Marc Smeed discusses recent changes to the transmission losses charging regime, why they have a major impact on most network users and Xero Energy’s new tool for long term forecasting of exposure to transmission losses.
Whether you know it or not, if you are a user of electricity in GB, you pay for transmission losses. These are the energy losses that occur due to electricity being transmitted from one part of the country to another. For end consumers, this cost is effectively lumped into the tariff that you pay to your supplier along with all of the other bits and pieces that make up your bill – network charges, wholesale cost, supplier levies and margin, etc. For generators, it is a cost that is passed through slightly differently and varies depending on the contractual arrangements under the Balancing and Settlement Code. The cost exposure for generators also varies depending on whether they are connected to the transmission system or the distribution system. For the latter, it is generally seen as an “embedded benefit” rather than a cost.
Until the start of April 2018, all transmission losses were allocated on a socialised basis to everyone that used the transmission system. All losses were allocated at a flat rate based on the volume of energy that each party uses – whether delivering energy to the system (in the case of generators) or taking it (in the case of end consumers). However, since BSC modification proposal P350 was approved and came into force in April, about half of all losses are now charged on a locational basis – similar to the way that Transmission Network Use of System charges (TNUoS) are charged. There are now 14 different ‘zones’ across the country, and each zone has a different correction ‘factor’ which is applied to metered energy volumes.
For zones that have a large disparity between generation and demand, this correction factor can be large – to reflect the fact that a lot of power needs to be moved into (for large demand centres) or out of (for areas dominated by generation) the zone.
The outcome is that for a generator located in a zone dominated by generation (e.g. a wind farm in Scotland) will be penalised for causing more transmission losses, but demand in this same zone will be ‘credited’. Vice versa for zones where there is a lot of demand but little generation (e.g. London).
The cutover between the previous regime and the newly implemented regime has been stark for many. For example, transmission-connected generators in the north of Scotland have seen their annual average cost exposure more than double overnight to around 4.5% of wind farm annual output for 2018/19. And on the other hand, transmission-connected generators in several of the zones in the midlands and southern England have seen their liability for transmission losses reduced significantly, even to the extent that many now see it as a net benefit. Distribution-connected generators and end consumers on the other hand are affected in very different ways – again with some losers (end consumers in the south) and some winners (embedded generation in the south and end consumers in the north).
Transmission losses are recalculated every year under the terms of the BSC, based on actual power flows from the preceding year. Therefore, the allocation of losses will evolve as the electricity system continues to further decarbonise.
In response to this change, and the growing need for developers, owners and investors to have better assumptions regarding future energy market variables, Xero Energy has developed an extremely powerful in-house forecasting tool. We use it to model the expected changes to transmission losses over the longer term, out to 2050.
Our tool models scenarios which take into account detailed variations in demand, generation background, European interconnection and network development and also capable of testing changes in to the transmission losses calculation methodology. Coupled with our strong regulation and policy knowledgebase, this is a powerful way for our clients to be more informed about risks and opportunities – helping to underpin decisions on investment, project economics and future regulatory engagement strategy.
This tool sits alongside Xero Energy’s other network forecasting capabilities covering not only transmission losses but also TNUoS, BSUoS and constraint payments.
If you want to get a better understanding of how our analysis and insights can help to inform your strategy and decision making then please get in touch (firstname.lastname@example.org, 0141 221 8556).