energy market issues for biomethane projects workshop - 31 october 2011
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Energy Market Issues for Biomethane Projects Workshop - 31 October 2011 RIIO-GD1 Environmental Incentives. Environmental Incentives in RIIO-GD1 supporting distributed gas / biomethane. - PowerPoint PPT PresentationTRANSCRIPT
Energy Market Issues for Biomethane Projects
Workshop - 31 October 2011
RIIO-GD1 Environmental Incentives
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Environmental Incentives in RIIO-GD1 supporting distributed gas / biomethane
Extract from “Decision on strategy for the next gas distribution price control - RIIO-GD1 Outputs and Incentives. Table 3.1 Summary of output measures and policies that
contribute to environmental objectives”
Behaviours Output measure or policy instrument
Incentive arrangement
GDNs ensure they are playing their part in achieving a low carbon future
One of the criteria for judging a well justified business plan is the quality of the strategy the company will employ to play a full role in delivering a sustainable energy sector. Companies are also required to engage with stakeholders in determining business plans
GDN may not be fast tracked or subject to proportionate treatment
Broad environmental objective Reputational incentive: League table of biomethane connected (MW) and applications in progress
Discretionary reward scheme (DRS) for companies contributing to environmental and social objectives beyond those financed at review
£12m (3 tranches over the period)
GDNs look at new and innovative ways to deliver low carbon and environmental objectives at lower cost to customers
GDNs can include innovative solutions that can be justified within the price control or over a longer period in their business plans
Innovation allowance 0.5 – 1% of allowed revenue
Network Innovation Competition (NIS)
£20m p.a.
Revenue adjustment mechanism to provide financing for innovative solutions emerging from NIS
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Extract from “Decision on strategy for the next gas distribution price control - RIIO-GD1 Outputs and Incentives. Table 3.1 Summary of output measures and policies that contribute to environmental
objectives”
Behaviours Output measure or policy instrument
Incentive arrangement
GDNs provide good service to renewable gas producers and customers, help biomethane producers to understand the process and costs of connection and ensure they receive timely and efficient connections
GDNs to produce common, simple, accessible and reliable information to assist entry customers wanting to connect to the network
Licence requirement – potential fine for breach
Commitment from GDNs to introduce voluntary standards of connection service for gas entry customers
Reputational incentive
Stakeholder engagement +0.5% of allowed revenue Customer satisfaction survey +/ - 0.5% of allowed
revenue Complaints metric -0.5% of allowed revenue
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Connection policy
Connection and use of system charging for distributed gas Deep vs shallowish connection charging policy
Gas – currently has deep connection charging i.e. network reinforcement funded by connecting producer
Electricity – have a shallowish connection boundary – therefore distributed generation incentive is used to incentivise network operators to undertake efficient reinforcement investment
Reflects benefits of losses reduction and potential voltage support
Not a volume driver
Any changes to the connection charging policy would need to reflect benefits to the network (and other users)
RIIO-GD1 sets out GDNs to review charging methodologies and propose modifications where there is an objective rationale (to be considered on their merits)
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Connection policy
Industry currently considering UNC Modification 0391 – Distributed Gas Charging Arrangements Ofgem will consider in due course Will also consider any evidence that distributed gas entering at distribution level provides benefits to
the network to justify other network customers funding these connection costs Argument for connection boundary to remain deep to encourage competition in provision of
connection assets
In event of a boundary change GDNs would need to recover certain expenditure on entry connection through their allowed revenue RIIO-GD1 provides a mechanism similar to that of DG to incentivise efficient investment
Initially log up efficient costs to be assessed at a later stage (re-opener triggered or end of price control)
Incentivised cost pass through mechanism could be implemented if there is sufficient information to assess efficient connection costs
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Capacity issues
Differences between electricity and gas networks affect ability to offer priority access and dispatch
Gas Technical aspects of connection still need to be resolved (e.g. gas quality,
injection equipment) Localised gas networks
Planning is done on peak capacity Insufficient firm demand to offer firm contracts
Constraints on moving gas to where there may be demand - still to be resolved
Any incentive to offer firm capacity contracts would have to be funded by all network customers Insufficient information is currently available to demonstrate benefits to the
network to justify other customers funding these costs
RHI Provides support for producers through payment for energy generated for use Does not fund connection costs
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Current position
A range of mechanisms are in place / being put in place to encourage bio-methane connections
There is currently insufficient information available on efficient costs associated with the connection of distributed gas to the grid to justify additional incentives at this time
There are differences between technical aspects of gas and electricity networks which mean that priority access and dispatch for distributed gas cannot be similarly incentivised as for electricity
We have a duty to balance the interests of all stakeholders
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RIIO-GD1 – Environmental Impacts
Process followed
Policy consultation process for next price control (RIIO-GD1) Environmental Working Group meetings
Discussions on proposed incentives / reporting requirements Consultation (17 December 2010 – 4 February 2011) Consideration of submissions
Decision on RIIO-GD1 policy Published 31 March 2011
http://www.ofgem.gov.uk/Networks/GasDistr/RIIO-GD1/ConRes/Documents1/GD1decisionoutput.pdf
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