Ofgem/Ofgem E-Serve 9 Millbank, London SW1P 3GE www.ofgem.gov.uk Promoting choice and value for all gas and electricity customers Gas Network Innovation Allowance Governance Document Governance Document Contact: Judith Ross Publication date: 2 April 2015 Team: Innovation Tel: 020 3263 2782 Email: [email protected]Overview: This document is version 2 of the Network Innovation Allowance Governance Document referred to under Special Condition 2E of the Gas Transmission Licence and 1H of the Gas Distribution Licence. Each of these licence conditions is known as The “NIA Licence Condition”. One of the key innovation proposals for the RIIO (Revenue = Incentives + Innovation + Outputs) model for price controls was the introduction of a Network Innovation Allowance (NIA) for gas and electricity. The purpose of the NIA is to encourage Network Licensees to innovate to address issues associated with the development of their networks. This Governance Document sets out the regulation, governance and administration of the Gas NIA. Network Licensees are required by the NIA Licence Condition to comply with this document as if it formed part of their licence. We have attempted to make this document accessible and informative to parties other than the Network Licensees, especially those who may be looking to partner with Network Licensees to use the NIA to try out new technological or commercial arrangements. It is the responsibility of each Network Licensee to understand the provisions of this Governance Document and how those provisions apply to them.
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Ofgem/Ofgem E-Serve 9 Millbank, London SW1P 3GE www.ofgem.gov.uk
Expenditure relating to equipment 19 Payments to Network Users 19 Customer protection 20 Requirements 20 Data protection Requirements 21
Unrecoverable NIA Project Expenditure 21 Technical requirements and standards of performance 22
Eligible NIC Bid Preparation Costs 22 External NIA funding 22 Revenue allowed for within the RIIO-T1 or RIIO-GD1 settlements 22 Eligible NIA Internal Expenditure 23
5. Annual regulatory reporting for NIA Projects 24
6. Knowledge transfer 25 Learning Portal deadline 25 Required Project Progress Information 25 Compliance 27
Annual summary of NIA activity requirements 27
Gas Network Innovation Allowance Governance Document
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Annual conference requirements 27
7. Intellectual Property Rights (IPR) 29 Introduction 29 Ensuring knowledge Dissemination 29 Ensuring value 30
8. Definitions 31
Glossary 38
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1. Introduction
Chapter Summary
This chapter sets out the purpose and objectives of the Network Innovation
Allowance.
1.1. Innovation is a key element of the RIIO (Revenue = Incentives + Innovation
+ Outputs) model for price controls. The RIIO framework provides strong incentives
for Network Licensees to innovate as part of normal business. However, certain
Research, Development, and Demonstration Projects are speculative in nature and
yield uncertain commercial returns. In addition, where benefits are linked to the
decarbonisation of the network, it may be difficult to commercialise the respective
carbon and/or environmental benefits and shareholders may be unwilling to
speculatively fund such Projects.
1.2. Over time, we expect the incentives within the RIIO framework to encourage
Network Licensees to innovate as part of business as usual. In the meantime, we
have also introduced a time-limited innovation stimulus package within the RIIO
framework to provide additional funding to kick start a cultural change where
Network Licensees establish the ethos, internal structures and third party contacts
that facilitate innovation as part of business as usual.
1.3. The innovation stimulus1 consists of three measures:
A Network Innovation Allowance (NIA) – to fund smaller innovation Projects
that will deliver benefits to Customers as part of a RIIO-Network Licensee’s
price control settlement;
A Network Innovation Competition (NIC) – an annual competition to fund
selected flagship innovative Projects that would deliver low carbon and
environmental benefits to Customers; and
An Innovation Roll-out Mechanism (IRM) – to fund the roll-out of proven
innovations which will contribute to the development in GB of a low carbon
energy sector or broader environmental benefits.
1.4. The NIA and NIC are successors to the Low Carbon Networks (LCN) Fund. The
NIA and NIC broadly replicate the structure of the LCN Fund2 which consists of a first
tier funding mechanism and a second tier funding mechanism. The scope of the NIC
is broader than the second tier funding of the LCN Fund as it also includes
Development as well as Demonstration Projects. In addition to the LCN Fund first tier
funding, the NIA also builds upon elements of the Innovation Funding Incentive (IFI) that was in place under previous price controls.
1 Further information on the high level policy of the innovation stimulus can be found here for the RIIO_T1 price control and here for the RIIO-GD1 price control. 2 More information on the LCN Fund is available here.
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The NIA
1.5. The NIA provides limited funding to Network Licensees to use for two
purposes:
To fund smaller Projects which meet the criteria set out in this Governance
Document; and/or
To fund the preparation of submissions to the NIC which meet the criteria set out in the NIC Governance Document.
1.6. The amount of funding available to each Network Licensee under the NIA can
be calculated using the formulae in the NIA Licence Condition. We have introduced
the NIA Licence Condition of the Gas Transporter Licence to enable the creation of
the NIA.
