1. Environmental Standing Group

2. 2 Background  Ofgem issued an open letter on 15 th April 2008 to consider issues associated with carbon assessment for modifications  The group was established following this letter  In June Ofgem issued its final guidance  Pan- industry discussion – Representatives from BSC UNC DCUSA Distribution Code Grid Code  Objective of the Group was to establish common principles and guidance on the treatment of carbon costs under the current industry codes

3. 3 Overview of the debate  Firstly the Group debate Ofgem’s guidance including whether it was possible under the objective suggested by Ofgem and the impact / consequences  It was agreed that such analysis was possible and could also be undertake under the broader objective  Broad policy and funding framework was debated and considered  The Group highlight the potential risk for double counting  Group members presented a number of examples Connection of renewables (CAP164) – CUSC Reactive Power and Rated MW’s – Grid Code Potential impacts of micro-generation – BSC Potential impacts in the operation of Gas Transmission Compressors – UNC Potential impact of smart metering Potential impact of loss comparisons  The examples were used to identify common steps, principles and issues and a 1 page guidance document

4. 4 Common approach Steps  Establish a baseline level of carbon.  Calculate how the baseline carbon profile would be altered by the amendment.  Define the period of time over which the analysis should be applied.  Calculate the impact of carbon dioxide emissions or other greenhouse gas emissions, where appropriate, in CO2 equivalent terms.  Multiply carbon dioxide savings by SPC and apply any relevant discounting factors

5. 5 Common approach (continued) Principles  Keep the analysis as simple as possible, focusing on realistic scenarios and probable outcomes.  Focus on carbon dioxide impacts and ignore consequential impacts and affects i.e. the cost of carbon associated with the procurement of assets.  Clearly state all assumptions and ensure they are applied consistently.

6. 6 Common approach (continued) Issues  Assessment of carbon will be as complex as any other economic assessment  Analysis will be heavily affected by the assumptions  Longer timescales will require more assumptions and could increase the contestability of the analysis  Any assessment needs to be propionate to the amendment  Rick of double counting

7. 7 Conclusions The Group’s final conclusions are:  Assessment of carbon costs envisaged by Ofgem’s final guidance, is achievable  A broader assessment than ‘network operation” relevant objective is achievable under the objective regarding the efficient discharge of the relevant licensee’s activities  Assessment of proposed changes will vary on a case-by-case basis  Practical examples have aided understanding and identified some general principles and issues

8. 8 Conclusions (continued)  A large body of standard data and conversion factors is available i.e. DEFRA website  Information will aid and ensure a consistent approach across the industry  Assessment of carbon costs will be as complex as any other forecast cost benefit calculation. it will be significantly affected by the assumptions made These assumptions will need to be transparently set out for each assessment to ensure industry consultation on the assessment is full and effective.

9. 9 Recommendations The Group recommends that:  the guidance contained within or referenced by this report is used by subsequent CUSC Working Groups to help their assessment of carbon cost impacts;  this report is shared with other code panels for the same purpose;  the Group continues to meet at appropriate internals to share best practice and review the development of guidance. The Group believes that its Terms of Reference have been meet