Essay: The Cost of Transmission Services – An Overview

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  • The Cost of Transmission Services - An Overview
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Abstract: Deregulation of the electric power utilities has recently increased tremendously throughout the globe. This has turned great interest of power system researchers in finding new pilgrims in the competitive market. In this paper, the various components affecting the transmission cost has been discussed. Particularly many transmission services and cost component of transmission price along with the basic principle, objectives and difficulties has been explained. As per the discussion the pricing of transmission services has become an important aspect to be considered in this new and restructured power industry. It is to be noted that the pricing of transmission services is not entirely the result of engineering analysis. However, market influence and political considerations are some of the key factors which affect the process of pricing transmission services.
Index Terms–Deregulation, Transmission cost, Transmission Tranasction, Wheeling.
Unbundling of the electric power utilities has increased throughout the world as it promotes competition in the existing market. Transmission pricing has a significant role in unbundled services in order to make proper cost-effective decisions on promotion and increasing generation, transmission and distribution services. Restructuring of the transmission system with existing networks has always been a herculean task for power industry people, due to complexity in establishment of the rules for operating transmission system and transmission pricing service in deregulated system [1]. The pricing structure should be so as to recover cost of transmission network, ensure uninterrupted operation, provide investors with good return and provide the same opportunity to all users [2]. Transmission of the electrical energy has become an individual entity, providing access to its transmission networks to generation companies and power retailers, while charging them for the use of its networks accordingly. In this highly competitive market, cost is one of the important consideration factor for all the participants in the power market. Therefore, a fair, competitive and reasonable transmission pricing is imperative, yet at the same time it must be able to recover the various costs incurred by the transmission utility when providing such services to its customers. Transmission system consists of land, infrastructure and equipment such as transformers, transmission line structure, protection equipments, etc. The pricing system should also reflect the cost of transmission system built in cost as well as depreciation cost so as to make the pricing friendly to user as well as supplir. Basically transmission pricing process determines revenue generated from the transmission system, considering estimated income as base and determine prices of each node in the network and compute wheeling transaction fee. This paper deals with the basic principle, objectives, difficulties and types of transmission services.

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“Pylon ds” by Yummifruitbat – Own work. Licensed under CC BY-SA 2.5 via Commons

Following transmission pricing principles and objectives should be considered while designing electricity transmission prices
1) Principles
Promotion of daily operation of bulk power market
The generators connected to system must be ensure generation as sufficient to deal with the demand round the clock, and ensure sufficient reinforcements as failure of any generator or breakdown in transmission system. To achieve economic efficiency, an economic dispatch will need to be performed to cope up the demand at lower cost. It is attained by proper scheduling generator at low marginal cost.
Signal locational advantages for investment in generation and demand
The transmission cost is affected by the loacation of generators and demand as well as short term scheduling.In the short term scheduling regarding relocation not anything can be made. Hence positioning the generating station and load centers have a significance role in pricing. As the generating stations are close to the demand, the cost will be lower.
Justify transmission system investments
Losses in network has also affected the cost. Some additional investment needs to be made in transmission network in order to reduce such losses, and become efficient enough to produce extra profits. The approximate cost of congestion should be estimated, the overloadind of transmission lines can be avoided. Hence to prevent congestion expensive generators are planned in its place of cheaper.
Compensate the owners of existing transmission assets
Planning of new transmission lines,investors are concerned to return profit and future investments.Upcoming investments based on the profit margin yielded out of previous investments. If potential investors don’t recover profit margin out of current existing transmission assets, they would not prefer to make invest in the future.
Simple and transparent
Transmission prices should reflect simple and transparent constraints to represent friendly pricing system to generators, transmission corporats and the consumers. If the Market Participants not be able to understand the proposed billing mathematics for the transmission usage, they would not be unable to react in time to responses of the charges. Every payer wants to know the details of constraints of the charges and panalties imposed.Prices should have less complex marginal cost.
Politically implemental
Prices should be simple,transparent , investors promote to invest in the future and make sure that proper economic signal are implemented.Hence the pricing system would be politically implementable otherwise it will not be executed.
