LRIC Charging with a Fixed Reinforcement Period for

Different Growth Rate

Furong Li

University of Bath

Overview

• Issues with LRIC with different growth rates – lower growth rates tend to have higher charges when the circuit utilisation is close to its rated capacity

• LRIC with a fixed time horizon

Key Issue

Marginal Cost for Different Growth Rate

-£10,000

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

0 0.2 0.4 0.6 0.8 1

Util%

Mar

gina

l Cos

t (£/

MW

/yr)

0.50% 1.60% 3.00% 5.00%

45MW rating

£3,193,400 asset cost

6.9% discount rate

1MW increment

LRIC Pricing Model

• Translate each circuit’s spare capacity into the time horizon to reinforcement at underlying load growth

• Transfer the spare capacity into present value of reinforcement Cost of reinforcement will be a function of asset cost and circuit utilisation

• Marginal pricing signal from increase in PV of future reinforcement as the result of an injection of load or generation

+ 1 MW

After

Before

LRIC• 1.6% growth rate at 2% circuit utilisation:

• 5% growth rate at 2% circuit utilisation:

Present

Present 78 yrs (reinforcement)

FC240 = £3,193,400PV = £0.36

PV = £17538

240 yrs (reinforcement)

FC78 = £3,193,400

45MW rating

£3,193,400 asset cost

6.9% discount rate

1MW increment

Investment horizon for different circuit utilisation@ 1.6% load growth rate

0%

20%

40%

60%

80%

100%

120%

0 50 100 150 200 250 300

Number of years

Per

cen

tag

e o

f u

tili

sati

on

2%

11%

22%

44%

67%

89%

98%

100%

Investment horizon for differing circuit utilisationand differing load growth rates

0%

20%

40%

60%

80%

100%

120%

0 50 100 150 200 250 300

Number of years

Per

cen

tag

e o

f u

tili

sati

on

2%

11%

22%

44%

67%

89%

98%

100%

LRIC

Util=100% Utilint=50% Util=100% Utilint=50% Util=100%

Once a circuit reaches its full capacity, an additional circuit will be added, the circuits utilisation would drop to 50%. The time take (T) for the circuits to grow from 50% to 100%:at 1.6% circuit growth rate T=44yrat 5% circuit growth rate T=14 yrs

Investment for a fixed investment horizon of 100yr @ 1.6% load growth rate

0

0.2

0.4

0.6

0.8

1

1.2

0 20 40 60 80 100

Number of years

Per

cen

tag

e o

f u

tili

sati

on

2%

11%

22%

44%

67%

89%

98%

100%

Investment for a fixed investment horizon of 100yr @ 5% load growth rate

0%

20%

40%

60%

80%

100%

120%

0 20 40 60 80 100

Number of years

Per

cen

tag

e o

f u

tili

sati

on

2%

11%

22%

44%

67%

89%

98%

100%

LRIC charges with 100yr fixed horizon

0

5000

10000

15000

20000

25000

30000

2% 11% 22% 44% 67% 89% 98% 100%

Percentage of utilisation

£/M

W/y

r

1.6% grow th rate 5% grow th rate

LRIC charges with 40 yr fixed horizon

0

5000

10000

15000

20000

25000

30000

2% 11% 22% 44% 67% 89% 98% 100%

Percentage of utilisation

£/M

W/y

r

1.6% growth rate 5% growth rate

Future investment costs and their PVs

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

7.42 51.09 94.75

Number of years to reinforce (Circuit utilised at 90%, growth rate at 1.6%)

Annuitised dPVs (Circuit utilised at 90%, growth rate at 1.6%)

0

50,000

100,000

150,000

200,000

250,000

0 5 10 15 20 25 30 35 40

Number of years to pay back

1st reinforcement 2nd reinfrocement 3nd reinforcement

Conclusions

• LRIC considering one rather than a stream of future reinforcement introduces some distortion to the network cost

• The distortion is negligible for circuits with low load growth rates

• For high load growth rates at high circuit utilisation, the distortion can be significantly reduced by considering a few more future reinforcement