Webinar - Cost of Losses for Network Investment


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The cost of losses is a critical input to the planning, design and operational activities of distribution network businesses. Whilst the cost of losses will rarely provide the complete justification for an augmentation project, it will change the relative ranking of alternatives, particularly when comparing development options of different voltages.

The cost of losses can also influence the preferred timing of a project at times of moderate load growth. Furthermore, lifecycle costs used for the specification of optimal cable and line conductor sizes and transformer designs are critically dependent on this input.

The supply industry is at a turning point where the forecast costs of energy generation are expected to increase beyond “traditional” levels. The potential impact of Government policies influencing the move to renewable energy sources and the likelihood of some form of carbon price add to energy generation costs. Future generating costs are expected to be very significantly higher than the current market prices. Networks, too, have been the subject of recent regulatory determinations which have dramatically increased their costs.

This webinar proposes a Long Run Marginal Cost approach for calculating the cost of losses at various levels within the distribution network. The approach developed has relevance both for the regulatory incentives on networks to manage electrical losses and on the minimum energy performance specifications (MEPS) of distribution equipment.


Harry Colebourn retired as EnergyAustralia’s Executive Manager – Regulation and Pricing in July 2008. He has since been consulting within the power industry, on a broad range of engineering and regulatory assignments. Harry was involved in the development of Australian electricity markets from their inception in the early 1990’s, through to the establishment of the National Electricity Market in 1998. He was contributor to the development of the transmission and distribution pricing arrangements that remain in place. Harry’s longstanding interest in the economics of infrastructure businesses led to the introduction of a number of innovative changes to improve the cost reflectivity of EnergyAustralia’s network pricing. He is the author of several papers on pricing and related matters. Harry has degree qualifications in Electrical Engineering and Business Administration and is a member of the Institution of Engineering and Technology and the Electric Energy Society of Australia.

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Webinar - Cost of Losses for Network Investment

