BSC Insights: The ways P350 has changed allocation of Transmission Losses
In this Insight article, Mehdi Jafari considers the way implementation of Modification P350 changed the allocation of Transmission Losses.
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When electricity travels through the high voltage transmission system, some inevitably gets lost on the way, e.g. through heat. The further electricity travels, the more is lost. The amount of electricity lost in the transmission system is Transmission Losses.
In 2018, BSC Modification P350 introduced a Zonal Transmission Losses allocation scheme. Before this, Transmission Losses were allocated across market participants on a uniform basis. This did not take into account the impact that geographical location of BSC Parties’ generation and demand had on Transmission Losses, leading to inefficiencies.
Additional information on the background to the allocation of Transmission Losses can be found in our April 2018 Insight Article about Zonal Transmission Losses.
How do Transmission Losses affect Credited Energy Volumes?
BSC Parties’ electricity Metered Volumes (QM) are multiplied by Transmission Loss Multipliers (TLMs) to take account of Transmission Losses. So, for each BM Unit in a given Settlement Period, Credited Energy Volume (CEV) is calculated by multiplying QM by the relevant TLM. An Offtaking TLM is applied to Metered Volumes in Trading Units that are taking energy off the Transmission Network. For example, if the Metered Volume for a Supplier’s customers belonging to an Offtaking Trading Unit for a Settlement Period was 52MWh (the QM) and the Offtaking TLM was 1.02 then the Supplier would be charged with 53.04MWh (CEV) of electricity demand for these customers.
A Delivering TLM is applied to QMs in Trading Units that are delivering electricity to the Transmission Network. For example, if the QM of an electricity generator belonging to a Delivering Trading Unit for a Settlement Period was 16MWh (QM) and the Delivering TLM was 0.97, then the Generator would be credited with 15.52MWh (the CEV) of electricity generation for this generator.
What are Transmission Loss Factors?
Transmission Loss Factors (TLFs) are locational elements calculated through power flow calculations. They signify whether adding or taking away 1MWh of energy from the grid at a given point on the network would increase or decrease the total Transmission Losses (TLs).
For example, a TLF of -0.01 indicates that adding 1 MWh would increase the total TLs by 0.01MWh, while taking away 1 MWh would decrease losses by 0.01 MWh. A TLF of +0.01, on the other hand, means taking 1MWh off the grid increases the total TLs by 0.01MWh, or injecting 1 MWh to the grid decreases the TLs by 0.01 MWh.
Transmission Loss Factors – how have they changed since P350?
Transmission Losses are allocated across BSC Parties through the use of Transmission Loss Multipliers (TLMs). They are calculated in accordance with BSC Section T. Having been previously set to zero, TLFs were introduced by Modification P350 to adjust the TLMs to take the geographical impacts of the market participants into account. There is one TLF per BSC Season, per geographical area covered by a Grid Supply Point (GSP) Group.
TLF values per BSC Season per GSP Group
The graph below shows the TLF values since Modification P350 was implemented in April 2018. It breaks the data down per BSC Season, per GSP Group. To use the graph, select a GSP Group name from the list to see the TLF values for that region per BSC Season.
A negative TLF indicates that generation in that region contributes to increasing Transmission Losses and should be charged accordingly. Demand in that same region contributes to decreasing losses and should be credited accordingly.
A positive TLF indicates that demand in that region contributes to increasing losses and needs to be charged, while generation contributes to decreasing losses and should be credited. This is reflected in the TLMs being adjusted by TLFs.
A positive TLF value increases the TLM value used to scale the metered volume, a benefit to Generators and disadvantage to Suppliers, while a negative TLF value decreases the TLM value which is a benefit to Suppliers and a disadvantage to Generators.
Transmission Loss Multipliers – how have they changed since P350?
Prior to Modification P350, there were only two TLM values per Settlement Period. One Offtaking TLM value, and one Delivering TLM value. Now there are 28 different TLM values, each of the 14 GSP Group has an Offtaking and a Delivering TLM value per Settlement Period.
Another difference is that before Modification P350, Offtaking TLM values were always greater than one. This meant that the metered volume of Offtaking BM Units were always scaled up to undertake their share of Transmission Losses. Now negative TLF values in some GSP Groups might yield Offtaking TLM values smaller than one, crediting the taking of electricity off the grid in those regions.
