Environmental Standing Group

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Background

Ofgem issued an open letter on 15th April 2008 to consider issues associated with carbon assessment for modifications

The group was established following this letter

In June Ofgem issued its final guidance

Pan- industry discussion – Representatives from BSC

UNC

DCUSA

Distribution Code

Grid Code

Objective of the Group was to establish common principles and guidance on the treatment of carbon costs under the current industry codes

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Overview of the debate

Firstly the Group debate Ofgem’s guidance including whether it was possible under the objective suggested by Ofgem and the impact / consequences

It was agreed that such analysis was possible and could also be undertake under the broader objective

Broad policy and funding framework was debated and considered

The Group highlight the potential risk for double counting

Group members presented a number of examples Connection of renewables (CAP164) – CUSC Reactive Power and Rated MW’s – Grid Code Potential impacts of micro-generation – BSC Potential impacts in the operation of Gas Transmission Compressors – UNC Potential impact of smart metering Potential impact of loss comparisons

The examples were used to identify common steps, principles and issues and a 1 page guidance document

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Common approach

Steps

Establish a baseline level of carbon.

Calculate how the baseline carbon profile would be altered by the amendment.

Define the period of time over which the analysis should be applied.

Calculate the impact of carbon dioxide emissions or other greenhouse gas emissions, where appropriate, in CO2 equivalent terms.

Multiply carbon dioxide savings by SPC and apply any relevant discounting factors

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Common approach (continued)

Principles

Keep the analysis as simple as possible, focusing on realistic scenarios and probable outcomes.

Focus on carbon dioxide impacts and ignore consequential impacts and affects i.e. the cost of carbon associated with the procurement of assets.

Clearly state all assumptions and ensure they are applied consistently.

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Common approach (continued)

Issues

Assessment of carbon will be as complex as any other economic assessment

Analysis will be heavily affected by the assumptions

Longer timescales will require more assumptions and could increase the contestability of the analysis

Any assessment needs to be propionate to the amendment

Rick of double counting

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Conclusions

The Group’s final conclusions are:

Assessment of carbon costs envisaged by Ofgem’s final guidance, is achievable

A broader assessment than ‘network operation” relevant objective is achievable under the objective regarding the efficient discharge of the relevant licensee’s activities

Assessment of proposed changes will vary on a case-by-case basis

Practical examples have aided understanding and identified some general principles and issues

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Conclusions (continued)

A large body of standard data and conversion factors is available i.e. DEFRA website

Information will aid and ensure a consistent approach across the industry

Assessment of carbon costs will be as complex as any other forecast cost benefit calculation.

it will be significantly affected by the assumptions made

These assumptions will need to be transparently set out for each assessment to ensure industry consultation on the assessment is full and effective.

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Recommendations

The Group recommends that:

the guidance contained within or referenced by this report is used by subsequent CUSC Working Groups to help their assessment of carbon cost impacts;

this report is shared with other code panels for the same purpose;

the Group continues to meet at appropriate internals to share best practice and review the development of guidance.

The Group believes that its Terms of Reference have been meet