 2010 Current Boundary for applying site specific charges: • All customers connected at 22kV or above • Any customers connected at less than 22kV but on site specific charges prior to 1st April 2010, will continue to be charged site specific charges • Any new connectee lower than 22kV will receive CDCM tariffs 13 | Energy Networks Association

  9. Boundary change 18 November 2010 New Boundary for applying site specific charges: (effective from 1st April 2012) • All customers at 22kV or above • All customers metered at a EHV/HV substation Note: Customers who are currently on site specific charges who do not meet the above criteria will migrate to CDCM on 1st April 2012. 14 | Energy Networks Association

  10. Ofgem’s decision • Ofgem decided to move the boundary for “site-specific” customers down to C1 and C2 – i.e. customers connected between 1kV and 22kV directly to the substation • This decision will be implemented in April 2012 alongside the pre-2005 connected generation arrangements and the EDCM 18 November 2010 15 | Energy Networks Association

  11. Treatment of pre-2005 generation DPCR5 removed the exemption on pre April 2005 DG from paying use of system charges Ofgem issued a decision on 23rd August requiring an unbundled solution We await Ofgem decisions on what, if anything should be compensated for We also require Ofgem to consider and decide on: a practicable compensation scheme a uniform national basis for compensation clear, definite and secure arrangements for DNOs to recover all compensation paid (in DPCR6 or otherwise) 18 November 2010 16 | Energy Networks Association

  12. Governance 18 November 2010 Modifications process managed under DCUSA, like any other DCUSA change Ofgem has asked for issues and modification ideas to be raised first at DCMF DNOs are planning their own resources under the auspices of ENA (Commercial Operations Group) 17 | Energy Networks Association

  13. The open governance process

  14. Next steps for the DCM SIG 18 November 2010 • Set out the process in more detail for the next DCMF. • DCMF SIG terms of reference • DCMF terms of reference • COG (CMA) group terms of reference • Criteria for urgent modifications • Step by step guidance of the process. • Establish a chair (seek DNO volunteers) for SIG • Establish a secretariat - Proposal is that this is DNO funded via the ENA • Establish a meeting regime for the SIG • Hold the first meeting and prioritise the outstanding issues • Report back to the DCMF 19 | Energy Networks Association

  15. EDCM workstream update Andrew Neves CMG Chair 18 November 2010 20 | Energy Networks Association

  16. Workstream A Marginal / incremental costing 18 November 2010 21 | Energy Networks Association

  17. Marginal / incremental costing 18 November 2010 • Each DNO must implement the Forward Cost Pricing (FCP) or the Long Run Incremental Costing methodology (LRIC) • Network studies used to identify future reinforcement requirements • Marginal / incremental charges based on future reinforcement requirements • Only capacity-related considered • Marginal / incremental charges form part of final Use of System tariffs 22 | Energy Networks Association

  18. Overview of methodologies 18 November 2010 23 | Energy Networks Association

  19. Improvements - LRIC 18 November 2010 • Revision of generation modelling in the ‘Minimum Demand’ scenario • generation coincidence within GSPs introduced • ‘Sense-checking’ of power flows derived from the application of security factors • thresholds applied • ‘Sense-checking’ of overall recovery of branch reinforcement costs • scaling factors introduced for branches with excessive recovery 24 | Energy Networks Association

  20. Improvements - FCP 18 November 2010 • Increased testing of impact of generation across network • increased testing around perimeter of network group in order to create a more rigorous and reflective generation testing regime • ‘Sense-checking’ of ‘test size’ generators (TSGs) • ‘circuit’ and ‘substation’ TSGs introduced • thresholds introduced 25 | Energy Networks Association

  21. Ongoing work 18 November 2010 • Development of the ‘Notional Path’ methodology • calculation and apportionment of the EDCM ‘pot’ based on EDCM customer usage of the EHV network 26 | Energy Networks Association

  22. Workstream B Development work since September has focused on: • Pre allocation of more identifiable costs, reducing residual revenue allocation when scaling. • Refined allocation methods (notional path assets used) • Different approaches to scaling residual: • Fixed adder (Ofgem guidance) • Voltage level adder • Site specific adder • Changes to generation scaling • Developing in-year charging options • Improved definition for sole use assets 18 November 2010 27 | Energy Networks Association

  23. Workstream C - Objectives The workstream C objectives are: • To assess the volatility of CDCM and EDCM • To improve the transparency and predictability of CDCM and EDCM • If necessary, to develop long term products to allow customers/suppliers to mitigate the volatility inherent in the charging methodologies. 18 November 2010 28 | Energy Networks Association

  24. Workstream C – EDCM Work • Completed EDCM Work • EDCM Volatility Analysis produced for September 2010 information pack – on ENA website • Current EDCM Work • Produce a 1 year volatility analysis once EDCM methodology is locked down. • Produce 5 year EDCM prices for each customer by varying Allowed Revenue. • Volatility assessment to be included in Dec 2010 consultation – dependant on locking down EDCM methodology in November. • Full volatility analysis and 5 year prices to be provided with EDCM submission in April 2011. • Standardise EDCM inputs once methodology agreed 18 November 2010 29 | Energy Networks Association

  25. Approaches to demand scaling • Shankar Rajagopalan • Reckon LLP (ENA/CMG consultant)

  26. Demand charging issues • The purpose of this development workshop is to seek views and feedback on two specific issues: • Approaches to demand scaling • Justification of prices

