Why does OTEG need a charging subgroup?

OTEG Open Meeting

3 July 2006

Why does OTEG need a charging subgroup?

• What are TNUoS charges?– Price controlled revenue and TNUoS charges

• How are TNUoS charges currently set?– The TNUoS charging methodology

• Why is a charging subgroup required?– Work needed to extend the current methodology into the offshore– Proposal

Price controlled revenue and TNUoS charges

TransmissionLicensees

• NGET• SHETL

• SPT

Price controlledrevenue

Users of thetransmission

system

• Generation• Demand

TNUoS charges

GBSO

Price controlled revenue

• An allowed revenue is set for each transmission

licensee at the price control

• Revenue set to recover the cost of installing, operating

and maintaining the transmission system

• The transmission licensees’ charges – equal to the

allowed revenue – are paid by the GBSO

• The GBSO recovers the transmission licensees’

charges from users through TNUoS charges

TNUoS charges

• TNUoS charges should, as far as practicable, recover

the allowed revenue

• The GBSO charges users of the transmission system– Develop and apply a use of system charging methodology– Approved by Ofgem– To be kept under continuous review

• Charges are for generation or demand use of system

and vary by location

Current TNUoS charging methodology (1)

• Separate charges for generation and demand (from

27:73 split of revenue)

• Two elements (£/kW):– Locational charge– Non-locational charge (or residual)

• Locational charge from DC loadflow investment cost

related pricing (DCLF ICRP) transport model

Current TNUoS charging methodology (2)

• DCLF ICRP transport model assesses the marginal

cost of investment in the transmission system as a

result of an increase in generation or demand

• Model takes as the starting point an onshore system

comprising secure 400 kV overhead line

• Adjustments for 132/275 kV line, potential line

upgrades, cable, “non-firm” connections…

TNUoS charges offshore: Why a charging subgroup is required (1)

• Indicative charges are an important element when obtaining project financing

• Current charging methodology is complex, and the model parameters are not suited to offshore systems. For example:– Assumes double-circuit connection (GB SQSS compliant)– No adjustments for AC or HVDC submarine cables– Cannot accommodate “modular” offshore infrastructure– Shorter asset life of offshore infrastructure will result in higher

annual revenue requirement

TNUoS charges offshore: Why a charging subgroup is required (2)

• Changes to the charging methodology are time

consuming to develop, consult on, notify and

implement

• Will change onshore TNUoS charges (and zones?)

• Number of options – must be cost-reflective and

non-discriminatory

• Charges will be required for adopted assets

Proposal

• Charging subgroup established– Possibly as subgroup of the Charging Issues Standing Group

(CISG)– CISG already considering changes to charging methodology to

accommodate “non-firm” connections, e.g. island links

• Date for publication of draft methodology and

indicative tariffs to be added to OTEG timetable