1 Project Nexus Analysis of impacts and next steps Cesar Coelho Ofgem Project Nexus UNC Workgroup 03 April 2012

2 Agenda High-level principles for conducting an impact assessment (IA) Costs and benefits Next steps

3 Main areas to cover in IA High-level principles Topics 1) Distributional impacts on market participants For example, changes that improve the allocation of wholesale energy and distribution charges, less opportunity for gaming AQs 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 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 3) Other impacts For example, on sustainable development

4 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

5 Dealing with uncertainty High-level principles Data availability Conduct of market participants Rules in flux Potential 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

6 Standard of evidence required High-level principles Standard 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

7 Assessment of PN – potential costs PN Impacts – Costs and benefits We need to understand total costs to the industry under a range of scenarios StakeholderPotential 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 ??

8 Assessment of PN – potential benefits We need to better explain benefits and their materiality PN Impacts – Costs and benefits StakeholderPotential benefitAssumptions 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? ?

9 Assessing the impacts: An example Efficiency gains More accurate allocation of energy & network costs Lower balancing costs Etc. Incremental benefits Baseline Path/period of implementation Uptake of settlements products Options System upgrades GDN/NTS costs Metering costs? Etc. Costs Individual modifications/BRD Pack of BRDs implemented Some BRDs implemented Others Scenarios PN Impacts – Costs and benefits

10 Indicative timetable Next steps

11 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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