  1. 1. LOSS COSTS FOR NETWORK INVESTMENT ANALYSIS May 2011 Harry Colebourn Energeia Pty Ltd
  2. 2. Discussion points1. Cost of generating energy2. Cost of transporting energy3. Loss costs for investment analysis4. Regulatory positioning
  3. 3. 1.1 No-load and load losses • No-load (shunt) losses occur all the time and are relatively Supply network constant. They occur due to unavoidable leakage within Series resistance electrical equipment like transformers, capacitors and Load current meters • Load (series) losses occurGenerator due to the delivery of energy Leakage current Shunt Load through the network. They resistance vary approximately with the square of the loading. Series losses occur due to the electrical resistance in components of the network like lines and transformers
  4. 4. 1.2 Energy market outcomes in 2008-09 $10,000 $1,000RRP $100 $10 R² = 0.46 $1 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 5,000 7,000 9,000 11,000 13,000 15,000 Date NSW Demand MW • Large variation in regional reference price • Reasonable correspondence of price with regional demand using logarithmic fit
  5. 5. 1.3 Load and loss profiles• Load loss (series) is ‘peakier’ than the system load profile• No-load (shunt) loss is constant Cost of energy Shunt loss System load Series loss 2008-09 for NSW $ 39 $ 43 $ 47
  6. 6. 1.4 Forecast generation patterns 100%Generation pattern 90% Wind & unscheduledassumes generation is Hydro OCGT 80%operated to minimise Coal CCGT 70%overall costs Demand, % of maximum 60%Generation LRMC 50%type excl. CPRS incl. CPRS 40% $/MWh $/MWhWind & unscheduled $ 114 $ 114 30%OCGT $ 162 $ 190 20%Coal $ 60 $ 81 10%CCGT $ 60 $ 77 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Duration, % of hoursGeneration coststranslate to different LRMC of energy Shunt loss System load Series losscosts for loads of $/MWh $/MWh $/MWhdifferent profiles Cost incl. CPRS $ Cost excl. CPRS $ 81 $ 60 $ 91 $ 71 $ 92 72
  7. 7. 1.5 Summary of energy generation costs Wholesale price 2008-09 Forecast cost 2020 exc. CPRS Shunt loss Forecast cost 2020 inc. CPRS System load Series loss $0 $20 $40 $60 $80 $100 Cost $/MWh• LRMC of generation is much higher than historical wholesale price• The ‘peakier’ load profile of load losses has a higher cost of generation
  8. 8. 2.1 Network configuration Transmission Subtransmission High Voltage Low Voltage 132 kV 66, 33 kV 22, 11 kV 230/400 V ST Zone Distribution Substation Substation Substation• The network comprises several levels with load supplied from each• Load or loss supplied by the network: o generates upstream energy losses in network equipment; and o requires upstream network capacity for its transport
  9. 9. Meters and load control Shrinkage 1% 2.2 ‘Leaky pipe’ loss diagram 4% Subtransmission network for EnergyAustralia LV network 15% 12% Subtransmission substations 6% Zone Distribution substations substations 9% 27% HV Network 26% Transmission loss ST loss HV loss LV loss 1.3% 1.1% 1.8% 2.30% Distribution losses 5.2% Energy of delivery intoPurchases Energy to distribution network LV load from Distribution 77.8% RRN 100.0% 101.3% HV load 6.3% ST load 10.7%
  10. 10. 2.3 Network cost allocation 100% • Network capacity is required 90% to meet peak period loads Peak load 80% Base load • The LRMC of network 70% Network cost capacity is around 80% of average network chargesLoad, % of peak Capacity cost allocation is to 60% • 50% the peak 30% of the load 40% • Capacity cost allocation is 30% dependent upon the load 20% profile 10% Network cost Shunt loss System load Series loss Proportion of average 75% 80% 131% 0% 1 8760 Duration, hours
  11. 11. 3.1 Summary of loss costs Metropolitan distributor Regional distributor Energy Shunt loss Transmission Subtransmission High Voltage LRMC energy Low Voltage TUoS Energy Transmission losses System load Transmission DUoS to ST Subtransmission Losses to ST High Voltage DUoS to HV Low Voltage Losses to HV DUoS to LV Energy Series loss Losses to LV Transmission Subtransmission High Voltage Low Voltage $0 $50 $100 $150 $200 $250 $300 $0 $50 $100 $150 $200 $250 $300• The cost of losses: o depends upon the configuration of the network; o depends upon the level in the network; o depends upon the load profile; and o is very substantially higher than the wholesale cost of energy
  12. 12. 4.1 Network investment framework• Loss costs are settled as part of the Australian National Energy Market (NEM) trading arrangements• With large transmission network investments, market effects such as losses are considered under the Regulatory Investment Test for Transmission (RIT-T)• There is a strong financial incentive in the current regulatory arrangements for distributors to minimise capital and direct operating costs• There is no explicit requirement for distributors to consider loss costs in network investments
  13. 13. 4.2 Network investment framework (2)• There is no explicit requirement for distributors to consider loss costs in network investments• A loss incentive has been tried and failed in the late 1990’s, by NSW regulator IPART. The natural annual variation in losses makes this problematic• The least intrusive approach is to impose an obligation on distributors to use a reasonable cost for losses in their investment analysis
  14. 14. 4.3 Minimum Energy Performance Standards• MEPS are established by the Ministerial Council on Energy’s Equipment Energy Efficiency (E3) committees, with DEWHA as secretariat• Distribution transformer MEPS: o have been in place since October 2004 o Stage 1 Regulatory Impact Statement (RIS) was based on the 2002 market cost of energy o review of stage 2 distribution transformer MEPS commenced in 2007 o Consultation RIS on new MEPS delayed• Opportunity to influence outcome?
  15. 15. Thank You Energeia L20 Tower 2, 201 Sussex Street, Sydney NSW 2000P +61 2 9006 1550 F +61 2 9420 1634 M +61 412 328 549 E hcolebourn@energia.net.au W www.energeia.net.au