Redcar sunset

Northern Gas Networks – Redcar Hydrogen Community

Quantitative Risk Analysis

Energy

Sector

Consultancy

Services

  • Programme value

    >£320m

  • Duration

    2.5 years

  • Risk mitigation

    £5m

The UK Hydrogen Economy

Northern Gas Networks Requirements

Northern Gas Networks is the gas distributor for the North East and parts of Cumbria and Yorkshire.

Northern Gas Networks have submitted to the UK Government, and the sector regulator Ofgem, ambitious and innovative proposals to develop the UK Hydrogen Economy. This will supply 2,000 homes in an area of Redcar with locally produced clean-burning hydrogen from 2025.

The government has highlighted that the UK’s hydrogen economy could be worth £900 million by 2030 and create as many as 12,000 jobs, so hydrogen could represent a great opportunity for Redcar and the local area.

As part of the complex £320m capital programme proposal Northern Gas Networks required sophisticated Quantitative Risk Analysis to be undertaken. The purpose was to assure the Northern Gas Networks board and funders of the likely risk envelop of early phase enabling works.

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Data Driven Decisions

CappKind Solution

CappKind quantity surveying risk specialists worked with the Northern Gas Networks commercial team to establish the risk objectives. These included,

1) Understanding the outturn risk exposure of the enabling works investment, if the government made an ‘early, mid or late’ decision on the full investment proposal.
2) Profiling the risk envelop across time to understand when critical investment decisions needed to be taken and what the associated risk of these decision was.

CappKind used @Risk, Quantitative Risk Analysis software, to develop a risk model that incorporated the circa 75 key risks. A three-point estimate of each risk and a probability were assessed. This input risk data was processed through a Monte Carlo risk simulation technique – effectively simulating the delivery of the enabling works through 10,000 iterations. This enabled a high-quality outturn risk envelop to be charted for each scenario.

In addition, sensitivity analysis and ‘tornado charts’ provided information on the relative significance of each risk input to the overall output risk envelope.

Finally, P10, P50 and P90 risk positions were plotted over a cashflow forecast and critical decision dates were overlaid on these profiles.

The work provided two key outputs,
1) The detailed modelling sheets and a full data suite.
2) A board-level presentation enabling data driven decision making.

Risk and Opportunity Management

The Impact

The QRA work provided the following critical benefits,

  1. A clearly presented risk exposure – expressed as an envelope of commercial outcomes at three different key decision dates.
  2. A sensitivity analysis on the most important risks at three different key decision dates – enabling effective mitigation.
  3. A clear understanding of when decisions needed to be made to avoid or mitigate key risks.
  4. An objective method of communicating risk to the funders (the UK Government).
  5. Assurance that the right data-driven decisions were being made.
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Key benefits

  • Risk management

  • Decision making process

  • Commercial assurance

Thank you for your work on this. It’s been great and a real asset to the project. I particularly like the builds you added on with summary over time chart and the results summary table. I think these will strike a chord with the directors as easy to follow visuals.”
Tom Saunders | Commercial Manager Energy Futures – Northern Gas Networks
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Mott MacDonald: Capital programme commercial assurance

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