LOSS COSTS FOR NETWORK
INVESTMENT ANALYSIS
May 2011
Harry Colebourn
Energeia Pty Ltd
Discussion points
1. Cost of generating energy
2. Cost of transporting energy
3. Loss costs for investment analysis
4. Regulatory positioning
1.1 No-load and load losses
• No-load (shunt) losses occur
all the time and are relatively
constant. They occur due to
unavoidable leakage within
electrical equipment like
transformers, capacitors and
meters
• Load (series) losses occur
due to the delivery of energy
through the network. They
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
Load
Series resistance
Shunt resistance
Leakage current
Load current
Generator
Supply network
$1
$10
$100
$1,000
$10,000
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09
RR
P
Date
R² = 0.46
5,000 7,000 9,000 11,000 13,000 15,000
NSW Demand MW
1.2 Energy market outcomes in 2008-09
• Large variation in regional reference price
• Reasonable correspondence of price with
regional demand using logarithmic fit
1.3 Load and loss profiles
• Load loss (series) is ‘peakier’ than the system load
profile
• No-load (shunt) loss is constant
Cost of energy Shunt loss System load Series loss
2008-09 for NSW 39$ 43$ 47$
1.4 Forecast generation patterns
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Dem
and
, % o
f max
imu
m
Duration, % of hours
Wind & unscheduled
Hydro
OCGT
Coal
CCGT
Generation
type excl. CPRS incl. CPRS
$/MWh $/MWh
Wind & unscheduled 114$ 114$
OCGT 162$ 190$
Coal 60$ 81$
CCGT 60$ 77$
LRMC
LRMC of energy Shunt loss System load Series loss
$/MWh $/MWh $/MWh
Cost incl. CPRS 81$ 91$ 92$
Cost excl. CPRS 60$ 71$ 72$
Generation pattern
assumes generation is
operated to minimise
overall costs
Generation costs
translate to different
costs for loads of
different profiles
1.5 Summary of energy generation
costs
$0 $20 $40 $60 $80 $100
Series loss
System load
Shunt loss
Cost $/MWh
Wholesale price 2008-09
Forecast cost 2020 exc. CPRS
Forecast cost 2020 inc. CPRS
• LRMC of generation is much higher than historical
wholesale price
• The ‘peakier’ load profile of load losses has a
higher cost of generation
Transmission
Subtransmission High Voltage Low Voltage
132 kV 230/400 V 22, 11 kV 66, 33 kV
Distribution Substation
Zone Substation
ST Substation
2.1 Network configuration
• 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
LV load 77.8%
LV loss 2.30%
HV load 6.3%
HV loss 1.8%
ST load 10.7%
ST loss 1.1%
Transmission loss 1.3%
Energy Purchases
from RRN
101.3%
Distribution losses 5.2% of delivery into
distribution network Energy to Distribution
100.0%
2.2 ‘Leaky pipe’ loss diagram
for EnergyAustralia
Subtransmission network
15%
Subtransmission substations
6%
Zone substations 9%
HV Network 26%
Distribution substations
27%
LV network
12%
Meters and load control
4% Shrinkage 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 8760
Load
, % o
f pea
k
Duration, hours
Peak load
Base load
Network cost
2.3 Network cost allocation
• Network capacity is required
to meet peak period loads
• The LRMC of network
capacity is around 80% of
average network charges
• Capacity cost allocation is to
the peak 30% of the load
• Capacity cost allocation is
dependent upon the load
profile
Network cost Shunt loss System load Series loss
Proportion of average 75% 80% 131%
3.1 Summary of loss costs
• 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
$0 $50 $100 $150 $200 $250 $300
Low Voltage
High Voltage
Subtransmission
Transmission
Energy
$0 $50 $100 $150 $200 $250 $300
LRMC energy
TUoS
Transmission losses
DUoS to ST
Losses to ST
DUoS to HV
Losses to HV
DUoS to LV
Losses to LV
Low Voltage
High Voltage
Subtransmission
Transmission
Energy
Low Voltage
High Voltage
Subtransmission
Transmission
Energy
Seri
es lo
ss
Syst
em lo
ad
Metropolitan distributor Regional distributor Sh
un
t lo
ss
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
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
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?
Thank You
Energeia
L20 Tower 2, 201 Sussex Street, Sydney NSW 2000
P +61 2 9006 1550 F +61 2 9420 1634 M +61 412 328 549
W www.energeia.net.au
