Review Group 221: Security provision timing options and other supporting info

2 Security Provision Timing Options

3 Option 1 - Security put in place pre auction Option 1 - Security put in place pre auction.  Security based on estimate of the Allocated Capacity Value (ACV)  Security required 1 month prior to the QSEC auction bid window starting but Users can top up security prior to the allocation process starting.. ProsCons Ensures Users do not participate in the auction without security/commitment being in place Requires User to estimate security required, which could lead to errors if bidding strategy is changed/flawed. Ensures security is in place for all capacity holdings protecting community from the full impact of a User default. Above could lead to Users providing head room/more security than required, increasing operating costs Limited impact on current auction process and no need to re-run auction Possible barrier to entry due to project sanctioning issues Provides flexibility – Users are able to top up security

4 Option 2 - Security provided prior to allocation process starting  Option 2 - security provided prior to allocation process starting.  Existing 60 day allocation window would be extended to [75 days] to allow the User to provide their security within 15 days of the auction bids being processed/prior to the allocation process commencing.  All new capacity bids will be removed if insufficient security is in place prior to the allocation process commencing. ProsCons Allows User to provide security to match his allocated capacity holding, reducing operating costs Requires extension of allocation window. Ensures security is in place for all capacity holdings protecting community from the full impact of a User default. Potential minor impact on the timing of other capacity auctions/processes. No need to re-run auction

5 Option 4 - Hybrid of option 1 & 2. Hybrid Option 1 & 2 - Security (minimum %) or bid bond (fixed deposit for all) put in place pre auction but Users allowed to top up prior to allocation  Security/bid bond required 1 month prior to the QSEC auction bid window starting but Users can provide their overall security within 15 days of the auction bids being processed/prior to the allocation process commencing. ProsCons Ensures Users do not participate in the auction without some security/commitment being in place. May requires User to still estimate security required (if amount depends on a % of security). Ensures security is in place for all capacity holdings, protecting community from the full impact of a User default. Requires extension of allocation window. Provides flexibility – Users are able to top up security to exact amount required.

6 Option 3 – security provided after allocation Option 3 Security is provided within one month of the allocation process taking place.  User provides their security within [30] days of the allocation process finishing. ProsCons This option has the benefit of the User knowing exactly what security is required. User may fail to provide the security and the auction may need to be re-run.. Allows for sufficient time for the security to be put in place. Re-running an auction would affect other QSEC auction participants, incur costs, impact on investment lead times and may impact on the timing of other capacity auctions/processes.

7 Option 5 - Hybrid of options 1 & 3 Option 5 - Hybrid of option 1 & 3 - Security (minimum %) or bid bond (fixed deposit for all) put in place pre auction but Users allowed to top up prior to allocation  Some security/bid bond required 1 month prior to the QSEC auction bid window starting but Users can provide their security within 30 days of the allocation process finishing ProsCons Ensures Users do not participate in the auction without some security/commitment being in place. May require User to still estimate security required. Security in place is lower and will not protect community from the impact of a User default. User may fail to provide all the security and the auction may need to be re-run. Provides flexibility – Users are able to top up security to exact amount required. Re-running an auction would affect other QSEC auction participants, incur costs, impact on investment lead times and may impact on the timing of other capacity auctions/processes. However amount obtained may be sufficient to cover the costs of re-running the auction.

8 Security Required Note: overall amount of security is lower than previously reported due to changes to UPR and progress of projects affected

9 Bid bond level Security to be provided (range)Number of Users Over £1m20 £0.5m to £1m4 £0.2m to £0.5m6 £0.1m to £0.2m4 £0.05m to £0.1m3 £0 to £0.054 £011 Large User level? Small User level?