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Topic Title: How should/could electricity generators pay for grid transmission capacity and losses?
Topic Summary: Is there any scope for a market in electricity transmission between HVAC and HVDC to develop?
Created On: 09 July 2013 10:41 AM
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 09 July 2013 10:41 AM
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What are the possibilities? Scottish renewable energy generators are saying they are paying too much, is that true?

According to wikipedia

"Although overall losses in the national grid are low, there are significant further losses in onward electricity distribution to the consumer, causing a total distribution loss of about 7.7%.[8] However losses differ significantly for customers connected at different voltages; connected at high voltage the total losses are about 2.6%, at medium voltage 6.4% and at low voltage 12.2%.[9]"

So it seems that the customer profile is important to the losses.

What proportion of the electricity grid losses should electricity suppliers pay and what proportion should electricity generators pay?
e.g. Presumably suppliers pay certain sums that depend on the density distribution and geographical extent of their customer bases? This is what would effectively happen if they took a high voltage grid connection and then operated a town or village local grid infrastructure from that point on.

How should the cost of upgrading point to point grid energy flow capacity be charged for?

Can their be more competition in terms of new infrastructure investment?

For example how does it work if scottish renewable energy generation becomes more significant and generators consider it cheaper to add new direct point to point bulk power transmission capacity to their main market in London via low loss HVDC links from Glasgow/Edinburgh to London? (i.e. by burying cables alongside railway lines or motorways)

James Arathoon

James Arathoon
 11 July 2013 02:46 PM
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Article in the Guardian on this topic

"Renewable generators ask Ofgem to cut electricity transportation charges"

"Companies say fees based on distance travelled to consumers are unfair because windfarms often cannot be sited near towns"

Link to Ofgem's Project TransmiT

"Project TransmiT is Ofgem's independent review of the charging arrangements for gas and electricity transmission networks, and the connection arrangements that DECC has explicitly left for Ofgem and the industry to resolve."

James Arathoon
 13 July 2013 09:13 PM
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Originally posted by: jarathoon
"Renewable generators ask Ofgem to cut electricity transportation charges, saying fees based on distance travelled to consumers are unfair because windfarms often cannot be sited near towns"

That's an amazing piece of doublethink. So they should receive special concessions because they can only generate intermittently and in remote locations?

Can you think of any other industry that demands special fees and concessions to support an inferior product? Perhaps Microsoft should demand a tax on iPads because PC's are big, heavy and run crappy software. Would that be 'fair'?

What proportion of the electricity grid losses should electricity suppliers pay and what proportion should electricity generators pay?

It doesn't much matter how DECC/EDF/National Grid organise the money-go-round. The end customer always picks up the bill. The objective remains the same: to fleece bill payers using some bogus environmental justification: "Sorry your granny died of hypothermia, but it's our job to save polar bears" etc
 14 July 2013 03:10 AM
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Yes I agree the consumer and tax payer pay for everything in the end.

In the document

"Modelling the Impact of Transmission Charging Options"

On page 13 it outlines the "Current transmission charging arrangements"

Transmission Network Use of System (TNUoS) charges are split 27% from the generation side and 73% from the demand side.

Since I don't know in exact detail how the National Grid charging schemes operate I shall build up a simple model to help me think more clearly about some of the main issues involved...

If you think about the absurd situation where everyone has a grid connection (both generators and consumers) but no one supplies or uses any electricity, then the only source of income can be assumed to be electricity standing charges.

The question is in the absence of electricity flows what should the standing charge element of the electricity bill pay for and should all consumers pay the same standing charge? Should all generators be asked to pay a generator standing charge? Should all generators pay the same standing charge?

If the consumer household has solar panels for example they will during certain sunny periods become a net generator. Should a different generator standing charge apply pro-rata for those periods?

In my simple model (without electricity flows) consumers pay a standing charge, but do not start paying towards the generators standing charge until they start using electricity.

If the standing charge element of the bill for both consumers and generators does not cover maintenance and running costs of all the grid what part of the grid should it cover?

For my very simple model lets assume all the costs (without electricity flows) are covered by the standing charge payments. Lets assume for simplicity all generators and all consumers pay a standing charge proportional to the maximum power they can physically export to the grid or physically consume from the grid (fuse ratings).

Lets assume all costs on top of these standing charges are then marginal and depend pro-rata on the actual energy a generator generates or a consumer consumes.

Now the question arises of how to pay for additions to the grid under the assumption of zero energy flows.

