Modelling the Impact of Zonal Transmission Loss Multipliers

Wed Mar 09 13:46:13 EST 2016
Sean Gammons and Richard Druce

NERA, together with a team from Imperial College London, conducted a study for the UK Competition and Markets Authority (CMA) in the context of its ongoing Energy Market Investigation (EMI). As part of the EMI, the CMA has proposed a mechanism for pricing electricity transmission losses on a locational basis, one of the CMA’s two key reforms to wholesale trading arrangements.

NERA's work involved market and transmission system modelling to estimate the costs and benefits of the locational losses mechanism. Our modelling work shows that, across a range of scenarios, the CMA’s policy would result in total cost savings of between £53 million and £362 million in present value terms, depending on the scenario and method used to perform the analysis. On 29 March 2016, the CMA published its ‘Provisional decision on remedies’ report as part of its ongoing Energy Market Investigation, the findings of which relied upon this NERA study.