Irreversible Investment, Capacity Choice, And the Value of the Firm
Developing capacity & connection processes Long term non-firm capacity: Draft business principles
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Transcript of Developing capacity & connection processes Long term non-firm capacity: Draft business principles
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Developing capacity & connection processesLong term non-firm capacity: Draft business principles
6th September 2012
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Long Term Non-Firm: Recap Allow new connections and existing site expansions access to the NTS ahead of timescales for
firm incremental capacity delivery, but only where NTS reinforcement is needed
Would provide greater certainty for customers Where customer has significantly progressed their project and NTS connection is ready,
but firm capacity delivery is beyond the first potential gas flow date Where customer project is ready ahead of schedule Where customer project doesn’t need planning consent so timescales are potentially
misaligned ‘In flight’ projects
Aimed at covering the gap between firm capacity delivery and first gas flow date
Option A: Long term off-peak exit / interruptible entry capacityIntroduces new capacity product, sold through auctions (adhoc or fixed)
Option B: Non-obligated firm capacity, with buyback optionReleased via non-obligated capacity mechanism with a buyback option contract attached
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Draft Business principles
High level principles
First draft only
Industry discussion needed to ensure ideas are developed into a workable solution for industry, consider: Are these options workable?
Are these viable alternatives?
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Process trigger
No
Yes
Customer signals incrementalcapacity requirement
NG NTS analyse & determine howrequirement could be met
In the case that NTS build isrequired, does customer require
early access to NTS?
Unsold firm?
Substitution?
NTS build?
Customer bids/applies for firmincremental capacity from the agreed
delivery date
Long term non-firm capacity release wouldbe considered for the ‘early capacity period’
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Long Term Non-Firm: Release criteria
Applies to both Option A & B
Only released where: An incremental signal has been provided and Earlier access to the NTS is required and NTS reinforcement required
Staged capacity release (annually), conditional upon: Demonstration requirements being satisfied (where a bilateral agreement is in
place); and There being insufficient unsold firm capacity available to fulfil the customer’s
capacity requirement for the year ahead (customer must purchase any unsold firm capacity where available)
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Option A: Draft business principles
Capacity Product Longer term release of Interruptible Entry and Off-Peak Exit Capacity Release via an annual adhoc process Subject to curtailment Likelihood of curtailment provided to the relevant user for the release period
Pricing ‘Pay as Bid’ pricing, with a reserve price
Duration Capacity released throughout entire ‘early capacity period’ Held once a year for (up to) a 12 month period Up to 12 Monthly blocks
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Option B: Draft business principles
Capacity Product Non-obligated firm capacity Release via an annual adhoc process Buyback option contract for all days on which capacity is held Likelihood of buyback provided to the relevant user for the release period
Pricing ‘Pay as Bid’ capacity pricing Zero option price + exercise price capped at price paid for capacity
Duration Capacity released throughout entire early capacity period (annually) Held once a year for (up to) a 12 month period Up to 12 Monthly blocks
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Long Term Non-Firm Capacity Scenarios:How might it work in practice?
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Scenario 1 – Status quo arrangements
Buyback Period
Sold/Obligated Level
Request level
Firm capacity delivery date
Achievable firm capacity delivery
date
LTNF = Long term non-firm capacity
Time
Capacity
Quantity
Incremental Capacity
Situation: NG NTS unable to meet firm capacity delivery date and no permits to use
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Scenarios 2&3 – Status quo arrangements
LTNF
Sold/Obligated Level
Request level
Scenario 2: NG NTS can meet firm
capacity delivery date but customer requests early
access
Scenario 3: NG NTS unable to meet
firm capacity delivery date,extend with permits
First gas date
Firm capacity delivery date
Firm capacity delivery date extended by
permits
Firm capacity delivery date
LTNF = Long term non-firm capacity
Time
Capacity
Quantity
Incremental Capacity
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Scenario 4 – ‘PARCA’/Split Auctions & PCA
LTNF Period
Sold/Obligated Level
Request level
First gas date Firm capacity delivery date
DemoDates
passed
All Planning Consents Obtained
Situation: Demonstration information satisfied and all planning consents obtained
Time
Capacity
Quantity
LTNF = Long term non-firm capacity
Incremental Capacity
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Initial LTNF period
Sold/Obligated Level
Request level
LTNF to replace delayed incremental
Original firm capacity delivery
date
Revised firm capacity delivery date due to
planning consent delay
NG NTS Planning consent obtained
Situation: Delay in obtaining NG NTS planning consent
Scenario 5 – ‘PARCA’/Split Auctions & PCA
First gas date
Time
Capacity
Quantity
LTNF = Long term non-firm capacity
Incremental Capacity
Customer Planning consent obtained
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Proposed first LTNF period
Sold/Obligated Level
Request level
LTNF to replace delayed incremental
Original firm capacity delivery date & revised first gas date
Revised firm capacity delivery date due to
planning consent delay
Customer Planning consent obtained
Situation: Delay in obtaining customer planning consent
Scenario 6 – ‘PARCA’/Split Auctions & PCA
Original First gas
date
Time
Capacity
Quantity
LTNF = Long term non-firm capacity
Incremental Capacity
NG NTS Planning consent obtained
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Sold/Obligated level
Request level
Final Demo Date failed
Proposed LTNF period
– year 1
Firm capacity delivery date
First gas date
Incremental capacity build &
release cancelled
Date LTNF would have been renewed
for new gas year
Proposed LTNF period
– year 2
Situation: Failure to provide demonstration information
Scenario 7 – ‘PARCA’/Split Auctions & PCA
Time
Capacity
Quantity
LTNF = Long term non-firm capacity
Planned Incremental Capacity (no longer to be
released at this stage)