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Gas shippers could face higher charges for the cost of interruption during a gas supply emergency, under a blueprint for security of supply unveiled last week by Ofgem.
Ofgem has overhauled the way it would deal with an gas deficit emergency (GDE). It said the likelihood of a GDE remains low but added it was “prudent” to put sound incentives in place to maintain secure supplies.
Key features of the new regime are: cash out – charges for imbalance – will no longer be frozen under a GDE; domestic customers will no longer be protected from compulsory interruption of their supply in a GDE but they will be compensated financially; a demand side mechanism run through National Grid Gas will enable large consumers to enter contracts with a central buyer; and consumers will be disconnected according to cost rather size.
Ofgem said the cash out reform will ”improve incentives on shippers and reduce the likelihood or severity of an emergency”, by exposing shippers to the full value users place on keeping their gas supply.
Cash out under the new system will remain “dynamic” and will not be capped. Where a portion of network has to be isolated – thereby cutting off domestic users – the cost of isolation will be calculated at the accepted estimate of the value domestic customers place on keeping their supply – currently £14 a therm (about 50p a kWh).
Domestic customers will be compensated only for the first day of interruption as their return to supply is beyond the control of shippers. “Following network isolation, consumers must be visited individually to be safely reconnected to the system. This is the responsibility of distribution networks. Even if shippers recovered sufficient gas supplies quickly, safely reconnecting consumers would take time,” explained Ofgem.
Ofgem said it anticipated the move to establish a demand side mechanism based on might “kick start” the growth of a demand side market that could come into play ahead of and possibly avert a GDE. According to the regulator earlier consultation had revealed that large users preferred a demand side market centred on National Grid owing to “a potential lack of trust between shippers and [large] consumers”. Industrial and commercial users, Ofgem said, were concerned that shippers would use interruption for commercial gain rather than relieving market stress.
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