1.7. We expect Network Licensees to whom this document applies to collaborate
with each other and other parties in the energy supply chain (ie suppliers,
independent network operators and generators) on Projects.
1.8. A key feature of the NIA is the requirement that learning gained through
Projects is disseminated in order that Customers gain satisfactory return on their
funding through the broad roll-out of successful Projects and the network cost
savings. Even where Projects are deemed unsuccessful, Network Licensees will gain
valuable knowledge that could result in future network cost savings.
Differences between the NIC and the NIA
1.9. The NIA is a set annual allowance that each Network Licensee will receive to
fund small-scale innovative Projects as part of its price control settlement. The NIA
will fund smaller scale Research, Development, and Demonstration Projects, and can
cover all types of innovation, including commercial, technological and operational.
Unlike the NIC, the NIA is not focussed solely on innovative Projects with potential
low carbon and environmental benefits.
1.10. Compared to the NIA, the NIC is focussed on funding larger scale, more
complex innovative Projects, and therefore, funding will be awarded through an
annual competitive process. All types of innovation including commercial, operational
and technical are eligible for NIC funding so long as the Project has the potential to
deliver low carbon and/or environmental benefits to Customers.
1.11. The scope of Network Licensee involvement in the NIC is also broader than
the NIA. The NIA is only available to Network Licensees as part of their price control
settlement, whereas Non-RIIO Network Licensees may lead bids for funding under
the NIC.
1.12. The regulation, governance and administration for the NIC is set out in the
NIC Governance Document.
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The NIA Governance Document
1.13. This document is the NIA Governance Document and sets out the regulation,
governance and administration of the NIA.
1.14. In this document we use the terms Ofgem and the Authority interchangeably.
Ofgem is the Office of the Gas and Electricity Markets. The Authority is the Gas and
Electricity Markets Authority and is the governing body of Ofgem, consisting of non-
executive and executive members.
1.15. Defined terms are capitalised throughout the text, with the definitions set out
in chapter 8.
1.16. In this document “Network Licensees” means the holder of a Gas Transporter
Licence regulated through the RIIO price control framework.
1.17. Throughout this document we use the terms Problem, Method, Project and
Solution and Dissemination. Defined as follows:
Problem: means the issue that needs to be resolved;
Method: means the proposed way of investigating or solving the Problem. This may be done by one or more of the following:3
o Research (technology readiness level (TRL) 2-3) which means activity
undertaken to investigate the Problem based on observable facts;
o Development (TRL 4-6) which means activity on generating and testing
solutions to the Problem;
o Demonstration (TRL 7-8) which means activity focussed on generating
and testing solutions on the network that takes them to a stage where
they can be transferred to business as usual;
Project: means the Research, Development or Demonstration being proposed
or undertaken;
Solution: means the outcome if the Problem is solved;
Dissemination: means the activity undertaken to share learning from a Project.
3 TRLs are used to assess the maturity of evolving technologies, graded on a scale of 1-9. Projects with a TRL of 1 or 9 will not be eligible for NIA funding
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Compliance
1.14 Network Licensees are required by the NIA Licence Condition to comply with
this document as if it formed part of their licence.
1.15 The NIA and this NIA Governance Document in no way relieves affected
parties, including Network Licensees and Project Partners, from their responsibility to
ensure ongoing compliance with legislation including competition, environment and
Customer protection laws.
Review
1.18. Ofgem may from time to time, following consultation with Network Licensees
and other interested parties, revise this NIA Governance Document in accordance
with the NIA Licence Condition.
1.19. Ofgem will undertake a review of the NIA after it has been in operation for at
least two years. It is possible that, following this review, we will make changes to
aspects of the NIA operations and governance, and amend the Governance
Document to facilitate these changes.
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2. Collaboration and Learning Portals
Chapter Summary
This chapter sets out that Network Licensees should collaborate with a range of
parties to develop and facilitate Projects funded through the NIA. We also require
Network Licensees to work collaboratively to maintain a Collaboration and Learning
Portal for this purpose at all times.
Collaboration Portal
2.1 We expect Network Licensees to collaborate with each other and Project
Partners on many of the Projects supported by the NIA. Network Licensees are likely
to have to work closely with other parties in the energy supply chain (from
generators to suppliers) to explore what technological, operational or commercial
arrangements best address changes in network use and what role they can play in
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4. Eligible NIA Expenditure
Chapter Summary
This chapter defines what Eligible NIA Project Expenditure is and defines what will be
considered Eligible Bid Preparation Costs.
4.1. There are two categories of expenditure that can be recovered under the NIA.
The first category is expenditure associated with undertaking NIA Projects. This is set
out in paragraphs 4.3 to 4.10 below and is called Eligible NIA Expenditure. The
second category is expenditure to prepare submissions for the NIC. This is set out in
paragraph 4.13 below and is called Eligible Bid Preparation Costs.
4.2. The amount available for Allowable NIA Expenditure can be calculated using
the NIA Licence Condition.
