LOSS AND CONSTRAINT EXCESS PAYMENT

Transcription

1 LOSS AND CONSTRAINT EXCESS PAYMENT METHOD FOR DETERMINING CUSTOMER SHARE Transpower New Zealand Limited September 2017 i

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3 Table of Contents Introduction... ii 1 What are transmission rentals? Loss rentals Constraint rentals Method for determining each customer s share of the LCE payment Rentals Received Guiding principle Inputs and timings A worked example... 4 Appendix A: Mathematical description of the method... 7 A.1 Overview diagram... 7 A.2 Definitions and formulas... 8 Appendix B: How negative rentals can arise B.1 Calculating transmission rentals B.2 Calculating marginal and average losses B.3 No fixed losses (transmission lines) B.4 Including fixed losses (transformers) B.5 Appendix summary References i

4 Introduction Introduction Transpower receives loss and constraint excess (LCE) payments under Part 14 of the Electricity Industry Participation Code (the Code). This booklet describes the methodology we use to allocate the LCE payments to our customers in accordance with Part D of the benchmark agreement. The allocation is issued as a credit note on the customer s grid charges. The LCE arises from transmission rentals, which are the residual created in the wholesale electricity market due to nodal pricing. In most instances the residual creates a surplus but negative residuals can occur on transformers due to fixed losses. This booklet covers: how transmission rentals arise; how the monthly LCE payment to Transpower (referred to as Rentals Received) is calculated from the overall transmission rentals amount; how we determine each customer s share of the Rentals Received. ii

5 Chapter 1: What are transmission rentals? 1 What are transmission rentals? Transmission rentals are a by-product of the nodal energy pricing used in the New Zealand wholesale electricity market. Rentals occur because the price paid and quantity received by purchasers is different to the price received and quantity provided by generators. There are two factors that create this separation: losses and transmission constraints. Efficient short run pricing of energy sets prices such that the amount a purchaser will pay for an additional unit of demand, or that a generator will be paid for an additional unit supplied, will equal the full cost to provide that unit. This requires that: energy prices at each grid location, or node, are set by the marginal cost of generation required to meet the demand at that node; and the price difference between nodes reflects the marginal costs of losses and transmission constraints. Energy prices set on this basis are often referred to as nodal prices or spot prices. They signal the short-run marginal costs of system operation. 1.1 Loss rentals Loss rentals are generated on an arc-by-arc basis when nodal prices are calculated using marginal transmission losses. To illustrate how loss rentals arise, consider the example shown below where power is flowing along arc AB from node A to node B. Arc AB may be a transmission line or a transformer: A B P A Q A P B Q B The price at node A is P A and is P B at node B. The quantity of power going into arc AB at node A is Q A and Q B is the power taken off at node B. Due to the Joule effect, Q B is smaller than Q A because some power is physically lost as heat during transmission. The quantities Q A and Q B are related by the power loss (L) on arc AB such that: The average loss rate (AL) is the loss per unit of power arriving at B: By algebraic substitution this gives us: 1 (1) 1

6 Chapter 1: What are transmission rentals? In the absence of constraints, the marginal loss rate (ML) sets the price at node B, so that: 1 (2) The rental is the difference between the price and quantity received at node B and the price and quantity sold at node A: By substituting formulas (1) and (2) into the rental formula we find that the loss rental in the absence of constraints is: We show in Appendix B that for arcs with zero fixed losses, such as transmission lines, ML is greater than AL for any level of power flow. This means the loss rental on a transmission line is always positive, i.e. a surplus. Transformers that have fixed losses can generate negative rentals because AL exceeds ML for low power flows. 1.2 Constraint rentals Rentals are influenced by the marginal costs of any constraints in the power system. Consider again the example of an arc AB between nodes A and B. Assume now that there is a generator situated at each node and that there is 100MW of demand at node B. Furthermore, assume that arc AB is a transmission line that has zero losses, i.e. ML = AL = 0. P A 2c/kWh P B 3c/kWh A B 100 MW Consider first the scenario where the line is not constrained. If Generator A offers its power into the market at 2c/kWh and Generator B offers its power into the market at 3c/kWh, a purchaser at node B will buy all its power from Generator A. This is because the price of buying and transporting power from node A to node B is less than the offer price of Generator B, clearly so in this example because losses are ignored. Assume now that line AB has a transmission constraint of 50MW forcing the purchaser to buy some of its power from Generator B 1. A surplus now arises because all power purchased at node B is purchased at the new marginal price of node B, which is 3c/kWh because the next unit of power must come from Generator B. However, there is 50MW of power flowing from A to B. This has been generated 1 Note that this example is specific to transmission thermal constraints. Different types of constraints, such as reserve constraints, can affect rentals in different ways. 2

