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.

1. LOSS COSTS FOR NETWORK
INVESTMENT ANALYSIS
May 2011
Harry Colebourn
Energeia Pty Ltd

2. Discussion points
1. Cost of generating energy
2. Cost of transporting energy
3. Loss costs for investment analysis
4. Regulatory positioning

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 occur
Generator 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. 1.2 Energy market outcomes in 2008-09
$10,000
$1,000
RRP
$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. 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. 1.4 Forecast generation patterns
100%
Generation pattern 90% Wind & unscheduled
assumes 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 $/MWh
Wind & 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 hours
Generation costs
translate to different LRMC of energy Shunt loss System load Series loss
costs for loads of $/MWh $/MWh $/MWh
different profiles Cost incl. CPRS $
Cost excl. CPRS $
81 $
60 $
91 $
71 $
92
72

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. 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. 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 into
Purchases Energy to distribution network
LV load
from Distribution 77.8%
RRN 100.0%
101.3%
HV load
6.3%
ST load
10.7%

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 charges
Load, % 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. 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. 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. 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. 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. 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
E hcolebourn@energia.net.au
W www.energeia.net.au