Lets assume a new power generation company asks to be connected to the grid. They ask for two 500 MW maximum power export connections to the high voltage grid.

Who should pay the capital cost of building this connection (without electricity flows) ?

Lets say it is paid for out of the consumer and the generator standing charge payments, which includes an element for expanding the grid on legitimate request.

Now at last we get to use our grid...

The cost per unit of energy generated is lowest when the generator exports at the maximum power allowed by the export connections, i.e. in my example 2 x 500MW constantly.

If the generator standing charge for 2 x 500MW connections is paid independently of how much is generated this means that the cost of generating electricity decreases when the instantaneous power exported increases (the rate at which energy is exported).

The maximum power exported to the grid may be
(a) physically limited on the generator side (e.g. not enough wind)
(b) constraint limited on the grid side
(c) limited by price competition in the electricity market giving access to demand
(d) demand limited on the grid side outside of electricity market

(I am not sure (d) necessarily needs to exist separately to (c). I suppose you would need a very fast electricity market trading system )

All these reasons for limiting exported power in this simple model increase the price the generator has to charge per unit of energy exported. This effectively means that once a generator is exporting to the grid, it is likely to be cheaper for them to increase their power output (if controllable and available) than for another generator of similar type start up and start exporting at low powers.

In this simple model it might well pay for a wind farm and an associated gas backup power station to share the same grid connection(s). Is this something to be encouraged?

In the simple model the transmission losses on the grid are paid say 27% from the generation side and 73% from the demand side, the costs can be paid on a pro-rata basis depending on how many units of energy are respectively generated or consumed.

A simple model such as this can be used as a baseline, so that the benefits and disbenefits of using a more complex model can be clearly and transparently established (like adding demand management).

The question is, is it worth adding the considerable extra complexity of location based energy pricing to my simple model? Which players does location based pricing favour and which does it disadvantage?

I have no idea how the location based pricing models compare with simple baseline models, as they are far too complex for a dummy like me to think about, without a computer and the hours and hours necessary to write thousands of lines of code to model them.

James Arathoon

James Arathoon
 14 July 2013 03:29 PM
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Beware "the" consumer. Consumers vary, in their habits, consumptions, and the extent to which they are influenced by price. So the population of consumers will pay, but not all equally. If the components making up the prices are reflected fairly in the costs to individual consumers, some consumers may well adjust their behaviour to reduce their costs, and so not pay as much towards the particular overhead.

I do not think it is useful to consider it as the taxpayer who pays. Much better to think of it as the public purse. So although taxpayers pay the state, there may be many sources of income to a sensible state that are not tax. Once the state has the money, it is not taxpayers money any more.

So when it comes to charges for shared infrastructure (such as the transmission system) the criteria that apply would be:
1. Do the charges tend to encourage behaviour that is socially desirable
2. Do the charges generate enough income to cover costs, including depreciation and reinvestment.
3. Is "ownership" of assets most appropriate allocated. For example, if there is a portion of the infrastructure (like a link from a power station to a substation) is this better owned by the power station (which is the exclusive user), or the transmission operator, who is most experienced at building / maintaining / operating such assets?
4. If it is the transmission operator, how should costs / risks associated with sunk assets be allocated. How much in fixed rental (for capital sunk), how much for use, and how much as a once of initial charge?
5. Finally, does it feel fair? Beholders eyes have different views on fairness.

Most of these have elements of the imponderable, and Ofgem spends a lot of time, paper and energy examining the philosophy and impact, much as theologians used to argue about how many angels could dance on the head of a pin.
You can be fairly certain that vested interests will pursue advantage to them, perhaps at the cost to at least some of the rest of us.

What seems to me far more important, is how do charges vary over time. If we are to do our laundry when the wind is blowing, then we will be encouraged to do so if electricity is cheaper at such times. To achieve this requires more thought that tweaks to the locational pricing models.

David Hirst

David Hirst
 01 August 2013 02:33 PM
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For those interested Ofgem has just released a press release detailing changes in transmission charging to come in April next year

"Ofgem recommends change to Transmission charging methodology" CMP213 Minded to decision.pdf&refer=Media/PressRel

Story in the telegraph on this

"Scottish wind farms handed £1.3m annual discount while southern power plants to pay more"

"Ofgem said: "The aim of this change is to facilitate the timely move to a low carbon energy sector, while maintaining a robust and efficient supply of electricity across Britain's high voltage network."

James Arathoon

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