EVALUATION

AN INDEPENDENT EVALUATION OF THE LCNF
• discounting: A key simplification in our analysis is our decision not to discount the
estimated value of the future quantitative benefits. The format (and quality) of the
data we received was varied and, while some data was provided on an annual basis,
the majority was not. In most instances this is a result of DNO uncertainty associated
with when the future benefits are likely to occur. We have therefore concluded that
there would be little justification (without making unsubstantiated assumptions
regarding the data) in applying an artificial time profile to these benefits.
Consequently while we acknowledge these quantitative benefits will occur sometime
during the assessment period 48 we have not applied a discount the estimated future
net benefits over time.
Notwithstanding our view set out above, and for illustrative purposes only, we have
undertaken sensitivity analysis to calculate the Present Value of the estimated future
financial net benefits. This aims to give a sense of the difference that discounting
could make to the results. In doing this sensitivity analysis we have assumed a linear
distribution of the benefits over the assessment time period and applied discount
rates of 3.5% and 4%. This assessment is presented in Section 5.3.4.2.
As a result, the estimated financial benefits presented in this report should be
considered non-discounted real 2015 money unless stated otherwise.
• inflation: We have converted all of the costs and estimated benefits to 2015 money
to aid comparison – a summary of the inflation rates used for this conversion is
provided in Table 14 below. Historic inflation rates are based on CPI.
Table 14 – Annual inflation rates (real 2015 money)
Year
UK Inflation rate
2012 2.8%
2013 2.5%
2014 1.4%
2015 0.05%
Source: Inflation.EU, and Pöyry analysis
5.3 Financial results
In this section we present a summary of the costs and estimated benefits of the LCNF
projects based on our assessment outline in Section 5.2. All financial costs and benefits
are presented in real 2015 money.
5.3.1 Costs
In our evaluation, the ‘costs’ associated with the LCNF relate, not only to the costs faced
by Ofgem in the administration and operation of the scheme itself, but also the cost of
project funding, and the contributions by the DNOs and other project partners. The cost
48
Between 01 April 2016 and the end of the RIIO-ED2 period (31 March 2031).
PÖYRY MANAGEMENT CONSULTING
October 2016
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