1. Cork June 2011 1 Dynamic modelling of transmission systems: costs of seasonal-zonal transmission loss factor charging and the impact of large-scale offshore wind Presentation to 2nd forum on Economics of Marine Renewable Energy HMRC UCC Dr Greg Swinand London Economics/Indecon London Economics www.londecon.co.uk

2. 2 Agenda  Review of studies done  Methods used  Results  Conclusions Cork June 2011

3. 3 Review of LE/Ventyx study  London Economics/Ventyx commissioned by Elexon (UK market operator) to study CBA of seasonal-zonal charging for variable transmission losses 2009 study with updates  A number of scenarios for different offshore wind levels modelled  Subsequently Ofgem also commissioned separate independent study (2010 Redpoint) to cross check LE/Ventyx results and also model further (30+GW installed capacity offshore wind) Cork June 2011

4. 4 Methods used  Ventyx ProMod™ nodal dispatch model of UK generation and transmission system used with full UK injection/offtake nodal model of transmission system  Model generates prediction of Transmission loss factors (TLFs) which scale up (demand) or down (generation) actual quantity Optimization over dispatch given the predicted TLFs in each year to 2021 Load weighted averages across seasons and zone applied ex ante based on previous year’s run Process repeated every year with forecasts of −Fuel and CO2 prices −Entry and exit −Transmission system changes, etc  Base and change case total production costs compared  CBA analysis done on DCF basis from fuel cost savings due to lower transmission losses Cork June 2011

5. 5 Methods used  Wind unit modelling  Wind units modelled with explicit hourly profiles that reflect the best available data for diurnal profiles and annual capacity factors based on wind location  Wind generation was not reduced to manage congestion or to lower transmission losses  Existing and known planned wind units are located on the appropriate injection buses in the powerflow data  Added future offshore wind capacity is added by increasing wind capacity proportionally at existing sites  Circa +1,200MW more wind than planned in 2009 (circa 7GW by 2021). Cork June 2011

6. 6 Results Table 6 ‑ 28: Aggressive Offshore Wind Sensitivity Reference Base Reference Change Change - Base Reference BaseReference Change Change - Base Production Cost (Billion Pounds Sterling) Diff% Diff Transmission Losses (TWh) Diff (TWh)% Diff 2011 6.966.95-0.010 -0.14% 3.833.56-0.274 -7.16% 2012 7.077.06-0.007 -0.10% 3.763.45-0.306 -8.16% 2013 7.307.29-0.007 -0.09% 3.713.50-0.204 -5.50% 2014 7.577.56-0.006 -0.08% 3.663.44-0.216 -5.90% 2015 8.228.21-0.006 -0.07% 3.433.26-0.171 -5.00% 2016 8.43 -0.005 -0.06% 3.573.45-0.126 -3.54% 2017 8.69 -0.005 -0.05% 3.903.75-0.151 -3.87% 2018 8.908.89-0.010 -0.12% 3.993.74-0.247 -6.20% 2019 9.299.28-0.010 -0.11% 4.043.78-0.262 -6.49% 2020 9.419.39-0.012 -0.12% 4.143.87-0.278 -6.71% Source: LE/Ventyx Cork June 2011

7. 7 Results Cork June 2011 Table 6 ‑ 29: CBA - Wind Development Scenario with NOx and SOx (£ millions) YearNOx CostsSOx Costs Production Cost SavingsImp. CostsOngoing Costs Annual Net- Cost Benefit Discounted Net-Cost Benefit 2011 £4.88£11.62£7.41-£3.85-£0.16£19.90£19.04 2012 £19.31£38.01£7.32£0-£0.16£64.48£59.03 2013 £10.28£17.16£6.75£0-£0.16£34.03£29.81 2014 £8.41£17.02£6.88£0-£0.16£32.16£26.95 2015 £10.79£22.56£5.30£0-£0.16£38.49£30.86 2016 £7.86£13.97£4.55£0-£0.16£26.22£20.11 2017 £8.33£11.64£4.45£0-£0.16£24.26£17.81 2018 £8.17£17.83£8.59£0-£0.16£34.43£24.17 2019 £6.69£13.42£10.63£0-£0.16£30.58£20.54 2020 £6.89£9.15£11.54£0-£0.16£27.43£17.63 Totals£331.98£265.94 Discounted Demand Side-Benefits £1.82 Total (including Discounted Demand-Side Benefits)£267.76 Source: LE analysis of Ventyx Data

8. 8 Results Cork June 2011 Table 6 ‑ 34: Annual Hours with Congestion - Offshore Wind YearBaseChangeDiffDiff (%) 2011260169-91-35.00% 20121,066922-144-13.51% 20131,5041,430-74-4.92% 20142,0671,945-122-5.90% 20152,7792,814351.26% 20164,556 00.00% 20171,5181,598805.27% 20181,6711,746754.49% 20191,5581,572140.90% 20201,1861,201151.26% Source: LE/Ventyx

9. 9 Conclusions  Studies showed significant costs exceeding benefits from seasonal-zonal tariffs  Levels of offshore wind did not materially impact the overall conclusion of benefits exceeding costs for seasonal zonal tariffs Levels of congestion not largely impacted either  Some of the major benefits from seasonal-zonal tariffs from reduced emissions and reduced fuel cost; these reduce under largest offshore wind capacity scenarios Cork June 2011

10. 10 Annex slides: Offshore wind scenario Cork June 2011 Table 6 ‑ 5: Aggressive Off-shore Wind Sensitivity - Installed Wind Capacity MW 20082009201020112012201320142015201620172018201920202021 GB Off- Shore Wind 4046147731,6212,0762,5963,1163,7924,3324,8375,3325,8276,3226,872 growth off- shore (MW) 211159848455520 676540505495 550 growth rate (%) 52%26%110%28%25%20%22%14%12%10%9%8%9% Source: LE/Ventyx

11. 11 Annex slides: Base case wind scenario Cork June 2011 Table 6 ‑ 4: Spring 09 Ref Case - Installed Wind Capacity MW 20082009201020112012201320142015201620172018201920202021 GB Off-Shore Wind 4045666881,3401,6902,0902,4903,0103,4603,9104,3604,8105,2605,760 growth off- shore (MW) 162122652350400 520450 500 growth rate (%) 40%22%95%26%24%19%21%15%13%12%10%9%10% Source: LE/Ventyx