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Submission to the Independent Pricing and

Regulatory Tribunal of New South Wales

A single distribution loss factor calculation

method for NSW DNSPsResponse to Intelligent Energy Systems Report

November 2004

Level 3, 40 Blackall Street, Barton ACT 2600Telephone: +61 2 6272 1555 Facsimile: +61 2 6272 1566

Email: [email protected] Website: www.ena.asn.au

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Background

This submission responds to the Independent Pricing and Regulatory Tribunal(IPART) of New South Wales consultancy reportA single distribution loss factorcalculation method for NSW DNSPs, released in July 2004.

This submission was developed in close consultation with the Victorian DistributionLoss Factor Working Group, a group representing five Victorian distributionbusinesses with particular experience in distribution loss factor approaches developedin Victoria.

The Energy Networks Association (ENA) is the national representative body for gasand electricity distribution network businesses. Energy network businesses deliverelectricity and gas to over 12 million customer connections across Australia throughapproximately 800 000 kilometres of electricity lines and 75 000 kilometres of gasdistribution pipelines. These distribution networks are valued at more than $30 billion,and each year energy network businesses undertake capital investment of more than$2.3 billion in network reinforcement, expansions and greenfield extensions.

Introduction

The ENA welcomes the opportunity to comment on the recent draft report preparedby Intelligent Energy Systems (IES) on a common methodology for calculatingdistribution loss factors for NSW distribution businesses.

Overall the ENA supports the general principles proposed in the report however theENA believes that there are better ways to calculate DLFs for embedded generators,and in particular for embedded generators with site specific DLFs, than themethodology proposed by IES.

ENA Methodology

In Victoria, embedded generators with a net peak output of less than 10MW are givenan average DLF equal to the value given to small load customers connected to the

same point on the distribution network. While this approach has some shortcomings itsatisfies the National Electricity Code (the Code) requirements and results inreasonable DLFs if the embedded generator is much smaller than the load connectedto the same part of the network.

For large embedded generators above 10MW, site specific DLFs must be calculatedfor each generator. In section 11.3 of IES report it is recommended that the netenergy method should be used for calculating site specific DLFs. It quotes the sameformula suggested by the Victorian Essential Services Commission (ESC) in its papertitled Draft Decision Site Specific Distribution Loss Factors for 2002/03, dated May2002. While it is true that all Victorian DNSPs currently use this method the ENA

does not recommend it for the following reasons:

ENA Submission IPART DLF Paper 2

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1. The DLF calculated using this method might not reflect the impact embeddedgeneration has on distribution losses and therefore it might send the wrong signalto embedded generators.

2. In practice all DLFs are usually close to 1 (generally between 0.90 and 1.20),because energy losses are much lower than the amount of energy generated andconsumed. IfSales Generation the DLF might not be close to 1 and couldbecome a very small value or a very large positive or negative value.

3. If the energy produced by an embedded generator exceeds the energy consumedby the local load this does not imply that the generator increases energy losses onthe distribution network. On page 46 of IPARTs report the following statement ismade:

For embedded generators, a DLF greater than one means that the embedded

generator reduces losses in the system. From the formula, it can be seen that this

will be the case if the load associated with the embedded generator is greater thanthe generation.

This statement implies that if the energy produced by an embedded generatorexceeds the energy consumed by local load that the generator increases energylosses on the distribution network and this may not be correct in all instances.

An example can be used to illustrate each of the above problems. Consider agenerator (G) connected to the end of a feeder (with resistance R), together with asingle load (L) as follows:

R

Transmissionconnection point (eg.66kV terminal stationbus)

G

L

Distribution subtransmission line

Assume that the load consumes 398GWh of energy, the generator produces 400GWh,and energy losses in the line are 0.80GWh per annum. Using the formularecommended by IES gives the following DLF:

GenerationEnergySalesEnergy

LossEnergyDLF

+=1

60.0400398

80.01 =

+=DLF


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1. This very heavily penalises the embedded generator even though they might bereducing losses significantly. In fact the line losses might be ten times higherwithout the generator. The embedded generator is given the wrong signal. Eventhough the generator output almost matches the local load, if the above approachis applied it may cause an embedded generation project to become uneconomic.

2. Energy Sales almost equalsEnergy Generation and the above equation results in aDLF that is not close to 1.0, which is unreasonable.

3. Just because the embedded generator produces more energy than the nearby loadconsumes over the year does not mean that the generator increases losses in thesystem. In fact the embedded generator would need to produce up to twice theenergy consumed by the nearby load customers in order to increase lossescompared with no embedded generation. A DLF of 0.60 implies that 40% of theenergy produced by the generator (or 160GWh per annum) is lost as energy losses.This is clearly incorrect.

The ENA believes that the objective of the DLF is to provide an energy loss signal tothe market that encourages embedded generators to connect to locations on thedistribution network that reduce losses. The magnitude of the signal should also be inproportion to the value of loss reduction. To do this it is necessary to determine theimpact the generator has on losses.

It is possible to determine what impact an embedded generator has on losses bycalculating the theoretical energy losses with the generator in service and out ofservice and comparing the difference. While this approach seems appropriate, theESC has not approved this methodology proposed by the ENA for Victoria becausethe ESC argues that this is similar to a marginal1 loss factor calculation as defined inthe Code.

