1. CAP142: Temporary TEC Exchange  Process derived from LDTEC principles  Example Scenarios

2. Aim of CAP142  To develop a process that allows access rights to be temporarily exchanged between two parties such that the pre-trade state is reverted to at the end of the trade Processes and timescales presented are based on those developed for LDTEC / STTEC and assume a relatively low level of utilisation

3. Generic life-cycle  Application by Users  Assessment by National Grid  Offer by National Grid  Acceptance / Rejection by User  Contracts with National Grid changed  Access & charging changes take effect during exchange  Periodic reporting by National Grid  End of trade period ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

4. Application  Joint application by the two parties seeking to trade  One application fee paid to cover assessment costs  could stipulate who pays – suggest recipient  Submitted within the financial year that the trade is sought  Seeking to identify the capacity provided at a “recipient node” by virtue of a reduction of capacity at a “donor node”  Application will need to state  the identities of the two trading parties  capacity that will be surrendered by the donor party  minimum and maximum capacity sought by the recipient party  time period for trade (whole number of weeks, or end of FY)  minimum period 4 weeks (to align with STTEC) ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

5. Application – Eligibility  Donor has TEC when applying  fulfilled requirements of Construction Agreement (for “new” TEC)  be liable for transmission charges for the TEC (all TEC)  Recipient has an operational connection when applying  sufficient CEC (on Power Station basis) if transmission connected  does not exceed Maximum Export Capacity if distribution connected  Recipient’s connection must be Grid Code compliant  relevant conditions apply to particular class of generator  i.e. not necessarily the same for donor and recipient ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

6. Assessment – No interactivity  Assessed against Operational Criteria of GB SQSS  Exchange rate set to not exacerbate existing operational costs  establish model considering generation and demand conditions  take into account planned transmission outages for construction and maintenance using best available data  reduce the export of donor by the amount in application  disregard will any constraint benefit of capacity donated  incrementally increase export of recipient within limits of the application until constraint exacerbated  Time required dependent on duration of exchange  varies between 3 to 7 weeks (timelines details later)  more complex than LDTEC ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

7. Assessment – Interactive applications  Some scope for interaction with  applications for STTEC, LDTEC, and TEC  other applications for short-term exchanges  Resolve by considering applications on a sequential first- come-first-served basis  Second comers considered sequentially  notified they are interactive  wait their turn (up to 7 weeks, if one “interactive” application), or  given option to withdraw (TEC available from following 1 April)  refunded application fee ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade i.e. quantity of additional rights and exchange rate could be inter-dependent

8. National Grid’s Offer  At end of assessment period, if the request can be accommodated, an offer will be made by National Grid  Offer will  state the capacity available as a result of that donated  could be profiled (including zero)  be bounded within the time period requested  be bounded by the minimum and maximum capacity sought  be described on a weekly granularity  be commercially firm for period if accepted  be valid only for defined offer / acceptance period ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

9. National Grid’s Offer AprilMarch Recipient MW Max app Min app Offered Exchange Start appEnd app ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade TEC

10. User acceptance / rejection  Offer will be open for acceptance or rejection for [1] BD  trade-off required between flexibility, impact on other applicants, validity of exchange rate offered, adequate decision time  Accepted or rejected by the recipient party only  donor party gives agreement to change its bilateral on application  enhances a timely and efficient process  If rejected, not change and application fee not refunded  If accepted, bilateral agreements changed as described in the offer and trade effective from date stated in offer ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

11. Contract change for temporary exchange  National Grid amends the bilateral agreements it has with the counterparties of the exchange (see next slide)  Separately identify temporary and enduring access rights  facilitates transparent tracking of rights  facilitates unwinding of trade  enables charging donor party for enduring TEC  Exchange starts on a Monday and at least 1 week following acceptance of the offer  alignment with existing “week-ahead” Control Room processes ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