7 Chapter 2: Method for determining each customer s share of the LCE payment at the lower node A price of 2c/kWh, but is paid for at the higher node B price of 3c/kWh. Therefore, the total amount paid by the purchaser exceeds the total amount paid to the two generators. The difference (surplus) in the amounts paid is the constraint rental component on line AB. Thus, the surplus is the quantity transferred multiplied by the price difference. Assuming that the constraint exists for 1 hour, the constraint rental component across line AB is: Constraint rental component = 50MW (3-2) c/kwh 1hour = $500 It follows that a line that is not constrained will have a constraint rental of zero. In practice, whenever a constraint occurs in the system it will affect losses, and in many cases losses can cause constraints. Thus, the distinction between loss and constraint rentals is blurred when constraints occur. 2 Method for determining each customer s share of the LCE payment In this section, we describe how we allocate the LCE payment to our customers. Refer to Appendix A for an overview diagram of the allocation method and related mathematical formulas. 2.1 Rentals Received We refer to the loss and constraint excess payment that Transpower receives each month as the Rentals Received. The Rentals Received is the overall amount of transmission rentals that have arisen from the wholesale electricity market in that month (referred to as the Full Grid Rentals) after the payments required to settle the Financial Transmission Rights (FTR) market. The FTR Manager calculates the transmission rentals generated on the FTR portion of the grid. This portion of the Full Grid Rentals and the FTR Auction Income from the purchase of FTRs is used to settle the FTR market as a first priority. The FTR market is approximately 80% selffunded which means FTR settlement may increase or decrease the Rentals Received in any given month. The Rentals Received amount is calculated and paid to Transpower by the Clearing Manager (NZX). 2.2 Guiding principle The guiding principle behind the allocation methodology is to allocate the Rentals Received to the customers that pay the TPM 2 grid charges for the corresponding asset, or class of assets, that generated the rental. Thus: 1. The Rentals Received is divided into portions related to each connection asset, the interconnection assets (collectively), and the HVDC link; 2 i.e. the Transmission Pricing Methodology set out in Schedule 12.4 of Part 12 of the Code. Under the TPM, grid assets are classified as connection, interconnection, or HVDC. 3

8 Chapter 2: Method for determining each customer s share of the LCE payment 2. Connection customers are allocated the portion of Rentals Received related to their connection assets; 3. Each offtake customer is allocated part of the interconnection portion of Rentals Received in proportion to their contribution to interconnection charges; 4. Each South Island generator is allocated part of the HVDC portion of Rentals Received in proportion to their contribution to HVDC charges. For reasons explained in Appendix B, it is possible for a connection customer s allocation under step 2 to be a negative amount. This is rare, and in most cases the customer s total allocation will still be positive, i.e. a surplus. 2.3 Inputs and timings Table 1 shows the timing of inputs used to determine the customer allocation of the Rentals Received. To provide certainty for our customers, Transpower treats the allocation as final even if provisional price information was used as an input. Input Rentals Received amount for the month Nodal energy prices and quantities for each trading period in the month Timing Provided to Transpower by the Clearing Manager after the end of the month As at the 12 th working day of the following month Note: final prices are used where available otherwise provisional prices are used. TPM charge information including the Information from the corresponding customer allocation of assets TPM pricing year is used, including any within-year adjustments that have been made in accordance with the TPM and related contracts Table 1: timing of inputs used to allocate the Rentals Received As an example, the allocation of the Rentals Received for January will be: based on the market price and quantity information for January as at the 12th working day of February; credited or invoiced to Transpower customers on 1 March. 2.4 A worked example In this section, we present a worked example to show in more detail how a customer s share of the LCE payment is determined. Please refer to Appendix A for the mathematical definitions and formulas that apply. All numbers used in the worked example are purely illustrative. There are 2 customers in this example: 4

