EVALUATION

AN INDEPENDENT EVALUATION OF THE LCNF
associated with operating the scheme is minor compared to the actual project costs The
cost to Ofgem of implementation and operating the LCNF is estimated to be £1.5m 49 .
The project costs for Tier 1 and Tier 2 projects have been calculated at approximately
£275m. Tier 2 projects have accounted for the majority of this cost at £245m, while the
funding of Tier 1 projects was approximately £30m 50 .
5.3.2 Benefits
In our evaluation, the ‘benefits’ associated with the LCNF include all benefits associated
with each of the LCNF projects with the exception of the carbon reduction benefits. We
have assessed carbon savings separately and the results are presented in Section 5.6. In
our assessment we consider both current benefits and potential future benefits 51 .
The range of estimated benefits we present in this section are not formal ‘projections’. We
have estimated the range of benefits on a best endeavours basis based on the DNO
responses to our questionnaire. This has included our own independent scrutiny and
interrogation of the response data and the results. We recognise that this estimation of
the range of quantitative benefit is made at a point in time and that this range could
change significantly if, and when, more information is made available through DNO rollout
of these projects into business as usual.
As set out in Section 5.2.2, we have not discounted the estimated future benefits. Had the
estimated benefits been discounted then they would be lower - depending on the discount
rate and the assumption around the timing of the expected future benefits. To consider
this impact, and give a sense of what difference discounting could make to the results, the
Present Value of the estimated future financial benefits is set out in Section 5.3.4.2.
5.3.2.1 Nature of the benefits
In addition the nature of the financial benefits differ depending on the specific LCNF
project, and the particular innovation initiative being trialled. Table 15 provides a
summary of the types of financial benefit considered.
Table 15 highlights that many of the innovative initiatives have the potential for multiple
financial benefits. For example, the connection of DG may give rise to benefits which can
include the following.
• avoided network connection costs;
• reduced electricity losses;
• enhanced security of supply;
• provision of ancillary services and demand-side response; and
49
50
51
We have not included any potential costs that would accrue to parties not directly involved in
the LCNF.
These are gross costs and so do not include contributions from DNOs and project partners.
It includes both Tier 1 and Tier 2 projects.
Both the current and future benefits are based on the DNO questionnaire submissions. The
future financial benefits provided by the DNOs are net benefits, that is, they take account of
any costs associated with the roll-out of the innovations. In many cases the costs associated
with project roll-out replace existing business as usual costs and so additional costs
associated with rolling-out the LCNF projects are likely to be comparatively small, or even
zero.
PÖYRY MANAGEMENT CONSULTING
October 2016
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