P350 - Changing the methodology for calculating transmissions losses
The way transmission losses are calculated is changing from the 1st of April 2018, with the introduction of a location-based charging system. Transmission losses refer to the energy that is lost during the transfer of electricity between generators and the distribution network or large scale directly connected demand such as major industrial operations.
The cost differences are very small (given that Transmission Losses are around 1% of the bill), and we think that for most of our members the difference will be negligible.
In the current system, transmission losses are calculated using a flat rate for both energy consumers and generators, and the calculation does not take in to account the grid user’s geographical location. As the real volume of transmission losses is heavily influenced by the distance between the generator and the consumer (the longer the distance the higher the losses) the current system subsidises generators who are far away from their respective consumers and consumers located far away from generators.
A proposal to modify the current transmission losses scheme was raised by the Competition and Markets Authority (CMA) after they conducted an energy market investigation, which in June 2016 concluded that the absence of a locational pricing element in how transmission losses are calculated has an adverse effect on competition.
What is changing?
The P350 amendment was raised by National Grid because of the CMA’s investigation, which was approved on the 24th of March 2017. The P350 modification will create a seasonal Transmission Loss Multiplier (TLM) for each zone on the network. The zones will be the same geographical regions used for charging Transmission Network Use of System (TNUoS) and Distribution Network Use of System (DNUoS).
What will be the impact of these changes?
As a result of P350, consumers far away from generators and generators far away from consumers will face higher charges. In practice, this means that energy consumers in the South of England and generators in Scotland will likely see their charges rise, while consumers in Scotland and generators in the South of England could see their charges drop. As transmission losses usually account for around 1% of a typical bill the impact of P350 to our members is limited.
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