9 Chapter 2: Method for determining each customer s share of the LCE payment i. Customer 1: an offtake customer that pays TPM charges for two connection assets; ii. Customer 2: a South Island generator that pays TPM charges for two connection assets and a portion of the HVDC link. Table 2 contains the data used for the worked example, and Figure 1 illustrates the configuration of connection assets. Table 3 shows the workings to calculate each customer s share of the LCE payment. Rentals Received (RRtotal) $5,400,000 Mapping from SPD arcs to TPM CUS_T1.T1 asset 1 assets CUS_T2.T2 asset 2 NET_CUS.1 asset 3 Monthly arc rentals CUS_T1.T1 CUS_T2.T2 NET_CUS.1 (RentalAB) -$190 -$460 $1,100 connection related (total) HVDC related (total) $420,000 $180,000 Total monthly arc rentals $6,000,000 (RentalTOTAL) Customer details Customer 1 Customer 2 Customer allocation asset 1 100% 0% of assets asset 2 0% 100% (CACB) asset 3 25% 75% Customer RCPD (RCPDC) 95,000 kw 0 Customer annual HVDC charges 0 $12,500,000 (HVDCCharge) Total RCPD for all customers 5,700 MW (RCPDTotal) Total annual HVDC charges (HVDCCharge_Total) $149,000,000 Table 2: data for worked example customer 1 asset 1 asset 2 asset 3 wider network and other customers customer 2 Figure 1: configuration of TPM connection assets for the worked example 5

10 Chapter 2: Method for determining each customer s share of the LCE payment Scaled monthly rentals (SRentalAB) also referred to as the portion of Rentals Received related to TPM asset a (RRA) Rentals Received: interconnection (RRIC) Customer allocation:connection (RRC_conn) Customer allocation: Interconnection (RRC_IC) Customer allocation: HVDC (RRC_HVDC) Loss and constraint excess payment (LCEC) CUS_T1.T1 (asset 1) $5,400,000 $6,000,000 -$190 = -$171 Rentals Received: connection (RRConn) $420,000 $5,400,000 = $6,000,000 CUS_T2.T2 NET_CUS.1 (asset 2) (asset 3) -$414 $990 Rentals Received: HVDC (RRHVDC) $162,000 $378,000 $5,400,000 - $378,000 - $162,000 = $4,860,000 Customer 1 Customer 2 (-$171 x 100%) + (-$414 x 0%) + ($990 x 25%) = $76.50 (-$171 x 0%) + (-$414 x 100%) + ($990 x 75%) = $ Customer 1 Customer 2 $4,860,000 x 95 $0 = $81,000 5,700 Customer 1 Customer 2 $0 $162,000 x $12,500,00/ $149,000,000 = $13, Customer 1 Customer 2 $ $81,000 + $0 = $81, $ $0 + $13, = $13, Table 3: calculations for worked example 6

11 Appendix Appendix A: Mathematical description of the method This appendix contains a mathematical description of the method used to allocate the monthly loss and constraint excess (LCE) payment to Transpower customers. A.1 Overview diagram Method for determining each customer s share of the monthly loss and constraint excess payment Inputs, PA Q A RRtotal arc SPD asset TPM CA, CB RCPDC HVDCchge C Allocate Rentals Received to TPM assets rental AB SrentalAB RRa Allocate Rentals Received to TPM asset classes RRConn RR IC RRHVDC Allocate Rentals Received to customers RRC _ conn RRC _ IC RRC _ HVDC Output LCE C 7

12 Appendix A.2 Definitions and formulas 1. PA is the nodal energy price at node A QA is the power flow at node A 2. RRTotal is the Rentals Received amount for the month 3. ArcSPD assettpm maps SPD arcs to corresponding TPM assets 4. CACB is customer c s allocation of TPM connection asset b RCPDC is the sum of the average RCPDs for customer c at all connection locations HVDCChge is customer c s annual HVDC charge 5. rentalab = (PBtQBt PAtQAt) rentalab (also referred to as the unscaled monthly rental) is the sum of the rentals for SPD arc AB for all trading periods in the month PAt is the nodal energy price at node A for trading period t PBt is the nodal energy price at node B for trading period t QAt is the quantity of power going into arc AB at node A for trading period t QBt is the quantity of power going out of arc AB at node B for trading period t 6. SrentalAB = rentalab x RRtotal / rentaltotal SrentalAB rentaltotal is the scaled monthly rental for arc AB is the sum of the unscaled monthly rentals for all arcs Note: Srentalij = RRtotal 7. RRa = SrentalAB RRA SrentalAB is the portion of the Rentals Received amount related to TPM asset A is the scaled monthly rental for SPD arc AB that maps to TPM asset A (i.e. arc AB is related to TPM asset a under the mapping function in equation 3 above) 8. RRConn = B Srentalij = RRTotal / rentaltotal x B rentalij RRConn is the total Rentals Received amount related to connection assets B is the set of all elements (i,j) for which SPD arc ij maps to a TPM connection asset 9. RRHVDC = H Srentalij = RRTotal / rentaltotal x H rentalij 8

