LTSEC summer auction

1
LTSEC summer auction

• Transmission Workstream
• 6th April 2006
• Dave Adlam, National Grid NTS

2
LTSEC Auction timetable

• Currently runs in September (UNC obligation)
• An earlier timetable may be beneficial because
• Greater notice of requirements for incremental
  capacity
• Potential to reduce the requirement for the
  request for extension to lead times under the
  IECR
• Align with TBE process
• Greater information to formulate supply and
  demand position
• Annual auction would potentially be better in May
• Cant achieve it this year
• Uncertainty for 2007 onwards

3
Requirements to enable an early 2006 LTSEC auction

• Amendments required to allow an early 2006 LTSEC
  auction
• Approval of UNC Mod Proposal
• IECR review and consultation
• Extension to investment lead times consultation

4
UNC Modification Proposal

• UNC Modification Proposal
• To include transitional legal text to enable an
  early auction this summer July
• Workstream comments on draft proposal?
• Support for a 10 day consultation

5
Requirements to enable an early 2006 LTSEC auction

• IECR
• Commence IECR review in early April (draft issued
  to workstream)
• Introduction of a methodology describing how the
  incremental costs will be generated each year.
• Submit to the Authority by beginning of May
• The proposed changes for the IECR are
• Introduction of a methodology to determine the
  future cost of investment
• Amendment from Transco to National Grid

6
IECR Proposals

• Introduce a Methodology to determine the future
  cost of investment
• Currently the IECR contains a table which
  indicates the cost (in m per km) of future
  investments
• National Grid undertakes work to establish these
  values each year and are affected by-
• Steel Prices
• Construction costs
• Inflation
• The proposal is to replace the existing formula
  with a methodology that demonstrates how these
  values are derived.

7
Investment Cost Methodology

• National Grid would utilise projects that have
  been undertaken in the last 4 years and are
  planned and projected to complete in the next
  four years as a basis for deriving the cost of
  the release of any incremental capacity
• Produces an average cost for each project per
  metre, dependent on pipeline diameter
• This data is normalised, by use of the Structural
  Steelworks Labour Price costs index according to
  the construction year to take account of changes
  in
• Steel Prices
• Construction Costs
• Inflation

8
Investment Cost Methodology

• Once the costs have been normalised the values
  are plotted onto a scatter graph and a trend line
  is drawn between the data to establish the values
  that will populate the pipeline cost formula.

9
Investment Cost Methodology
/m range of existing schemes
Linear regression
Cost per metre
Values for Trancost formula
Pipeline Diameter (mm)
10
Pipeline Cost Formula
Current Formula
Pipeline cost m per km 0.000407 diameter
(mm) 0.38561 / km
Revised Formula
Pipeline cost m per km 0.0012507 diameter
(mm) 0.01507 / km
11
Requirements to enable an early 2006 LTSEC auction

• Request to adjust investment lead times
  consultation
• Requirement to amend lead time to ensure
  efficient delivery of incremental capacity
• Finalising our requirements

12
Next Steps

• UNC Mod Proposal
• Submitted to April Mod Panel
• IECR annual review Consultation to extend
  investment lead times
• Released for consultation shortly
• 28 day consultation