It is not only the retail market where profound changes are taking place that impact on incentives and commercial models. The CMA’s only intervention in the wholesale market, relating to establishing locational transmission losses through Balancing and Settlement Code (BSC) modification P350, is due to be implemented on 1 April 2018.
Currently supplier and transmission-connected generators have transmission losses applied to their positions, suppliers have their volumes adjusted upwards, and generators have their positions adjusted downwards, based on the total electricity lost across the entire transmission network in that half hour. The effect is that suppliers and generators must buy a little bit more energy on the wholesale market to account for the losses. As this a nationally derived basis of losses, the system does not consider the effects of consumption and production in different parts of the network.
P350 changes this. It will introduce locational transmission losses, by creating a seasonal Transmission Loss Multiplier (TLM) for each “zone” on the network. These zones will represent a Grid Supply Point Group, the same geographical regions used for charging Transmission Network Use of System (TNUoS) charges or distribution charges.
It will use a simplified model of the transmission system and flows across sample settlement periods from the previous year, this model will look at the expected flows across the network and calculate what the effect of increasing flows at each node would have on expected losses. TLMs will be published by 31 December each year for the forthcoming year.
The impact is similar to TNUoS charging, consumers in the south of England, where demand is high, will see an increase in cost of losses due as a result of P350 and consumers in the North, closer to generation will see reductions. Generators in the South see a benefit, while those in Scotland will see an increase in the cost of losses. As part of the consultation process for P350 Elexon produced some sample TLMs using the new methodology based on the period April 2015 to May 2016, it showed that a generator in Scotland would see a 0.04 fall in its TLM in winter, worth nearly £2/MWh assuming a power price of £45/MWh. A consumer in London would see their TLM increase 0.02 a £0.70/MWh increase.
This is a significant change in the power market, benefitting all types of generators in the south and consumers in the north, and disadvantaging generators in the north and consumers in the south. It is a further complexity suppliers and generators will need to consider when pricing their offers into the market, and while it will be stable within the charging year, there could be notable changes from year to year as flows across the network shift due to interconnectors, new HVDC connections, renewables developments, embedded generation and new nuclear power stations.
Identifying which policies, consultations and change proposals are of key importance to your business and ensuring that your staff understand potential impacts and how to communicate change to your customers can be a challenge. The Alerts service provides a detailed but easy to understand overview of a key industry development that your staff should be aware of. Alerts are produced as a direct response to significant consultations or discussions that impact on markets. Each alert provides the background on the issue, detail on the proposals being presented, likely next steps, and links to further information, ensuring nothing is missed and that you have the information needed to inform your wider team.