Next steps on capacity Doug Wood NW-GRI SG, Paris, 9 June 2009

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3 So what about capacity? Firm capacity over a reasonable time period (or range of time periods) is the aim. Monthly and up to 2 – 5 years is ideal. Day ahead firm is still useful in addition to medium-term capacity, not as a substitute for it. Interruptible capacity is better than no capacity, but not really satisfactory −Capacity that has a high risk of interruption and/or can be interrupted for unpredictable reasons carries the highest risk. −The further ahead we can predict interruptions, the more useful it is. −Interruptible can still increase efficient utilisation of pipeline, which should bring advantages to owners and users.

4 Capacity ideas Medium term capacity products −Market needs medium term products (say 3-5 years) to complement existing products of Day Ahead and 10 year open season commitments −TSOs may therefore need to build new capacity that is not fully underwritten, with the remaining risks either to borne by the TSO (perhaps in return for a higher rate of return) or socialised in the rate base (but not both!). Conditional capacities −Capacity could be sold (either by the TSO or by the main primary capacity holder) that can be withdrawn/interrupted under defined, verifiable conditions. −Where a supplier of last resort must hold capacity in order to meet public service obligations to supply in a 1 in 20 /1 in 50 winter, then capacity could be sold to others on the basis that if temperature fell below a particular level or demand exceeded a particular level, then it would be withdrawn. They key is it would not be withdrawn under any other circumstances. Capacity release −Merger / competition remedy −Incentives on primary capacity holders – renomination restrictions and “release or pay”? But must investigate how to apply to cross border capacities, impact on legacy arrangements, revenue sharing, impact on balancing tools and within-day markets. Incentives on TSOs and on primary rights holders must be considered Common carriage Capacity buyback

5 What have we learned? Past workgroups have been instructive −Improved understanding of each others problems and objectives −Experience of refining objectives to what can be delivered. −Uncovering of legal issues −Different standards of delivery, different expectations −Don’t need to work at speed of slowest player But −Very labour intensive for small gain −Need to work smarter to deliver more with fewer meetings, less travel −Many potential low-level solutions; delivery is more important than long debates about relative merits. −Authorities need to find flexible ways to reward TSOs for doing the right thing

6 Next steps Continue to build on past successes (extension of day-ahead capacity pilot to Ellund and elsewhere, increase functionality of pilot). Look for opportunities to resolve legal bottlenecks when the time is right. Network users to define new ideas on capacity services, work with TSOs, regulators, other interested parties to produce workable solutions. Coordinate meetings to reduce travel time and costs, but don’t restructure the projects.

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