2) Objectives
Transmission assets recovery
Investments are needed for the handling the growing networks. This cost has to be recovered from the network users. Price would comprise return to operational losses, depreciation, maintenance and investment cost.
Network congestion
There is limitation of network congestion in network.To avoid the congenstion ,this cost should be included as known as congestion cost.
Network losses
In transmission network the connected peripherals like transformers, connectiong wires, etc, results in loss of electrical energy. These losses must be included while making calculations of transmission pricing.
3) Difficulties
Transmission pricing has been a difficult for the power system people to determine exact cost of transmission billing. The reasons include transmission services having particular characteristics, which are:
The economies of scale
Transmission services involve large investment to assist transmission facilities. These costs get minimized when calculated on an average on the long run with operation at rated output. The marginal cost is lesser than the average cost, the transmission owner can not recuperate its embedded cost fully.
Nonlinear of power flow function
Power flow has a key role in measuring the transmission capacity and optimizing transaction as the power flow is complex. At all times, electrical energy supplied must cope up with quantity demanded. Therefore transmission services performs many functions.
The loop flow or parallel flow due to the externality is the main feature of transmission services. The varying power flow or voltage at any node will affect flows and voltages of the network. The power transmission among the nodes should be maintained proper.
Transmission utilities should be able to recover all the incurred costs while providing transmission services and other necessary associated services. Consequently, each different types of transaction will have different cost for different cost of transaction. In order to adopt a competitive pricing strategy, one has to understand the different types of transmission services [3] available and the various cost components involved. The types of services can be categorized :
Point-to-point services: They are transmission of power that include specific delivery and receipt point.
Network services: This allows the transmission user a entire access to the system without specifying the points of delivery and receipt, nor any extra charge for the varion of schedules.
The point-to-point transmission services can be further subdivided two different categories i.e. firm transactions and its counterpart, non-firm transactions.
Firm transmission transactions: This transaction is known as reserved transaction as they require reserve capacity to fulfill transactions requirements for transmission facilities. These types of transaction has contractual agreements among the utility and the wheeling customers, are not subject to discretionary interruptions.
Non-firm transmission transactions: These transactions take place as per availability or curtail ability when transmission capacity becomes obtainable at particular areas of the system at exact times. These are short term and may be curtailed at the utility’s discretion.
Long-term transmission transactions: A long-term transaction has span of several years and the duration is generally long enough to allocate building new transmission services. A contractual agreement between the utility and the wheeling customers has been done.
Short-term transmission transactions: A short-term transmission transaction has span short as a few hours and long as a year or two. They are not generally related with transmission reinforcements. It may be done under a bilateral agreement or as part of a pooling deal. Fig.1 shows classification of transmission services.
Fig.1. Catagories of Transmission Tranasctions
Each individual user of the system require a slightly different service, since they specify different points of entry and exit, different time periods when service is needed, and different quantities of energy to be moved in each period. The costing methodology must therefore define, as far as possible, the service offered to each electricity user of the system and identify the cost imposed by the usage of the system.
Transmission transactions [4] have the following major components:
Operating cost: It is also known as production (fuels) cost. This type of cost is associated with generation re-dispatch and rescheduling. The reason of Generation re-dispatch is change in losses and operating constraints such as transmission flow and bus voltage limits [5] .The generation rescheduling is because of the start-up time , start-up cost of generating unit and the spinning reserve necessities. Operation and maintenance cost for transmission system are not included in these type of cost except for which is directly attributable to the transaction. Operating cost depends on the production cost; it would be negative as the transaction decreases production cost. The production cost could be reduced by recovering generation dispatch due to lower losses and mitigation of operating constraints. This cost is calculated by using optimal power flow taking into account of all operating constraints including transmission system, generation scheduling and security constraints.
Reinforcement cost: This type of cost is associated with new transmission facility to fulfill the transmission transactions. It also referrs to cost of planned transmission reinforcement which is deferred by the transmission transaction. The components of this cost are calculated by considering least cost transmission expansion problem with respect to new transaction.
