Scenario Planning Workshop June 2011

Transcription

1 S c e n a r i o P l a n n i n g W o r k s h o p June 2011

2 The Business Planning Cycle June 2011

3 Introduction Ofgem is trying to encourage the energy industry to facilitate the development of a low-carbon economy, which will require the investment of approx. 32 billion in the electricity and gas networks. Network companies will have to double the amount of investment they have made over the past 20 years. Investment on this scale will require considerable certainty in the regulatory environment. Ofgem has reviewed the regulation of networks companies in detail and introduced the RIIO regulatory framework.

4 RIIO The well-justified business plan Whilst the RIIO framework consists of many features, the heart is the so-called well-justified business plan. Features of the business plan: Focus on output delivery Orientation to a Low Carbon Future Consideration of secondary deliverables A clear and well evidenced case for their proposals An open minded consideration of available options Link between costs & primary outputs A consideration of the longer term Value for money Effective engagement with a range of stakeholders Working with others

5 RIIO A crucial role for stakeholders One of the key tests of our well-justified business plan will be the extent to which customer, networks users and other stakeholders have been involved in its development. We need to be pro-active in seeking input at every stage, e.g.: What should our basic planning assumptions be? What services should we provide? What outputs are required and what targets/service levels should be applied? Where options are available which would be selected Are customers willing to pay for the options or service levels that can be provided? We will need to demonstrate how the input has fed through our planning processes and ultimately how decisions have been arrived at. This can not be a box-ticking exercise, and we are not asking you to rubberstamp the answer we have already thought of!

6 High level Business Planning timetable 2010/ / / / /15 Apr Apr Apr Apr Apr Agree and publish DPCR6 planning Scenarios inc high level view of impact RIGs submission based on preferred UKPN view Initial Proposals Final Proposals Develop Scenarios C o n s u l t o n S c e n a r i o s C o n s u l t o n Output Measures Develop Scenariobased plans C o n s u l t o n S c e n a r i o b a s e d p l a n s i n c WTP D e v e l o p I n i t i a l B u s i n e s s P l a n D e v e l o p F i n a l B u s i n e s s P l a n E n g a g e w i t h s t a k e h o l d e r s t o i n f o r m b u s i n e s s p l a n d i s c u s s i o n s w i t h O f g e m Sep Annual RIGs and forecast Jul Annual RIGs, forecast (inc business p l a n ) Jul Initial Business P l a n Mar Final Business P l a n Key Deliverables We currently envisage four main stakeholder touch points in our business planning process: Development of business planning scenarios; Consultation on potential output measures; Review of impact of scenario based plans including willingness to pay (WTP) for service improvements; Revisions to initial business plan for final submission as part of price control. 6

7 Planning Scenarios June 2011

8 Introduction The future is uncertain but we know that the transition to a low-carbon economy will impose significant demands on our networks. Our regions are the most economically active in the UK which places further and perhaps contradictory demands on our networks. Our view is that the greatest level of uncertainty concerns the required capacity in future years. This will drive how much we need to spend on reinforcing our network.

9 Scenario development work to date There have been a number of external studies looking at future energy scenarios None have focused specifically on electricity distribution or disaggregated regionally Our working hypothesis was that the diverse nature of our networks means we need regionally specific scenarios

10 External drivers Our initial view is that there are three main drivers which will influence the required capacity of our networks: 1. Rate of economic growth 2. Impact of deployment of low-carbon technologies 3. Impact of changes in electricity market mechanisms (e.g. increase in Demand-side response or changes to tariffs) Economic growth has always been a key driver for our networks, but we believe that it will be influenced by the other two drivers Whilst low carbon technologies and market mechanisms are closely linked, we see different impacts on our network.

11 Potential Scenarios There are eight possible permutations of the drivers, but we have eliminated three as being implausible views of the f u t u r e The five remaining scenarios have been described and the impacts Engaged Green Society Green Tech Revolution identified Rate of economic growth Impact of low carbon technologies Impact of electricity market reform High High High High High L o w Green Stimulus L o w High High Business As Usual High L o w L o w Economic Concern L o w L o w High

12 Possible views of the future Business as Usual: Strong economic growth. Greening of the economy at the margins. Energy networks and markets look very familiar Engaged Green Society: Strong economic growth, low-carbon agenda embraced, major changes in the way we buy and use power Green Tech Revolution: Strong economic growth, major shift in technologies & strides in l o w -carbon generation, existing energy model retained

13 Possible views of the future Green stimulus: Stagnant economy, green technology embraced in an effort to drive growth Economic concern: Sluggish economy, little incentive to invest in l o w -carbon technologies. Changes in energy market driven by financial necessity.

14 Developing the planning assumptions Having identified potential future scenarios, we need to understand what the impact of these would be on our network: Our approach to this is as follows: Identify the implications of each driver e.g. high economic growth will be characterised by strong consumer demand for electronic devices, high residential and employment growth Hence each scenario can be expanded to include a set of plausible and mutually consistent planning assumptions These assumptions can then be converted into impacts on the network. We have commissioned an expert third-party, Element Energy, to assist us with modelling the impact of these assumptions.

15 Key Questions For each scenario: 1. To what extent is this scenario viable, logical and consistent? 2. For each of the three drivers, do the underlying planning assumptions selected make sense? 3. Are the values attributed to each assumption consistent? 4. Are there any missing assumptions? 5. Any other observations?

16 S c e n a r i o P l a n n i n g W o r k s h o p What happens next? Keith Hutton July 2011

17 Next Steps - Scenarios Today s output will be written up and published on our website Scenario material has been placed on our website to enable online contributions A final report will be produced summarising the outcomes of the workshops in the 3 regions and online views, together with the conclusions that we have drawn Scenarios will be modified in light of this exercise and used as input to the planning process

18 Next Steps - Engagement We will be seeking your views on Outputs the commitments we will make as to what we will deliver during the next price control. There are six categories of output: Safety Connections Customer Service Environmental performance Network availability/reliability Social impact There will be a range of online and event-based consultations to help us identify the most appropriate measures of output performance Details will be published on

19 And finally Thank you for your hard work today Please join us for lunch Have a safe journey