EVALUATION

AN INDEPENDENT EVALUATION OF THE LCNF
5. QUANTITATIVE ASSESSMENT OF THE LCNF
Delivering net financial benefits to existing and future customers was one of the key
criteria for the original assessment of LCNF project applications. This has also been used
as important criteria for the quantitative assessment of the LCNF stimulus, and is the
subject of this section of the report.
5.1 Introduction
The aim of the quantitative evaluation is to understand the cost and benefits of the LCNF
– both to the electricity network, and to the wider economy. We have attempted to
estimate whether the benefits arising from the LCNF projects – both now and in the future
– justify the resources and the financial commitment associated with project delivery.
However, the inherent uncertainty associated with understanding future benefits has been
magnified by the fact that the LCNF projects are testing innovative concepts and novel
ideas which, by their very nature, are uncertain. This leads to a number of challenges
associated with monetising and comparing the benefits arising from the projects. For
example, there are significant differences between the projects, both in terms of size and
scope, as well as any misalignment between the specific aim of an individual project and
the magnitude and direction of the perceived benefit. This uncertainty means that the
calculation of financial and carbon benefits is far from straightforward.
It is also important to note that this evaluation comes at a very early stage in the roll-out of
the LCNF project deliverables. Whilst the majority of the projects have been formally
completed, in many cases the ideas, solutions and innovations are only just starting to be
rolled out into normal business practices (see section4.3). And even where an innovation
has been rolled-out into business as usual, in some cases it may take many years, and
require fundamental changes in the energy market (e.g. electrification of heat and
transport), before potential benefits will fully materialise.
It is therefore important that the quantitative values presented in this section should not be
considered detailed projections of the LCNF scheme benefits, rather they should viewed
as an estimate of the potential benefits and considered in the context of the wider
evaluation.
5.2 Approach to the assessment
The evidence for our quantitative assessment is based on the DNO responses to our
questionnaire. Through the DNO questionnaire we have quantified the costs and benefits
(where applicable and practicable) associated with the LCNF projects. In addition to the
benefits identified by the DNOs in relation to projects, our assessment has also included
the costs associated with the implementation and operating of the scheme:
• scheme implementation and operating costs: this covers the cost of administering
the scheme. These are the cost borne by Ofgem through the need for additional
staff, external advice etc.
• costs associated with project funding: the actual cost of the LCNF projects; e.g.
how much funding was granted by Ofgem to support the projects. This category also
includes costs faced by the DNOs that were not covered by the LCNF. This includes
an estimate of the cost incurred in preparing submissions (where applicable),
including those submissions that were not successful.
PÖYRY MANAGEMENT CONSULTING
October 2016
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