Existing system cost: This cost is defined for existing transmission services of transactions. This cost is also incorporated investment made in building; expenses incurred in retain existing transmission system and operation & maintenance cost of transmission system hardware. This type of cost does not consider any new costs connecting the use of existing transmission facilities. These services have already been erected and their cost previously acquired.
Opportunity cost: The opportunity cost is related to the transactions which are made for profits unrealized owing to the operating constraints. This cost is affected by the operating constraints of energy generation and transmission .The evaluation of this cost is difficult for the reason of less experience and assumptions are made in the analysis.
Connection Cost
It considers the cost which require points to point connections to give service to customers using the network.
Transmission Use of System Cost
This type of cost reimburses the embedded cost of the existing transmission assets, also operating and maintenance cost.
Transmission Operating Cost
This cost acquired in the electricity market caused by the being of a ‘non-perfect’ transmission system which is reason of losses and constraints
The classification of the cost of a transmission transaction (opportunity cost, operating cost and reinforcement cost) comprise which is normally named the incremental cost of the transmission transaction while Short-Run Incremental Cost is consider the opportunity cost and operating cost.
Table I explains the cost components that concern to different types of transmission transactions. It shows that cost components be different not only according to the type of the transaction, but also as per the cost estimate process difference depending on the transaction type. Generally, for a transmission transaction:
TCt = OPGt + OPYt + RFTt+ EXTt (1)
where, OPG is the operating cost, OPY the opportunity cost,RFT the reinforcement cost, EXT the existing system cost, and TC the total cost of the transmission transaction t.
Costs Firm Transactions Curtailment Availability
Long-term Short-term Long-term Short-term Short-term
Existing System
In the past, fewer efforts have been undertaken to compute the cost of providing transmission services due to the very limited wheeling. As a result of reviewing the various impacts brought out by the deregulation of the power industry, it can be clearly observed that there is one very distinctive approach in all the power industries world-wide. That is the unbundling of the entities existed in the vertically integrated electric utilities. As a result, utilities that provide transmission services are separated from other functions in a typical power system. In fact, there are companies in the world wide today that sorely provide wheeling services to its customers. The growth of wheeling transactions and the expansion of facilities needed to accommodate such power transactions have been rapid in recent years, largely due to the policy of providing non-discriminated third party access into the transmission system.
Therefore, pricing of transmission services has become an important aspect to be considered in this new and restructured power industry. Several cost components which basically make up the overall transmission cost have been introduced. It is to be noted that the pricing of transmission services is not entirely the result of engineering analysis. Undoubtedly, engineering analysis will help to determine the technical achievability in providing such transactions and also evaluate the costs incurred when doing so. However, market influence and political considerations are some of the factors that may be included when it comes to the process of pricing such transmission services. The evaluation of these cost components is a formidable task that requires the development of new analytical and knowledge-based techniques.
[1] Marangon Lima, J. W., E. J. de Oliverira, The long-term impact of transmission pricing, IEEE Transactions on Power Systems, vol. 13, no. 4, 1998, pp. 1514-1520.
[2] Kulkarni, P. S., O. P. Yadav, SRMC based Transmission Pricing for Wheeling Transactions under Deregulated Environment of Power Sector., IE (I) Journal-EL, 2008
[3] Shirmohammadi, Dariush, B. Gorenstin, and M. V. P. Pereira. “Some fundamental, technical concepts about cost based transmission pricing.” IEEE Transactions on Power Systems,vol 11,no.2 ,1996,pp. 1002-1008.
[4] Shirmohammadi, Dariush, Chithra Rajagopalan, Eugene R. Alward and Chifong L. Thomas. “Cost of transmission transactions: an introduction.” IEEE Transactions on Power Systems,vol. 6,no..4 1991,pp. 1546-1560.
[5] M. C. Caramanis, R. E. Bohn. F. C. Schweppe, ‘The Cost of Wheeling and Optimal Wheeling Rates”, IEEE Transactions on Power Systems, Vol. PWRS-1, No. 1, February 1986, pp. 63-73.

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