Eligible NIA Expenditure requirements
4.3. Eligible NIA Project Expenditure is expenditure on a Project that is related to
the implementation of the Network Licensee’s Project subject to the restrictions set
out in this Governance Document.
Expenditure relating to equipment
4.4. If the expenditure relates to equipment (including control and/or
communications systems and/or software) then:
It must be incurred in relation to the research, development procurement,
installation, operation, maintenance or decommissioning of equipment which
will have a Direct Impact on the Network Licensee’s network;
It must not be related to the procurement, installation, operation and
decommissioning of any device on any Customers’ premises that measures
the consumption of energy and provides such measurement data to an Energy
Supplier. Where data is gathered the Network Licensee must comply with the
Data Protection requirements section of this Governance Document; and
Equipment that is funded through the NIA for the purpose of reducing or
shifting the gas demand of commercial or domestic Customers will be deemed
be connected to and form part of the Network Licensee’s network if it is being
used to test the impact of gas demand reduction or demand shift on the
Network Licensee’s network.
Payments to Network Users
4.5. If the expenditure involves payments to a Related Undertaking to remunerate
a Network User for the actions it takes as part of the NIA Project then:
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All payments that are proposed to be made to any Related Undertaking must
be declared before Project Registration and will require approval from Ofgem
before the Project can be registered;
The Network Licensee must simultaneously offer the same terms to similar
Network Users on the part of the network that is within the Project boundary,
and must have used reasonable endeavours to identify similar Network Users;
and
The payment cannot be made directly to the Network Licensee or affiliated
Network Licensees undertaking the NIA Project, except to cover the marginal
operating costs of running existing Network Licensee owned generation or
storage plants that are solely necessary for the purposes of the Project. Such
marginal operating costs must be declared at the time of Project Registration and will require approval from Ofgem before the Project can be registered.
Customer protection
4.6. Where the Project involves any interaction with a Relevant Customer or a
Relevant Customer's premises, or any Direct Impact on or engagement with Relevant
Customers (eg through charging or contractual arrangements or supply
interruptions) the Network Licensee must comply with the conditions set out in this
Customer protection section, paragraphs 4.6 to 4.10 of this chapter.
Requirements
4.7. The Network Licensee must submit to the Authority, at least two months prior
to initiating any form of engagement with a Relevant Customer, a Customer
Engagement Plan of how it, or any of its Project Partners, will engage with, or impact
upon, Relevant Customers as part of the Project. The Network Licensee and its
Project Partners cannot initiate any form of engagement with a Relevant Customer
until the plan has been approved by the Authority, and the Network Licensee must
comply with the approved plan at all times. The plan must include:
A communications strategy which sets out inter alia:
o Any proposed interaction with a Relevant Customer or premises of a
Relevant Customer or proposed interruption to the supply of any
Customer for the purposes of the Project, and how the Customer will be notified in advance;
o Ongoing communications with the Relevant Customers involved in the
Project;
o Arrangements for responding to queries or complaints relating to the
Project from Relevant Customers;
Information on the Priority Services Customers who will be involved in the
Project and how they will be appropriately treated (including providing
information to any person acting on behalf of a Priority Services Register
Customer in accordance with condition 37 of the Gas Supply Licence, where
applicable);
Details of any safety information that may be relevant to the Project, and
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Details of how any consents that may be required as part of the Project will be obtained.
4.8. The Network Licensee must publish the plan by making it readily available on
its own website and provide a link on the Learning Portal.
4.9. The Network Licensee (or its contractors) and its Project Partners must also:
Not visit a premises of any Customer for sales or marketing activities in
connection with, in the context of or otherwise under the guise of the Project;
and
Have regard to the implementation of the smart meter roll-out in the
geographical area relevant to the Project to ensure that the Project does not impede the implementation of the roll-out in any way.
Data protection Requirements
4.10. Where the Project involves the collection of any personal data (as defined in
the Data Protection Act 1998) the Funding Licensee must submit a strategy for
dealing with this personal data to Ofgem at least two months prior to collecting or
using the data. The Funding Licensee or its Project Partners cannot collect or use any
personal data until the strategy has been approved by the Authority. The strategy
must set out the following:
What personal data will be collected for the purposes of the Project;
How this personal data will be used;
How consent for use of the personal data will be obtained;
What information will be provided to the Customer prior to consent being
sought;
If Priority Services Register Customers are included in the Project, how their
personal data will be obtained;
Who owns the personal data;
How long the personal data will be retained; and
How this personal data will be managed (which should be based on a “privacy
by design” approach, as advocated by the Information Commissioner’s Office9).
Unrecoverable NIA Project Expenditure
4.11. Unrecoverable NIA Project Expenditure cannot be recovered from Allowable
NIA Project Expenditure. Unrecoverable NIA Expenditure is any NIA Project
9 See http://www.ico.gov.uk/news/current_topics/privacy_by_design_conference.aspx