Amount and cost of losses

Amount and cost of losses Jose Luis Mata June 11th 2014 - Florence School of Regulation

An introduction to Red Eléctrica First transmission and system operator company in the world Operates the Spanish power system and guarantees continuity of supply Designs, builds, owns and maintains the Spanish transmission network Independence frommarketplayers and transparency as systemoperator • Commitment with society and environment and excellence in managment Red Eléctrica guarantees the appropriate operation of the Spanish power system: Efficient management at the service of the society

Competitiveness • Sustainability • Security of supply • Energy efficiency role EU facing big challenges due to increased dependence, scarce energy resources, the need to limit climate change and to overcome economic crisis Energy efficiency is a valuable tool to address these challenges

Current situation in Europe Current estimates show EU is not on track to achieve its target of energy consumption reduction Reduce greenhouse gas levels by 20% Increase share of renewables to 20% Reduce energy consumption by 20% Current trend to 2020 10% Current trend to 2020 20% 20% EU’s efforts should focus on this pending issue

Electricity networks and efficiency Electricity network losses involve a significant component of electricity demand, and therefore represent an improvement area EU networklosses vs. total electricitydemand Source: Euroelectric • The treatment of losses is a key topic to be addressed: • in order to achieve energy efficiency improvements • requires a proper economic and regulatory approach

“Network losses” for Power systems There is not a standard definition of network losses within the EU Losses= energy generated - energy delivered to customers Energy generated Energy delivered Technical losses Non technical losses power dissipation in electricity system components such as transmission and distribution lines, transformers, and measurement systems Caused by actions external to the power system and consist primarily of electricity theft, non-payment by customers, and errors in accounting and record-keeping Power losses in transmission and distribution networks may account for up to 8-15% of the total amount of electricity produced1

Losses costs allocation There are no standard procedures neither for the allocation of network losses among market participants Who should be responsible for losses costs?

Main components Technical losses are the main part of network losses which include both transmission and distribution losses Step-up transformer from generator to Transmission line 1-2% 2- 4% Transmission line Step-down transformer from Transmission to Distribution network 1- 2% 4- 6% Distribution network transformers and cables Source: Schneider Electric

Losses treatment In many Member States, TSO’s are responsible for the procurement of energy losses in transmission through market mechanisms Energy generated Energy delivered “Transmission system operators shall procure the energy they use to cover energy losses and reserve capacity in their systems according to transparent, non discriminatory and market based procedures, whenever they have such a function.” • Power exchanges • Bilaterally • By action/tenders TSO procurement Directive 2009/72 Art. 15-6 Average costs of losses are accepted by the regulator and used in the tariff calculation

Losses treatment However there are alternative models for losses management such as Spain, where consumers pay for all losses (transmission and distribution) Energy generated Energy delivered • Consumers have to pay the 100% of the cost. • Losses are calculated through a coefficient associated to their tariff. • Losses are priced at the same market price than the energy consumed 100 GWh 90 GWh Consumer billed for 100 GWh Regardless of the chosen scheme, incentives for network operators can be set into place for losses reduction

TSO’s role Losses in the T&D system depends greatly on the physical characteristics of the system Joule effect: P=I2R R=ρL/S Losses increase with distance, network load and decrease with voltage How can TSO’s improve network losses?

TSO’s role TSO are responsible for several activities that play a significant role in the determination of losses • 1 • 2 • 3 Network design Network operation Network and equipment maintenance Nonetheless the room for improvement in these activities for losses reduction is quite limited

TSO’s role There are a number of external factors beyond TSO’s responsibilities with a significant influence on the level of losses Average generation Average demand Generation-demand Geographical size of the market, number and dispersion of costumers and generation are important driving factors which can not be modified

Incentives Effectiveness of incentives depend on the real capability of TSOs to control losses Incentive associated to losses purchase Incentive associated to a reference value Incentive= Losses procured – Losses accepted by regulator Incentive= +/- (Loss energy target - Real energy lost) * % Revenue • Volume of losses • Unit cost of losses • Volume of losses Parameters Parameters Do they consider external factors to fix a target? Incentives for TSO must be tailored to the manageable part of technical losses

Conclusions No standard definition for energy losses 1 As part of electricity demand, network losses represent an efficiency improvement area 2 Main losses drivers are not manageable by TSO’s 3 The design of incentives is thus best left to subsidiarity 4

Thanksforyourattention jlmata@ree.es

Amount and cost of losses