12. Access & Charging Access  During the trade:  donor has reduced rights  recipient has increased rights  exchange rate sets relationship  Following the trade:  pre-trade rights restored to both counterparties of the trade Charging  During the trade:  donor continues to pay TNUoS for all enduring capacity rights  bilateral between donor and recipient for exchanged capacity  Following the trade:  donor continues to pay TNUoS for all enduring capacity  bilateral between donor and recipient ceases ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

13. Reporting – Available TEC to exchange  TEC Register details who currently has TEC (and therefore who could temporarily exchange rights to another party)  TEC Register provides the following information  the identity of the User  the station name  the point of connection  TEC (MW)  the applicability i.e. whether current or future TEC (and if so, when)  Updated 5 business days after a change to a User’s TEC  Enables Users to identify potential trading partners ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

14. Reporting – Exchanges  If there is a perceived industry benefit certain information could be made available to the industry (similar to LDTEC)  Accepted exchanges  the counterparties of the trade  the period of the trade  the amount donated  the average amount received  Rejected exchanges & where no offer made  the donor party  the period of the trade  the amount offered for donation ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade to enhance information about potential exchange rates to enhance information about parties willing to donate rights

15. Arrangements at the end of the exchange  Following trade all access rights return to pre-trade position  Different from enduring trade as subsequent applications for incremental TEC received within the exchange period will be assessed against the pre-trade contractual background i.e. with the donor’s original access rights  consistent with the enduring rights afforded by TEC that are not afforded by a temporary TEC exchange  Donor’s enduring rights can therefore be preserved following completion of the temporary trade ApplicationAssess Offer Accept or Reject Contrac ts Access & Chargi ng Reporti ng End of trade

16. Summary timelines 9 – 12 months 6 – 9 months 3 – 6 months Start of the Financial Year End of the Financial Year Start of the exchange period Assessment (weeks) Accept / Reject (1 BD) 1 week for Ctrl Rm prep Trade effective (months) 1 – 3 mths

17. Example scenarios  Scenario 1: Unity exchange rates, same charging zone  Scenario 2: Non-unity exchange rates, same charging zone  Scenario 3: Unity exchange rates, different charging zones  Scenario 4: Non-unity exchange rates, different charge zones  Scenario 5: Trading within a negative charging zone  Scenario 6: Trading between negative and positive charging zones

18. Nomenclature  P1 is the Donor party  P2 is the Recipient party  TNUoS 1 is the prevailing TNUoS tariff applicable to P1  TNUoS 2 is the prevailing TNUoS tariff applicable to P2

19. Scenario 1A Unity exchange rates, same charging zone Trade agreed pre-October (TNUoS 1 = TNUoS 2 )  P1 has 200MW and donates 100MW to P2 who receives 100MW  Trade starts in April and ends in August (4 months)  Application assessment time 4 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC2000 Donated TEC100- Received TEC-100 Max Export100 UoS ChargesPays TNUoS 1 for 200MWNone Bilateral between UsersP2 could pay TNUoS 1 on 100MW to P1

20. Scenario 1B Unity exchange rates, same charging zone Trade agreed post-October (TNUoS 1 = TNUoS 2 )  Same trade takes place but between November and March  Exactly the same process, rights and charges as Scenario 1A  TNUoS tariffs determined considering allocated enduring TEC  retained and incremental TEC provides investment signals to National Grid  TNUoS based on long-run incremental costs of providing TEC at a node  National Grid will assume TEC remains with donor party  Donor should continue to receive charge that reflects retention of LT right  Recipient does not have LT right (but does make use of the transmission system by virtue of rights surrendered by another user and the bilateral agreement between users should take this into account)

21. Scenario 2 Non-Unity exchange rates, same charging zone Trade within same zone (TNUoS 1 = TNUoS 2 )  P1 has 200MW and donates 100MW to P2 who receives 80MW  Trade starts in April and ends in September (6 months)  Application assessment time 5 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC20050 Donated TEC100- Received TEC-80 Max Export100130 UoS ChargesPays TNUoS 1 for 200MWPays TNUoS 2 for 50MW Bilateral between UsersP2 could pay TNUoS 1 on 100MW to P1

