Cathcart Business Park, Spean Street Cathcart, Glasgow, G44 4BE

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Cathcart Business Park, Spean Street

Cathcart, Glasgow, G44 4BE

Telephone (01355) 845207

FAX (01355) 845001

21 October, 2002

Mr Gareth Forrester


3rd Floor

1 Triton Square

London NW1 3DX

Dear Mr Forrester,
P75 and P82 Assessment Consultation

ScottishPower welcomes the opportunity to contribute once again to the debate on the possible introduction of the locational allocation of transmission losses in England and Wales. Our responses to the specific questions raised by the TLFMG in the consultation paper are contained in the attached questionnaire. We also have two other points to make and these are set out below.

While our responses are, of course, focussed on the possible implementation of the current modification proposals in England and Wales we have some concerns which we would like to draw to the attention of the Panel and Ofgem concerning the potential interaction of these proposals with the work which is currently being undertaken by DTI and Ofgem to introduce GB-wide trading under BETTA.
The BETTA Programme has indicated that any future GB BSC will be the subject of consultation and will be based on the BSC which is extant in England and Wales at the time of consultation. Whether or not any modification to the BSC as a result of P75 or P82 will have been made by the time that consultation takes place is a matter of conjecture. We would nonetheless take this opportunity to draw the attention of the Panel and Ofgem to the potential for nugatory work if the locational allocation of transmission losses is introduced in England and Wales and then rejected for GB a short time later. The detrimental effect of locational losses on generators in the north of England is clearly evident from both the estimated loss factors published in Ofgem's February paper and the modelling work commissioned by the TLFMG as part of the assessment process for P75 and P82. The Scottish Executive's policy of support for the development of Scotland's renewable energy potential is well known and was restated at the BETTA seminar in Edinburgh. There is, therefore, a clear conflict between the Ofgem policy of deterrence of northern generation by increasing its share of the costs of losses and the Government policy of encouragement of renewable generation some of which, by its very nature, requires to site in the north of Britain.
These issues will doubtless be raised during any future consultation on the content of the GB BSC. Should the decision then be that transmission losses should be allocated on an average basis, as they are at present both in England and Wales and in each of the two Scottish transmission areas, any work which had been carried out to introduce locational losses in England and Wales would be wasted. ScottishPower acknowledges that the BSC Panel must assess the current modification proposals against the applicable objectives of the England and Wales BSC but we would ask that, should their decision be to recommend acceptance of either of these proposals, they draw to Ofgem's attention the potential for nugatory work which we have highlighted here and suggest that Ofgem decline to accept their recommendation and reject the modifications.

Choice of modelling technique
ScottishPower is concerned, but not surprised, that the TLFMG have only considered the traditional AC and DC load flow techniques for the production of loss factors for use under these modifications. The time pressures inherent in the BSC modification process are such that this was to be expected. However, we would draw the Panel's attention to a particular feature of the modelling results which we believe points to the need for further research into alternative methods.
The modelling results show quite clearly that the loss factors for both generation and demand are greatest at the periphery of the system and are zero in the midlands. The results also show that the volatility of the loss factors is proportional to their magnitude. While the intention may be to encourage generation and demand to site in the same zone in order to reduce power transfers over long distances, the logical course of action in response to these signals would be for both generation and demand to locate in the midlands to avoid the volatility and variability of loss factors which occurs in the peripheral zones when using this technique. This is not the desired outcome. The desired outcome must be to achieve a balance between generation and demand in each area of the country. If balance has been achieved in a particular area then the loss factors applied in that area should reflect that balance, rather than merely reflecting the distance from the system centre. If a balanced zone is subject to transit flows due to an imbalance in a more distant zone, the loss factors in the balanced zone should not be affected. The power flows which underly the modelling results are not known in detail. However, projected flows at the time of system peak are included in the NGC seven year statement. From these it can be seen that, for example, the estuary zone is exporting the equivalent of over 200% of the zonal demand, while the northern zone, net of the transit flow from Scotland, would be importing about 10% of the zonal demand. The loss factors indicated by the modelling results, perversely, would induce generation to leave the northern zone in favour of the estuary zone. Calculation techniques which avoid this problem are available. One technique is the method of network tracing, also known as the method of average participations. This technique has recently been used by the European Commission as a means of determining the use made by each member state of the transmission networks of other member states in the context of the work on cross border tariffication. As noted in the Annex to the CEER position paper Inter-TSO Compensation Mechanism: a model for the longer term, the same algorithm can be used to determine the share of losses on the respective systems. This technique could easily be applied to the zones of the NGC transmission system in order to determine the magnitude and responsibility for losses caused by intra- and inter-zonal flows.
ScottishPower would therefore suggest that the assessment period for these modifications is extended and the TLFMG be requested to consider other calculation techniques which would avoid the perverse loss factors produced by the traditional method. Failing this, the modifications should be recommended for rejection as they will neither allocate the cost of losses correctly nor send the correct locational signals to influence siting and closure decisions. Hence they cannot be considered to better achieve the applicable BSC objectives. We would also note in passing that this problem with the traditional calculation method is likely to be exacerbated under BETTA.
I trust that you will find these comments helpful. Nonetheless, should you require further clarification of any of the above, please do not hesitate to contact me.
Yours sincerely,
Man Kwong Liu

Calanais Ltd.

For and on behalf of: - ScottishPower Energy Trading Ltd.; Scottish Power Generation Ltd.; ScottishPower Energy Retail Ltd.

ScottishPower Trading UK 4th Floor Cathcart Business Park Spean Street Glasgow G44 4BE

Telephone (0141) 568 4902 Fax (0141) 568 4909

ScottishPower Energy Trading Limited Registered Office: 1 Atlantic Quay Glasgow G2 8SP

Registered in Scotland No. 215843 Vat No. GB 659 3720 08

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