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Project NexusAnalysis of impacts and next steps

Cesar CoelhoOfgem

Project Nexus UNC Workgroup03 April 2012

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Agenda

• High-level principles for conducting an impact assessment (IA)

• Costs and benefits

• Next steps

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Main areas to cover in IA

High-level principles

1) Distributional impacts on market participants•For example, changes that improve the allocation of wholesale energy and distribution charges, less opportunity for gaming AQs

2) Impact on prices•For example, the costs of implementing new systems (for transporters and suppliers) or the benefits from improved efficiency, lower AQ review costs, balancing charges, system management

3) Other impacts•For example, on sustainable development

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Steps for conducting the IA

Identify appropriate baseline counterfactual(s)

Identify costs and benefits against each of the main areas in the IA

Collect data on the costs and benefits for each of the possible counterfactuals and scenarios

Undertake analysis in line with best practice

High-level principles

Design the analysis to assess impacts

Undertake analysis in line with best practice

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Dealing with uncertainty

High-level principles

Data availabilityConduct of

market participants

Rules in fluxPotential sources

• Quantify costs using scenarios

• Prioritise assessment of benefits

– Which benefits can be quantified?

– Where are the biggest wins?

• Be clear about approach to qualitative impacts

– What is the effect?

– Is this sensitive to the scenarios?

Approach

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Standard of evidence required

High-level principles

Industry to use best judgement when providing data

Document sources and findings when conducting research to inform analysis

Use best practices in conducting analysis and modelling work

Provide an audit trail for figures in final report

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Assessment of PN – potential costs

PN Impacts – Costs and benefits

We need to understand total costs to the industry under a range of scenarios

Stakeholder Potential impacts £m initial

£m per year

Suppliers •System upgrades to accommodate processing and storage of larger volumes of DM data•Any specific impacts on Distribution and Transmission charges?•Staff training to manage larger number of DM customers•Any metering costs?•Other impacts?

? ?

Distribution companies

•System upgrades to accommodate processing and storage of larger volumes of DM data ? ?

Metering agent costs?

•System upgrades to accommodate larger volumes of DM data?•Other impacts?

? ?

Xoserve •System upgrades to accommodate larger volumes of DM data•Implementation of proposed solution

? ?

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Assessment of PN – potential benefits

We need to better explain benefits and their materiality

PN Impacts – Costs and benefits

Stakeholder Potential benefit Assumptions required £m per year

Suppliers •Accurate allocation of energy costs•Accurate allocation of network costs•Balancing costs•Identify and reduce unallocated units•Load shifting?•Efficiencies and cost savings•Reduce settlement timescales and costs?

•Variation of actual consumption from load factors•Potential for DSR?•Avoided costs•Other?

?

Distribution companies and Xoserve

•Identify and reduce unallocated units•Efficiencies and cost savings•Reduce settlement timescales and costs?

•Avoided costs

?

Other? Other? ?

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Assessing the impacts: An example

Efficiency gains

More accurate allocation of

energy & network costs

Lower balancing

costsEtc.

Incremental benefits

BaselinePath/period of implementation

Uptake of settlements

productsOptions

System upgrades

GDN/NTS costs

Metering costs?

Etc.Costs

Individual modifications/BRD

Pack of BRDs implemented

Some BRDs implemented

OthersScenarios

PN Impacts – Costs and benefits

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Indicative timetable

Next steps

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Roles and responsibilities

• Joint Office to facilitate the development of robust analysis

– Through project management

– Through analytical support

• PN workgroup is recalled to undertake analysis:

– Ofgem to outline best practice at first meeting in April

– JO provides first draft of a project plan at first meeting in April

– JO pulls together strawmans in advance of PN Workgroup meetings to inform discussion

– Industry, through PN workgroup, undertakes analysis and submits report to UNC Panel (in summer)

Next steps

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