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Funding Solutions for Energy Industry Evolution

Understand the impact of funding decisions in the energy sector, balancing user pays services with core regulated services. Explore implications for technological advancements and industry rationalization. Proposed approach for efficient funding models in Project Nexus.

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Funding Solutions for Energy Industry Evolution

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  1. PROJECT NEXUS FUNDING – THE CUSTOMER’S VIEW Stefan Leedham 30 April 2009

  2. GDPCR DECISION • Introduced User Pays but “little industry appetite for any significant change such a short time after GDN sales” • Core Services: “Regulated services that it is appropriate to fund using price control allowed revenues.” • User Pays Services: “Regulated services that it is appropriate to fund using charges levied directly upon the user(s) requesting the service” • Core Services includes UK Link Replacement “xoserve has been funded for their existing services including the replacement of UK Link on a like-for-like basis”

  3. GDPCR FUNDING IMPACT • ALLOWED REVENUE • ≠ • PRESCRIBED EXPENDITURE

  4. LIKE FOR LIKE AKA AS IS • The same computers – Amstrad or Spectrum? • No benefit from technological advances • Limited ability to cope with future developments • Ofgem’s objective in GDPCR: “provides a cost effective opportunity for the industry to rationalise and put in place revised systems that are fit for purpose” • The same service – no room for Smart Metering or AMR? • No ability to cope with future developments • Does not meet Shippers’ requirements • Need to facilitate Energy Act requirements?

  5. WHO PAYS? • Shippers and Consumers always pay – either through User Pays or Transportation Charges • Some Examples: • Technology allows Sites and Meters to either accept Daily Reads for all sites or individual reconciliation • The industry wants both • Which one is User Pays and why? • Individual Reconciliation extended to SSP • For LSP sites this is a core service • For SSP sites this is User Pays – why? • Potential to create a perverse incentive? • What happens if SSP threshold reduced?

  6. PROPOSED APPROACH • Project Nexus is funded • Majority of funding through allowed revenue • Simple solution • Coincides with next GDPCR • Less contentious • Maintains current arrangements • Less costly • User Pays for services where: • Clear ability for Shipper to choose service • No significant commercial advantage from taking service on the day • Clear benefit over current arrangements

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