BSIS 2015-17 has three key cost components which are combined to create a total cost. This total cost is compared to a modelled target cost to determine National Grid's performance against the incentive scheme. Whatever National Grid over or under spends, compared to the target cost, is shared with the industry at a rate of 30%; such that for every £1 of cost saved, the industry receives £0.70. This over/under spend is capped at £100 million, so that the maximum profit or loss National Grid receives is +/-£30 million.
Ofgem's Decision letter for Electricity SO Incentives 2015-17 was published on 19th June 2015 and can be found here.
The three key cost components are:
The Energy and Constraint costs are modelled using separate energy and constraint models, utilising ex-ante (calculated ahead of the event) and ex-post (outturn) data to calculate a target. The following methodology statements underpin how the BSIS 2015-17 cost target is defined.
The Statement of Ex Ante or Ex Post Treatment of Modelling Inputs Methodology
This methodology statement categorises the treatment of inputs for each of the models, along with the extent to which National Grid can control or forecast these inputs as System Operator.
The Statement of the Energy Balancing Cost Target Modelling Methodology
This sets out the methodology for each of the energy sub-models, which contribute towards the overall cost of managing the energy components.
The Statement of the Constraint Cost Target Modelling Methodology
This sets out the methodology for the model to calculate a target constraint cost, made up of the costs associated with the balancing mechanism and headroom replacement costs.