  27. Charges overview (1) EDCM tariff elements for demand: • p/kVA/day import capacity charge • p/kWh consumption at peak time charge • p/day fixed charge (sole use asset charge) 18 November 2010 32 | Energy Networks Association

  28. Charges overview (2) EDCM charge elements for demand: • Marginal charges (based on LRIC/FCP) • Allocation of transmission exit charges • Allocation of direct and indirect costs • Allocation of network rates • Allocation of residual allowed revenue (scaling) 18 November 2010 33 | Energy Networks Association

  29. Need to scale • DNO allowed revenue set by price controls • DNOs need to recover the revenue from EDCM and CDCM customers • Marginal charges and allocated costs may not match the revenue entitlement • Scaling is used to adjust the charges to match the revenue target

  30. Methodology overview (1) • Each EDCM demand customer is given a notional asset value based on the network levels it uses and its sole use assets. • The CDCM customers are taken together as a group and given an asset value based on the 500 MW model. • The DNO’s direct costs, indirect costs, network rates are allocated between EDCM and CDCM users based on these notional asset values. • Residual revenue (allowed revenue minus these costs) is allocated on the same basis • The allocation of these elements to EDCM users gives the EDCM revenue target.

  31. Methodology overview (2) FCP/LRIC charges are applied to EDCM demand users. Identifiable DNO costs are allocated to EDCM demand users. These include: • Direct operating costs • Indirect costs • Network rates • Transmission exit charges These are allocated to each EDCM user. The method of allocation varies between options. 18 November 2010 36 | Energy Networks Association

  32. Methodology overview (3) The recovery from cost allocation and marginal charges is compared to the target EDCM revenue. The difference (shortfall or excess) is allocated to EDCM demand users. The process of allocating the difference is called scaling. We are considering three options: • Fixed adder • Voltage level adder • Site specific adder 18 November 2010 37 | Energy Networks Association

  33. Methodology overview (4)

  34. EDCM demand revenue 18 November 2010 39 | Energy Networks Association

  35. Fixed adder method • Direct and indirect costs, network rates and revenue shortfall/excess are allocated to each EDCM demand user. • This allocation between EDCM demand users does not use assets. It uses a measure of aggregate network use (kVA) calculated as the sum of 50 per cent of agreed import capacity and historical demand at peak-time of all EDCM demand users. • A single DNO-wide charging rate in £/kVA is calculated and applied to the sum of 50 per cent of agreed import capacity and historical demand at the time of peak of each EDCM demand user. 18 November 2010 40 | Energy Networks Association

  36. Voltage level adder • Direct costs, indirect costs, network rates and revenue shortfall (or excess) are allocated to each EDCM demand user • This allocation between EDCM demand users does not use assets. Instead, it uses a measure of network use at each network level that is used by the customer • The measure of network use at the network level of connection is based on agreed import capacities. At higher network levels used, it is based on demand at the time of peak 18 November 2010 41 | Energy Networks Association

  37. Site specific adder • Direct costs, indirect costs, network rates and revenue shortfall (or excess) are allocated to each EDCM demand user. • The allocation is based on the value of assets used by each EDCM demand user. • This allocation between EDCM demand does not assume average use of assets at each network level by each user. It uses a “network use factor” for each network level and user. • This allocation method is consistent with the construction of the EDCM revenue target. 18 November 2010 42 | Energy Networks Association

  38. Stylised example • DNO allowed revenue - £20 million • Total notional assets - £200 million • EDCM notional assets - £20 million (£10 million at 132 kV and £10 million at 33 kV) • CDCM notional assets - £180 million • EDCM notional assets are 10 per cent of total • Therefore EDCM demand revenue target is £2 million 18 November 2010 43 | Energy Networks Association

  39. Stylised example The DNO has three EDCM demand customers: 18 November 2010 44 | Energy Networks Association

  40. Stylised example • EDCM demand revenue target is £2 million • Revenue forecast from the LRIC charge is £400,000 • Total other costs to be allocated are £1 million • Amount to be recovered from scaling is £600,000 18 November 2010 45 | Energy Networks Association

  41. Fixed adder • £1 million other costs and £600,000 scaling are split between customers based on capacity • Total EDCM capacity is 100,000 kVA • Other costs are charged at £10/kVA • The scaling fixed adder is £6/kVA 18 November 2010 46 | Energy Networks Association

  42. Fixed adder The fixed adder approach (based on kVA alone) 18 November 2010 47 | Energy Networks Association

  43. Voltage level adder • £1 million other costs and £600,000 scaling are split between network levels based on assets • Half the EDCM notional assets are at 132 kV and the other half at 33 kV • Therefore £500,000 other costs and £300,000 scaling at allocated to each network level • These amounts are allocated to users of the network levels based on capacity 18 November 2010 48 | Energy Networks Association

  44. Voltage level adder 18 November 2010 49 | Energy Networks Association

  45. Site specific adder • £10 million of assets at 132 kV is split between the users of the network level based on capacity and network use factors. • £10 million of assets at 33 kV is split between the users of 33 kV network level based on capacity and network use factors • Total notional assets are used to allocate £1 million costs and £600,000 scaling 18 November 2010 50 | Energy Networks Association

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