Embedded Generation- Charging and Access

TADG

London: 15th September 2006

Structure

The value of “embedded benefits” today

Who receives them and how?

Do they give the right signal?

Why a transmission access product for embedded generation is necessary

Value of “Embedded Benefits”, TNUoS

GSP Group

Current Estimated

MW Installed

Approx. £/kW Gen

Tariff

£/kW Dem Tariff

TNUoS avoided by Generator

Demand charges

earned by Supplier

Value of "Embedded

benefit"£/kW

Midlands Electricity 417 1.3 16.1 541,711£ 6,708,886£ 7,250,597£ 17East Midlands Electricity 309 3.1 14.56 957,447£ 4,496,914£ 5,454,362£ 18Eastern Electricity 714 1.3 15.14 928,326£ 10,811,429£ 11,739,755£ 16London Electricity 433 -5.7 19.78 2,466,572-£ 8,559,439£ 6,092,867£ 14Northern Electric 465 4.9 8.49 2,278,196£ 3,947,324£ 6,225,520£ 13United Utilities 545 8.1 12.03 4,410,968£ 6,551,105£ 10,962,073£ 20Yorkshire Electricity 837 8.1 12.04 6,778,169£ 10,075,204£ 16,853,374£ 20Seeboard 378 -0.7 17.95 264,270-£ 6,776,646£ 6,512,375£ 17Southern Electric 523 -0.7 19.43 365,923-£ 10,156,974£ 9,791,051£ 19SP Manweb 945 4.9 12.27 4,630,020£ 11,593,948£ 16,223,967£ 17WPD - South West 311 -8.0 22.22 2,484,720-£ 6,901,310£ 4,416,590£ 14WPD - South Wales 297 -2.6 19.77 771,056-£ 5,862,991£ 5,091,935£ 17Scottish Power 367 13.0 5.49 4,772,183£ 2,015,330£ 6,787,513£ 18Scottish Hydro Electric 724 17.0 0.5 12,312,039£ 362,119£ 12,674,158£ 18

2004/5 7262 31,256,519£ 94,819,618£ 126,076,136£ 17

Embedded Benefits (2), BSUoS / losses

BSUoS£41m, (£0.92/MWh, 0.35LF)

Losses£45m, (£50/MWh, 0.35LF, 2%)

Total benefit including TNUoS£212m today

Who pays Embedded Benefits?

Generation Demand

AllowedRevenue

£315m (fixed each year) £852m (fixed each year)

Liable generatorspay £31m too much

£95m reallocated between Suppliers benefiting those contracted to

embedded generation

Different classes of generationpay different amounts

Is there justification forcertain Suppliers to benefit?

Does a generator embedded at a point on the transmission system cause £17/kW less investment than one liable for charges?

Embedded Generation

Embedded Generation has the same effect on transmission flows as an equivalent directly connected generator

Different treatment could be viewed as discriminatory

The transmission rights/ obligations of embedded generators are not definedThe value of embedded benefits are not proportional to avoided transmission costs

Charges/ benefits not cost reflective

Intra GSP Group

EGs not supplying local demand,settled on zonal GSP Group basis

• Main benefit is potential for delayed SGT investment

• Transferred to EGs through DNO charging methodology?

Inter GSP Group

• Imbalance calculated at national level

• ROCs traded nationally

• Access to market from transmission

Embedded Benefits?

EG

DC Gen

D

BulkTransfer

TransmissionDistribution

D

Access product

National Grid is making transmission investments partly due to embedded generation

Need to justify investmentsNeed to provide right signals

To apply transmission charges embedded generation requires an access product

The current product is negative demand – is that the right product?The product can be the same as for directly connected generationOr a new product?

Different classes of generator are presently exposed to different transmission charges

No justificationDiscriminatory and distorts competition in generation

Embedded generators implicitly enjoy firm transmission access rights, though this is not enshrined in the CUSC

Access product removes discrimination andallows appropriate charging

The Agency Model

Access product purchased by agent rather than each individual embedded generatorAgent manages portfolio within allocation of rights purchasedBenefits

efficient for individual generatorsSmall gens don’t need to sign CUSC

easier to manage operational issuesclearer process to manage transmission access equitably

Background Information – The Charging Model

Explanation for why Embedded Benefits are nothing to do with theG/D split or a lack of negative demand charges

Example 1 (no residual)- Locational Charge only, equal and opposite

Assumptions:Ignoring residualG/D split is 50/50

Directly Connected Generator at B pays £5Demand at B gets paid £5EG at B would need to pay £5 (because treated as negative demand)0 differential between generators at B 0 residual, Embedded benefit is 0However, this recovers no money…

locational signal onlyneed to consider residual charge -15

-10

-5

0

5

10

15

A B C D E

-15

-10

-5

0

5

10

15

DemGen

Example 2 (with residual)- Locational charge equal and opposite as in Ex.1

Assumptions:Residual of £5G/D split is 50/50

Directly Connected Gen at B pays £10Demand at B gets paid £0EG at B gets paid £0£10 differential between generators at BEG benefit is £10

2 * ResidualNo rationale for the benefitNot cost reflectiveDoes not facilitate competition -10

-5

0

5

10

15

20

A B C D E

-10

-5

0

5

10

15

20

DemGen

Example 3- As example 2, but G/D Split 25/75

Assumptions:Residual £5G/D split is 25/75

(Directly connected Generator tariff on 2nd Y-axis)Gen at B pays £7.5Demand at B pays £2.5EG at B gets paid £2.5£10 differential between generators at BEG benefit is £10

Demand Residual + Generation ResidualNo rationaleNot cost reflectiveDoes not facilitate competition

-5

0

5

10

15

20

A B C D E

-10

-5

0

5

10

15

DemGen

Value of Embedded Benefit= Generation Residual + Demand Residual

L= Locational ChargeRg= Generation residualRd = Demand residual

Generation Charge = L + RgDemand Charge = -L + RdEmbedded Charge = -D = L – Rd

Value of Embedded Benefit = G – EG= (L + Rg) – (L – Rd)= L + Rg - L + Rd = Rg + Rd

Conclusion

Embedded benefit is:Independent of G/D splitIndependent of –ve demand charges (presuming that if we did have negative demand charges we would have a much wider charging base to avoid negative security affects)Embedded benefit is the sum of G and D residual elementsThe issue arises out of treatment as negative demandNo apparent justification for treating EG differently to liable generation when it requires the same transmission investmentCurrent value of embedded benefit is largely arbitrary i.e. linked to allowable revenue and not transport signal