22. Scenario 3A Unity exchange rates, different charging zones Donor in higher charging zone (TNUoS 1 > TNUoS 2 )  P1 has 200MW and donates 100MW to P2 who receives 100MW  Trade starts in April and ends in January (10 months)  Application assessment time 7 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC2000 Donated TEC100- Received TEC-100 Max Export100 UoS ChargesPays TNUoS 1 for 200MWNone Bilateral between UsersP2 could pay TNUoS 1 on 100MW to P1

23. Scenario 3B Unity exchange rates, different charging zones Donor in lower charging zone (TNUoS 1 < TNUoS 2 )  Exactly the same process, access, and charges as Scenario 3A  TNUoS charges levied should reflect the long-run costs incurred to provide new and existing users long-term transmission access rights  need to ensure that donor party continues to face a cost reflective signal that reflects the cost of it retaining an long-term access right regardless of the location of any party that makes temporary use of this

24. Scenario 4A and 4B Non-Unity exchange rates, different charging zones Donor in higher or lower charging zone  P1 has 200MW and donates 100MW to P2 who receives 50MW  Trade starts in April and ends in May (2 months)  Application assessment time 3 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC200500 Donated TEC100- Received TEC-50 Max Export100550 UoS ChargesPays TNUoS 1 for 200MWPays TNUoS 2 for 500MW Bilateral between UsersP2 could pay TNUoS 1 on 100MW to P1

25. Scenario 5A Trading within a negative charging zone Trade over Triad period (TNUoS 1 = TNUoS 2 )  P1 has 200MW and donates 100MW to P2 who receives 100MW  Trade starts in November and ends in February (4 months)  Application assessment time 4 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC2000 Donated TEC100- Received TEC-100 Max Export100 UoS Charges Paid TNUoS 1 on exports in triad period (<100MW) No payment - no long term network benefit Bilateral between UsersP2 pays P1 bilaterally agreed amount

26. Scenario 5B Trading within a negative charging zone Trade does not overlap Triad period (TNUoS 1 = TNUoS 2 )  P1 has 200MW and donates 100MW to P2 who receives 100MW  Trade starts in April and ends in September (6 months)  Application assessment time 5 weeks P1 (Donor)P2 (Recipient) Access (MW) TEC200400 Donated TEC100- Received TEC-100 Max Export100500 UoS Charges Paid TNUoS 1 on exports in triad period (<200MW) Paid TNUoS 2 on exports in triad period (<400MW) Bilateral between UsersP2 pays P1 bilaterally agreed amount

27. Scenario 6A Trading between negative and positive charging zones Donor in positive charging zone  P1 has 200MW and donates 100MW to P2 who receives 100MW P1 (Donor)P2 (Recipient) Access (MW) TEC2000 Donated TEC100- Received TEC-100 Max Export100 UoS ChargesPays TNUoS 1 for 200MW No payment - no long term network benefit Bilateral between UsersP2 pays P1 bilaterally agreed amount TEC in negative charging zones is not scarce therefore unlikely that parties would seek to temporarily trade TEC into these zones

28. Scenario 6B Trading between negative and positive charging zones Donor in negative charging zone  P1 has 200MW and donates 100MW to P2 who receives 1MW P1 (Donor)P2 (Recipient) Access (MW) TEC2000 Donated TEC100- Received TEC-1 Max Export1001 UoS Charges Paid TNUoS 1 on exports in triad period (<100MW) None Bilateral between UsersP2 pays P1 bilaterally agreed amount Questionable whether trades would take place unlikely to result in non-zero exchange rate TEC in a negative charging zone is an asset

29. Conclusions Processes  Should be based on those developed for LDTEC Access  Long-term right retained by donor party post-trade  Temporary right acquired by receiving party during trade Charging  Donor still charged / paid TNUoS for long-term right  Bilateral agreement between donor and recipient