The NTS Shrinkage Incentive scheme is an overall cost minimisation incentive which is currently in place from 01 April 2013 until 31 March 2021.
Under the scheme National Grid is incentivised to minimise the costs it incurs in its role as NTS Shrinkage Provider. The incentive scheme measures the NTS Shrinkage costs incurred against a target. This target is principally determined by multiplying forecast and actual volumes by benchmark energy procurement prices.
National Grid forecasts the baseline volume target the year before according to the Ofgem approved NTS Shrinkage methodology which determines how to forecast: Compressor Fuel Usage for gas and electricity, Unaccounted for Gas and CV shrinkage. The short term ('Prompt') volume target is based on the difference between forecast and outturn volumes. Benchmark target prices are determined for forwards and prompt procurement.
The scheme is designed to minimise risks associated with volume forecasting, and hence reduce windfall gains and losses over the eight year period.
The sharing factor (the slope of the incentive graph) of the incentive has been increased compared to recent years to align with sharing factors contained with the RIIO-T1 price control. Thus, the sharing factor is now at 45%. The maximum profit we can earn from the incentive is £7million (where costs are £15.5million or more below target) whilst the maximum amount we can lose is also set at £7million (where costs are £15.5million above the target).