1. Demand Side Investment Planning Transmission Planning Code Workshop 2 1 st May 2008

2. Introduction  Supply assumptions for planning were discussed in Workshop 1 (3 rd April)  Aim of this presentation to describe how demand forecasts and Offtake Capacity Statement (OCS) information are used for investment planning

3. Basis for Investment Planning  Gas Act 1986 (as Amended by the Gas Act 1995)  Economic and efficient  Standard Special Condition A9. Pipe-Line system Security Standards  Firm demand is likely to be exceeded (whether on one or more days) only in 1 year out of 20 years.  Special Condition C2 Long Term Development Statement  Identify likely developments over a 10-year period  Special Condition C8E. NTS gas exit incentives, costs and revenues  Respond to requests for incremental capacity  Gas Safety (Management) Regulations 1996 (GS(M)R).  Deliver appropriate pressure at offtake

4. Demand Information  Provided by Customers  Contracted quantities  Direct connects  Offtake Capacity Statements  From DNs  Firm commitment for 4-years (to 2011/12)  Indicative for 1- year (2012/13)  Section H - OAD  Indicative load duration information from DNs  Pressures  ANOPs for direct connects  Within OCS for DNs  Provided by National Grid  Internal forecasts  At least 10-years  Annuals, Peaks, Load duration curves  Sectoral analysis  Econometric modelling

5. Demand Forecasting Methodology  Describes National Grid’s approach to developing demand forecasts  Peak Day forecasts  Load Duration Curves e.g. 1 in 50 (severe), average  Published on National Grid’s website

6. Gas Demand Forecast

7.  2007 saw another fall in DN demand  Higher prices  Energy efficiency  Demand destruction  2008 Forecasts significantly lower  Continued high prices  Loss of demand in large firm / interruptible sectors in early part of forecast  Demand slightly higher in early part of 2008  Uskmouth Power station – LDZ connection

8. Offtake Capacity Statement data  OCS process runs in parallel to TBE process  Initiated 1 June each year  OCS agreed by 30 September for the approaching gas year (Y) to year Y+3  DNs may revise bookings in future years  UNC TPD Section B: Offtake Capacity Statement process  Signals DN 1 in 20 peak day requirements for Offtake Capacity and Agreed Operating Pressures  UNC OAD Section H: Long term demand forecast data  DN off-peak forecast data  Used to inform TBE demand forecasts  Split of offtake flows used as input to network analysis for off-peak analysis

9. Timeline for Investment Planning - Exit MayJuneJulyAugSeptOctNovDec June-July OCS requests and DN offtake forecasts Aug-Sept Analysis of requests and discussions with DNOs end Sept DNOs notified of Offtake Capacity holdings and AOPs Exit analysis confirmation of annual Plan May-June initial TBE Base Case available Dec investment proposals published in TYS

10. Transporting Britain’s Energy (TBE) process  Annual consultation process with industry  Consensus on likely supply and demand patterns over the ten year planning horizon  Conclusions published in Ten Year Statement each December  Base Case scenario  Range of potential supplies  Range of potential demands

11. Interaction between OCS and NG Forecasts  OCS info limited to 5-years  But requirement is for a 10-year plan  For the first 5-years  OCS provides the definitive measure of DN 1 in 20 requirements  NG forecasts analysed as a sensitivity  For the last 5-years  NG forecast is the only source of information

12. Demand Scenarios – Balancing Assumptions  Investment planning analysis must start from a balanced supply/demand position for any demand day being studied  If available supply exceeds total demand  Supplies are reduced using balancing/rank/range assumptions  If total demand exceeds available supply  After taking into account potential new supplies  Power station load is reduced  Where OCS data is used, DN loads will be reduced for Plan Years 5+ before power station load is reduced*  Exceptions are power station loads at extremities of network *This corresponds to the indicative (5 th ) year onwards in the OCS

13. Hierarchy of analysis 1. Flat (10-year horizon) NG forecast 2. Flat (OCS) 3. Flex (OCS) 4. Pressure (OCS) 5. Off peak analysis (10-year horizon)

14. Flat Capacity Uncertainties  Demand patterns are generally better understood than potential supply patterns  Population centres and CCGT demands and locations are reasonably stable  Supply distribution has a major impact on ability to deliver demand side requirements  Sensitivities  What if Grain does not flow into the South East?  Milford – South West?  Storage – South West?  Other stress tests as required  Off peak analysis required to refine investment options and predict plant usage

15. Flex Capacity Uncertainties  Modelled Transiently  (hour by hour)  Sensitivities  Similar supply uncertainties to flat  Include wider supply variations  Supply profiling considered  Allocation within existing and planned capability  No specific investment

16. Pressure  Pressure capability is output of flat and flex capacity analysis.  Sensitivities  Need to consider long run requirements for flat and flex  Seasonal variations  Operational configurations

17. Comparison between Entry and Exit analysis Entry CapacityExit (Flat) Capacity Supply scenarios TBE Base Case and supply sensitivities TBE Base Case and localised supply sensitivities Demand scenarios TBE Base Case TBE Base Case and OCS Demands and sensitivities for new loads Load Conditions 1 in 20 peak day and off-peak (selected days on average load duration curve)

18. Development of optimal investment plan  Optimal investment plan considers range of supply and demand cases and other available options e.g. constrained LNG, buyback  Existing investment projects are kept under review  Sanctioning of new entry investment projects undertaken on strength of long-term auction signals  Sanctioning of new exit investment projects undertaken after user commitment received (currently through ARCAs) S6 S5 S7 S4 S3 S1 S2 Identification of Scenarios S6 S5 S7 S4 S3 S1 S2 Capability Analysis Optimal Investment Plan S6 S5 S7 S4 S3 S1 S2 Investment Planning Analysis

19. Summary  Base Case view of supply and demand outlook for the planning horizon developed after industry consultation through the TBE process  Further supply cases are required for planning due to the diversity and uncertainty surrounding future supplies to the UK and to test localised adverse supply patterns for exit  Further demand cases are required to ensure NTS meets 1 in 20 peak day requirement  TBE and OCS Demand data is analysed  Analysis conducted for peak and off-peak conditions  Investment projects are determined by considering  Reinforcement across supply scenarios for different demand conditions  Other options not requiring capital investment  Long-term signals from users