Demand Side Management Andy Pace

1. 6 October 2011 Demand Side Management Andy Pace 1 | Energy Networks Association - DCMF

2. DSM requirement in EDCM 6 October 2011 2 | Energy Networks Association – DCMF Customer measure 2: To formalise the arrangements for demand side management agreements • A demand side management (DSM) agreement is one of the methods by which customers may be able to reduce their charge. This works by the customer agreeing to have their capacity restrained at certain times (eg during peak or “super red”) which may help to defer reinforcement works. In recognition of this, the customer may receive a lower charge. • Under the EDCM, customers with DSM agreements have the locational element of their charge calculated based on the DSM-restricted capacity rather than the agreed maximum import capacity.

3. DSM requirement in EDCM 6 October 2011 3 | Energy Networks Association – DCMF • Ofgem asked the DNOs to clarify: • Whether any customer can enter a DSM agreement with the DNO, provided the customer agrees to have interruptible capacity subject to such terms as defined by the DNO. • Whether the DNO can refuse to enter such agreements. We also expressed a view that if charging arrangements under these agreements are appropriately reflective of costs, they should be available to every customer.

4. DSM Definition 6 October 2011 4 | Energy Networks Association – DCMF • DSM can be split into 2 categories: • Pre-fault: • Financial incentive on a customer to alter their consumption pattern • Can be achieved through pricing signals • Can be standardised • Can be offered to all EHV customers • Post- fault • Customer is required to change their consumption pattern following a fault on the network • Requires close interaction between customer and DNO following a fault • May require installation of equipment on customers site

5. EDCM Proposed solution 6 October 2011 5 | Energy Networks Association – DCMF • EDCM submission states that where a DSM agreement is in place, the capacity charge and super-red rate is reduced as follows: • Capacity rate: Reduce Local element of LRIC/FCP charge • Super-red unit rate: Reduce Remote element of LRIC/FCP charge • The amount of reduction is based on the percentage of the Maximum Import Capacity that is interruptible. • However no detail is provided on the type of DSM agreement required.

6. Electricity North West Proposal 6 October 2011 6 | Energy Networks Association – DCMF • DSM is bilateral contract between customer & DNO • DUoS is charged on normal rates via suppliers (not adjusted rate) • Bilateral Contract defines the following: • The interruptible capacity (min 25% of capacity) • The time periods where the DNO is able to request a demand reduction • The DSM reduction payment • Penalty payments where the customer does not reduce demand on request (capped at the DSM reduction payment)

7. Electricity North West Proposal 6 October 2011 7 | Energy Networks Association – DCMF • The DSM reduction payment determined as • Minimum DSM Payment (£) = MIC * (EDCM Unadjusted Capacity Payment – Adjusted Capacity Payment derived under EDCM) * 366 /100 • Additional benefit payable where DNO has identified a specific reinforcement that is being avoided • All customers are eligible to the minimum DSM payment if they enter into the DSM agreement. • Reduced super-red rate is not included in minimum DSM payment as customer receives the benefit via supplier by reduced volume when responding to a request to reduce demand.

8. DSM – Next Steps 6 October 2011 8 | Energy Networks Association – DCMF • Electricity North West proposal to be reviewed at WSB and capacity management working group. • Group to standardise approach and wording if possible. • All DNOs need to formalise their own approach and make available DSM agreements prior to April 2012.