195AV “Future work” – system flexibility 7 May 2009

Background 116 modifications focused on flexibility around exit only During WG166/UNC195 discussions, became clear that: there were divergent views about impending scarcity of exit flexibility behaviours at entry points could have a significant affect on the availability of exit flexibility July 2008 IA raised the issue of looking at system-wide flexibility rather than exclusively at exit flexibility

Is flexibility as important at entry as at exit? Planned offtake profile Quantity 6am Planned entry profile 6am Quantity Single pipeline system Potential entry profile Linepack and flow margin buffer the profile difference between input and output Potential offtake profile Quantity Quantity 6am 6am 6am 6am

IA views and questions Ofgem cannot adopt a “wait and see” approach to the potential scarcity of flexibility capacity Is there a way to manage the requirement for flexibility capacity without introducing the 116V type of product? Proposed the establishment of: Operational arrangements to manage flexibility constraints An incentive to move to more commercial arrangements eg provision of flexibility services NGG would benefit from reducing costs of managing flexibility but suffer penalties if it needed to curtail flows Consultation responses offered support for this approach

195AV decision based on progression of system flexibility work Instigate procedures for managing the availability of flexibility Could be effected by: Clarifying & simplifying NGG’s existing operational tools for limiting shipper flows at entry and exit Establishing an incentive scheme for NGG NTS on the management of system-wide flexibility Review the impact of entry & exit on the availability of system-wide flexibility Any licence changes/ UNC modifications required to facilitate this should be in place by October 2009

Future network challenges Government targets on renewables and CO2 reduction Significant amounts of wind generation come on to the system, gas could become the marginal plant for electricity generation in calm times Significant swings in system load Can NTS cope and provide the level of security & reliability required under this scenario?

Tools for flexibility management Entry Scaleback of interruptible capacity Constraint management agreements eg forwards & options with Users Undertake prompt buy-back Terminal Flow Advice to restrict flow Exit Offtake rates in Network Exit Agreements for Direct Connects OCS flex bookings for GDNs Curtailment of interruptible loads Direct liaison by NGG with DCs/GDNs as necessary NGG can also undertake system balancing actions

Key questions on flexibility management tools Can we simplify/clarify/augment existing operational tools available to NGG to manage flex? Are the commercial incentives when these tools are used appropriate? Decision letter suggested placing a new financial incentive on NGG when it uses these tools to manage flex Determine “price” for use of tool and give them target costs and sharing factors if they beat (exceed) the target And allow them to keep a proportion of any revenues if they introduce useful commercial linepack/flexibility products

Reviewing system-wide flexibility What drives the need for flexibility from shippers/GDNs? What information items could NGG usefully release that would: Help users understand the level of system flexibility available Inform users/Ofgem on the likelihood of future scarcity at entry or exit Identify future products that NGG could use to manage system flexibility Would need to identify frequency & granularity of information release

How to proceed? By Oct 09, would like to have : Completed review of flexibility management tools Implemented any new tools where practical Devised appropriate flexibility information reports for release Over longer term: Derive flexibility products as appropriate Develop incentives to optimise flexibility management Conclude on capability of system to cope with future requirements for flexibility