13 Appendix RRHVDC H is the total Rentals Received amount related to the HVDC link is the set of all elements (i,j) for which SPD arc ij maps to the HVDC link 10. RRIC = RRTotal - RRConn- RRHVDC RRIC is the total Rentals Received amount related to interconnection assets 11. RRC_conn = B RRb x CAcb RRC_conn is the total Rentals Received amount related to customer c s connection assets B is the set of all TPM connection assets RRb is the Rentals Received amount related to connection asset b 12. RRC_IC = RRIC x RCPDC / RCPDTotal RRC_IC is customer c s allocation of the Rentals Received amount related to interconnection assets RCPDTotal is the sum of the average RCPDs for all customers at all connection locations 13. RRC_HVDC = RRHVDC x HVDCChgeC / HVDCChge_total RRC_HVDC is customer c s allocation of the Rentals Received amount related to the HVDC link HVDCChge_total is the sum of annual HVDC charges for all customers 14. LCEC = RRC_Conn + RRc_IC + RRc_HVDC LCEC is the loss and constraint excess payment from Transpower to customer c for the month 9

14 Appendix Appendix B: How negative rentals can arise This appendix demonstrates how negative rentals can arise in a DC model of the power system 3. Negative transmission rentals are, on occasion, generated across some of the arcs in the scheduling, pricing and dispatch model (SPD). Specifically, negative rentals are caused by the way losses are modelled for transformers in SPD. Fixed or standing losses for transformers are included to improve the accuracy of the calculation of losses. This causes the average loss rate in any transformer to be greater than the marginal loss rate when the flow of power through the transformer is low. The following demonstrates how low power flows can generate negative rentals across transformers. B.1 Calculating transmission rentals As shown in Section 1.1, loss rentals are calculated as: It can be seen from this equation that the rental will be positive if the marginal loss rate is larger than the average loss rate. However, if the marginal loss rate is less than the average loss rate, the rental will be negative. B.2 Calculating marginal and average losses Losses on a transformer or line are given by the following quadratic loss function 4 : L k I 2 R where L is the power loss, k is a constant level of fixed losses, I is the current flow through the transformer and R is the resistance. Marginal losses are determined by differentiating the loss function with respect to the power flow (Q B): ML B where Q B is the power flow at B and V B is the voltage at B. Note that Q B = IV B. The average loss rate (losses per MW arriving at B) is: 3 DC in this context refers to the fact that the scheduling, pricing and dispatch model SPD is a DC rather than AC model of the power system. Thus, the DC power system described here is a model representing New Zealand s integrated HVAC and HVDC power system. 4 We demonstrate how negative rentals can arise using the quadratic loss equation. Negative rentals can arise whether the losses are represented accurately as a quadratic function or by a piece-wise linear approximation. The latter approach is used in SPD. 10

15 Appendix AL B B.3 No fixed losses (transmission lines) The following analysis applies to lines only. In the case of lines, fixed losses are not modelled, i.e. k=0. Hence: Therefore, the average loss rate becomes: L k I 2 R I 2 R AL B MLB Thus, marginal losses are twice the average loss when k=0, as shown in Figure 2. Loss Rate Average rate Marginal rate Power Flow (MW) Figure 2: marginal and average losses in absence of fixed losses When k=0, marginal losses are always greater than average losses. This means that loss rentals are always positive in the absence of fixed losses 5. B.4 Including fixed losses (transformers) The following analysis applies only to transformers. A fixed loss component, i.e. k 0, is included in the quadratic loss equation: L k I 2 R When k 0 the average loss rate becomes infinite, i.e. AL B, as Q B drops to zero, i.e. Q B 0, but the marginal loss rate does not change. This gives the graph in Figure 3. 5 In certain circumstances constraints may cause negative rentals due to the spring-washer effect. See An Introduction to Nodal Pricing, Transpower, 1995, for further details. Negative rentals have been observed across unconstrained transmission lines. However, unconstrained negative rentals are rare, being caused by very specific loop flow conditions. 11

16 Appendix Loss Rate Average rate Marginal rate Power Flow (MW) Figure 3: marginal and average losses with fixed loss component The point where the average loss rate drops below the marginal loss rate depends on the parameters used to model the losses in the transformer. B.5 Appendix summary Negative rentals should be expected on transformers that have a small load. However, negative rentals are uncommon on transmission lines 6, and the lines rentals are typically much larger than any negative rentals caused by transformers. References Part 14 of the Code Part D of the benchmark agreement, which is incorporated by reference into the Code An Introduction to Nodal Pricing, Transpower, See footnote 5. 12