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Selling the system and security of supplyThe anticipated net
savings of £225 million to the customers is less than 5% of the
controllable operating expenditure for the Transco gas grid and nearer 1%
of the regulated turnover for the combined Transco gas and National Grid
electricity networks. This begs the question could Ofgem have exacted a
greater saving than that raised from this sale of assets? The fragmentation of the
gas grid into a national tier (the NTS) and regional distributions
networks (DNs) raises issues of supply and demand matching and security of
supply. In the short-term the aggregation of all demand forecasting and supply information will be undertaken by Transco, but the longer term risk to supply security arises from the need of the new DN operators to develop their own skills at supply/demand matching for gas volumes and demand/capacity matching for investment. A possible impact on
security of supply arises when considering the need to align the network
design, operating agreements and commercial arrangements between the
different tiers of the system. To maintain the current level of supply
security, Transco must unbundle its operating procedures with sufficient
clarity of definition to enable the licence and network code criteria to
be stated unambiguously. Following the
restructuring of the DNs, Transco also propose changes to the exit regime
at the interface between the NTS and DNs with a move to more market-based
mechanisms. Exit capacity and flow flexibility products have been
mentioned along with commodity charges to system operators and the
introduction of long-term booking and auction mechanisms. The detail has
yet to be developed and it remains to be seen whether any worthwhile
market signals can be obtained for flow products where the cost of
provision is an order of magnitude less than that for the capacity
product. To counter any risk to
supply security, the DN operators may prefer to develop and control their
own sources of gas storage (or linepack) rather than rely on the
flexibility products for NTS linepack offered by Transco. If system users
over-book flexibility and DNs err on the side of caution, the outcome will
be additional investment in the pipeline system that will quickly negate
the small savings promised by the DN sale. The alternative to the extra investment would be demand side management or load interruption that effectively lowers the supply security level (to some customers) within the DNs. The DN sales appear to be rushing ahead, but there remain many unanswered questions on the impact of selling the system will have on security of supply. Author: Dr Robert Breen, Managing Director, Quogen Consulting Ltd Email:
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