1. Background to National Grid’s Baseline analysis
14 August 2007

2. Agenda Baselines during TPCR 2002 - 2007
Consultation during the TPCR 2007 – 2012
Ofgem’s modelling requests
National Grid’s Network Analysis
Ofgem’s Updated and Final Proposals

3. Baselines during TPCR 2002 - 2007
How were the baselines set?
Baselines set on ‘Maximum Physical Entry Capacity’ (MPEC) methodology
Theoretical maximum through each ASEP
Ignored interactions between ASEPs
Obligations (SO baselines) set at 90% of MPEC
Baselines in aggregate (9755 GWh/d) acknowledged to be in excess of Physical capability of the system
Essentially purely a nodal model (no substitution)

4. Consultation during TPCR 2007 – 2012
Problems with current arrangements?
High baselines coupled with zero priced capacity on the day discouraged Long-Term Signals and encouraged Short-Term bookings
Problems for new entrants (ASEPs) – not able to secure capacity which was not yet booked at existing entry points
View that current arrangements were not flexible enough to deal with changing demands for capacity
Debate over retention of entry specific baselines or move to more aggregated level?
Should modelling be based on supply substitution or load absorption?
Discussion whether baselines should exceed physical capability of the system (at peak)

5. Load Absorption vs Supply Substitution
Purpose of the modelling was to determine the maximum supply capability at different points on the system
Starting point for any network analysis is that supply equals demand
How do you increase supply, yet keep supply and demand in balance?
Load Absorption:
As supplies are increased at entry points, demands are increased pro-rata to keep supply and demand in balance
Supply Substitution:
As supplies are increased at entry points a corresponding other supply point is reduced (demands kept fixed)

6. Ofgem’s initial modelling request
Network:
Initially for 2 years 2007/8 and 2008/9
Demand side: central case forecast 1 in 20.
Supply side:
Initially just TBE Auctions + scenario for 2007/08 for all entry points and for 2008/09 for MH and IoG Initially, employ both supply substitution and 50/50 supply substitution/load absorption
Using least favourable node as supply balance
Modelling work produced four sets of data on “baseflows” (which reflected the initial supply scenario)
Also produced “free increments” (reflecting network capability at individual nodes or zones)
Modelling involved around 4 x 26 sets of analysis (104 man days effort)

7. Ofgem’s further modelling request
Network:
Settled on using only 2008/9
Demand side: central case forecast 1 in 20.
Supply side:
Settled on using three TBE scenarios (Auctions +, Transit UK and Global LNG) using supply substitution
Using least favourable node as supply balance
Modelling work produced three sets of data on “baseflows” (which reflected the initial supply scenario)
Also produced “free increments” (reflecting network capability at individual nodes or zones)
Modelling involved 3 x 21 sets of analysis (58 man days effort)

8. Ofgem’s Initial Proposals
Ofgem’s Initial Proposals (June 2006):
Decided on entry point baselines
Baselines should be set consistent with physical capability of the network (to include planned investments)
NGG NTS to introduce methodology for substituting baselines (in response to auction signals)
Modelling work favoured supply substitution
Proposed baselines were set on average of 3 TBE scenarios of ‘baseflow’ + 90% of ‘free-increments’
NGG NTS re-iterated that baselines should not exceed physical capability of the system and in their view, Ofgem’s IPs did exactly that
Within response to IP document, NGG NTS outlined its views for modelling network capability and baselines

9. National Grid’s Network Analysis
Based on
2006 plan ( i.e. on 2005 TBE data)
Central Supply scenario
2008 Network
Hence included planned investments such as those on East Coast, Trans-Pennine pipeline
Zonal analysis (High case/Low case capabilities)
Taking strong account of network interactions on the system; and
Capacity commitments already sold

10. NTS Entry Zones

11. Zonal Best/Worst Case - Peak day 2008 (mscm/d)

12. Zonal High/Low Capabilities

13. Principles of allocation
No reduction in existing entry capacity commitments allowed
Based on maximum daily quantity booked for winter of 2007; plus
Incremental capacity released at each entry point from 2007
Any remaining capacity allocated on pro rata basis in proportion to expected peak level of supply
Highlighted interactions between zonal capabilities
If optimise Northern Triangle first, this results in reducing East Coast and West Coast zones below capacity rights already sold
East Coast zone chosen as starting point, hence based on ‘high’ case capability of 4127 GWh/d
Combined with Milford Haven at obligated level (950 GWh/d)
Results in only 1895 GWh/d of capability in Northern Triangle

14. Zonal Proposed Baselines

15. National Grid’s initial proposals for baselines

16. Ofgem’s Updated Proposals
Ofgem’s Updated Proposals (September 2006):
Stated that “baselines should be set at levels consistent with the simultaneous physical accommodation of possible flows under a wide range (although not all possible) scenarios across entry points”
Clarified that baselines will be set such that no baseline is less than the amount of obligated capacity already sold
Proposed reduction of proportion held back for shorter-term auctions to 10%
NGG NTS outlined concerns that not yet seen baselines which meet Ofgem’s stated aims

17. National Grid’s Proposals for all ASEPs

18. Ofgem’s Final Proposals
Ofgem’s Final Proposals (December 2006):
Stated that believed baselines reflected physical capability of the network
Baselines were consistent with the allowances made for NGG NTS in respect of the costs of buying back capacity
National Grid believed FP baselines still carried risk as above its proposed baselines
Note that no zonal analysis performed for NW or SW zones