Delivering TLM values were always smaller than one before Modification P350. This meant that the metered volume of Delivering BMUs were scaled down to allocate Transmission Losses to them. After Modification P350, Delivering TLM values can be greater than one in some GSP Groups as a result of being adjusted by positive TLF values.
Average of Delivering TLMs
The graph below shows the average of Delivering TLM values since 2016. For dates after 1 April 2018, in addition to a separate TLM line chart for each region, the TLM values in a scenario before Modification P350 are calculated and added to aid comparison.
All Delivering TLM values for a uniform scheme, before Modification P350, would have been smaller than one to get all Delivering BM Units contribute to Transmission Losses uniformly regardless of their location. However, this is no longer the case as different Delivering TLM values now exist for different regions. Some are greater and the others are smaller than one to represent the effects of generation within that region on TLs.
You can adjust the graph to compare the Delivering TLMs for each region with a pre-P350 uniform scenario.
The graph shows that all Delivering TLMs in GSP Group _P, North Scotland, are smaller than in the scenario before Modification P350. In contrast, all Delivering TLMs in GSP Group _C, London, are greater than the potential Delivering TLMs before Modification P350. This is a direct result of applying TLFs in calculating TLMs.
Over the last 10 BSC seasons since April 2018, all 10 TLFs for GSP Group _P have had negative values, which has resulted in decreasing the TLM values. This is a benefit to the Suppliers and a disadvantage for Generators. Alternatively, TLF values for GSP Group _C have been positive over the last 10 BSC seasons. This has resulted in higher TLM values, which benefits Generators, not Suppliers, in this region.
Average of Offtaking TLMs
The graph below shows the Offtaking TLM values before and after Modification P350. As in the Delivering TLMs graph, the TLM values in a scenario before Modification P350 are calculated and added to aid comparison. The data shows that positive TLF values have resulted in Offtaking TLM values greater than those in the uniform scenario in London. This discourages taking energy off the grid in that region. The graph also shows that Negative TLF values in North Scotland have decreased Offtaking TLM values compared to scenarios before Modification P350, representing crediting Offtaking BM Units in that region.
How is loss contribution affected by P350?
For each BM Unit in a given Settlement Period, Credited Energy Volume (CEV) is calculated by multiplying Metered Volume (QM) by the relevant TLM. This can be Offtaking or Delivering depending on whether the BM Unit belongs to an Offtaking or Delivering Trading Unit. The difference between the metered volume and the CEV (QM – CEV) is the share of that BM Unit of total Transmission Losses, or its ‘loss contribution’ at that Settlement Period. As a result of changes made to TLM values in Modification P350, the contribution of BM Units in Transmission Losses in each zone have changed compared to what it would have been in the scenario before Modification P350.
Changes in loss contribution per BSC Season in P350 vs. pre-P350
The graph below shows the change in loss contribution per BSC Season since 1 April 2018 to the end of August 2020. You can adjust the graph to see the changes for Delivering or Offtaking BM Units within a region. The data are scaled-coloured in green or red to show decrease or increase in the loss contribution.
The graph shows that BM Units belonging to Delivering Trading Units in the North and South Scotland have experienced a considerable increase in their contribution to Transmission Losses in all BSC Seasons. The highest increases for North Scotland have occurred in winter 2018, autumn 2019 and spring 2020 when loss contribution of Delivering BM Units more than tripled.
However, the data also shows that London and Southern are regions where Delivering BM Units have benefited from Modification P350 considerably. For example, Delivering BM Units in London were exempt from loss contribution in all BSC Seasons, except summer 2019, as the change in their loss contribution was below -100% relative to what it would have been in the scenario before Modification P350.
When we look at Offtaking BM Units in the graph, we see that in North Scotland they have been credited rather than charged for losses in all BSC Season because of a change below -100%. This comes as a benefit to them. Whereas a considerable increase is seen in loss contribution of Offtaking BM Units in London, Midlands, and Southern.
What does it all mean?
The absence of locational pricing for Transmission Losses had been a matter of debate since privatisation in the GB electricity market in 1990. The Competition and Market Authority (CMA) reported in their 2016 “Energy Market Investigation” report that uniform charging for Transmission Losses was a source of inefficiency. They predicted that industry would have incurred costs between £130 million and £160 million from 2017 to 2026 through the inefficiency of uniform charging for Transmission Losses.
The locational arrangements introduced through Modification P350 provide operational signals and helps Parties make informed decisions on their investments. Our analysis above show how these arrangements have changed the allocation of transmission losses across market participants in different regions.