The method is not a true marginal approach as defined in the Code because thedifference in energy loss associated with all the embedded generation in and out ofservice is not an infinitesimal increment in electricity produced. Nonetheless there isdebate regarding interpretation of clause 3.6.3(h)(4) of the Code that states that DLFsmust be calculated using the average electrical energy loss between the distributionnetwork connection point and the transmission network connection point.

The ENA accepts that calculating energy loss with and without all embeddedgeneration in service to determine the difference might not be considered to representaverage electrical energy losses. Therefore DNSPs in Victoria have not yet adoptedthis approach.

1 The Code defines a marginal loss factor as A multiplier used to describe themarginal electrical energy loss for electricity used or transmitted. In turn the termmarginal electrical energy loss isdefined as The electrical energy lossassociated with an infinitesimal increment in electricity produced, transported

and/or used.


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The Code does not allow a marginal approach to be adopted for good reason:

The total energy losses recovered with the application of DLFs across a wholedistribution network should match as closely as possible to the actual energylosses in that network over a financial year. That is:

[ ]=

==

Ni

i iiESDLFLossEnergyNetworkTotal

1)1(

where:

iDLF is the Distribution Loss Factor for customer or embedded generator i,

iES is the energy sales or energy generated (if negative) by customer or

generator i,Nis the total number of customers and embedded generators connected to the

network.

The recovery of losses should not create a financial surplus or deficit for retailers.

If a type of marginal method was used to calculate DLFs for individual loadcustomers and embedded generators, the DLF for each customer or generatorcould be different depending upon the order in which the calculations wereperformed or the order in which generators and loads were connected. This can beexplained by an example.

Consider a town supplied at the end of a long distribution feeder. A developer installs

a wind farm with an output approximately equal to the load. The line losses arereduced significantly and the embedded generator is given a high DLF to reflect thereduction in energy losses that they cause. One year later another developer theninstalls a second wind farm, but this has the impact of increasing losses. If a timedependent marginal approach is used each wind farm will have different DLFs eventhough both wind farms are connected to the same point on the network. This wouldgenerally be considered as unreasonable because all embedded generators with thesame operating conditions and connected to the same point on the network shouldhave the same DLF.

The ENA believes it has developed a way to overcome this problem so that embedded

generators connected to a distinct part of a distribution network can be given averageDLFs. It works by considering all generators together as a single group on each partof the distribution network and calculating the total impact they have on energy lossescombined, using a type of marginal approach. The overall reduction or increase inenergy losses caused by the embedded generation can then be allocated between allthe generators using an average approach.

For example, assume that two generators are connected to the same node of thedistribution network with the same operating characteristics, except that eachproduces a different amount of energy as follows:

Generator 1 500MWh per annumGenerator 2 1,000MWh per annum


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From modelling studies it is found that:

Total annual energy loss with both generators out of service = 200MWh.Total annual energy loss with both generators in service = 110MWh.

The Total Energy Loss Reduction per annum = 200 110 = 90MWh.

The energy loss reduction can then be allocated between the generators as follows:

Generator 1 energy loss reduction = 500/(500+1,000) x 90MWh = 30MWh.Generator 2 energy loss reduction = 1,000/(500+1,000) x 90MWh = 60MWh.

Using the following formula it is then possible to calculate the DLF for each generator:

i

i

iGeneratedEnergyMetered

ReductionLossEnergyDLF += 1

Generator 1 DLF = 1 + 30 / 500 = 1.06

Generator 2 DLF = 1 + 60/1,000 = 1.06

The DLF will then be used in the energy settlement process by multiplying themetered energy generated by the DLF. This is illustrated for generator 1 above asfollows:

111 GeneratedEnergyMeteredDLFEnergyGrossAdjusted =

1

1

1 1 GeneratedEnergyMeteredGeneratedEnergyMetered

ReductionLossEnergyEnergyGrossAdjusted 1

+=

1ReductionLossEnergyGeneratedEnergyMeteredEnergyGrossAdjusted += 11

530305001 =+=EnergyGrossAdjusted MWh, or

53050006.11 ==EnergyGrossAdjusted MWh.

While the above examples have been simplified they do illustrate the principlesproposed.

Conclusion

While it is debatable if the method proposed by the ENA strictly satisfies the Code, itis a fair approach in accordance with the underlying philosophy. The ENA proposes

to investigate changing the way parts of the Code are written in this regard to allowDNSPs to apply methods that are more accurate and equitable.


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In light of the fact that Victorian distributors are aiming to move away from theapproach suggested by the ESC for embedded generators with site specific DLFs, theENA suggests IPART should reconsider the shortcomings of its proposedmethodology in section 11.3 before it adopts the methodology for NSW distributors.

ENA members would welcome collaboration with IPART and other organizations todevelop a new methodology for calculating DLFs for embedded generators and towork together towards revising the relevant clauses in the Code if necessary.Consistency between distributors across the NEM is desirable, considering theMinisterial Council on Energy has agreed to develop a national framework for theregulation of distribution and retailing of electricity, as part of the reform of energymarkets.

David Wilkinson, Network Planning Engineer, Alinta Network Services (representingUnited Energy Distribution) is a member of the Victorian Distribution Loss Factor

Working Group and is the author of the main body of this submission. Any questionsrelating to technical issues raised in this submission should be referred to David on03 9265 7763. For other issues please contact Alexandra Curran, Network PolicyAdviser, Energy Networks Association on 02 6272 1514.

Energy Networks Association5 November 2004


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