1 Project Background and Objectives 1.1 Project Background

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2 1 Project Background and Objectives 1.1 Project Background The EU Technical Assistance Facility - East and South Africa, in cooperation with the African Union Commission / Department of Infrastructure and Energy (DIE) under the Assignment ES , developed and validated the Strategy and Action Plans for a Harmonised Regulatory Framework for the Electricity Market in Africa. The Strategy and Action Plans are aimed at accelerating the process of integration and harmonisation of continental and regional electricity markets. The Strategy and Action Plans were adopted by the Energy Ministers of Africa during the 1 st Specialised Technical Committee on Transport, Energy and Tourism meeting held in Lomé, Togo in March Scope and Specific Objectives The specific objectives for ES-0087 Activity 2 are as follows: Develop and recommend a Continental Transmission Tariff Methodology; Develop Guidelines at Continental level for the Harmonization of Transmission System tariffs to support the regional and continental power trade; Develop a Monitoring Plan for the Harmonized Continental Transmission System Tariff. The development of a harmonized transmission system tariff methodology will ensure there are no distortions in the determination and application of transmission tariffs at the regional and continental levels. It will also ensure that there is harmonization regarding the allocation of wheeling charges between generators and loads involved in international power trading and wheeling transactions, by the power pools and regional regulatory authorities. Though the same transmission tariff methodologies can be used to determine the wheeling charges, the main difference is that in computing wheeling charges, the applicable tariff is dependent on the share or amount of energy carried by the wheeling party. Wheeling can be described as the rental of a grid operator s transmission (or distribution) infrastructure for the transmission (or distribution) of electricity. When a wheeling transaction takes place, the transmission system operator receives energy into its control area and transmits this energy to a third party either within or outside the control, as depicted in figure 1-1. Figure 1-1. Transmission Wheel-Through Concept AREA 1 TSO CONTROL AREA (AREA 2) AREA 3 1 Legal Framework Assessment Support to AUC in the Development of a Legal Harmonised Continental Regulatory Framework for the Energy Sector in Africa Recommended Continental Transmission Tariff Methodology for Africa 1

3 2 Standard Transmission System Tariff Models 2.1 Historic Cost Transmission Tariff Models Postage Stamp Method The postage stamp method allocates a uniform transmission tariff to all transmission customers, irrespective of the load imposed or congestion created by the network user. Advantages: Easy to compute and simple to understand since each network user pays the same tariff; Good cost recovery characteristics and possesses the ability to recover investment cost in existing systems. Disadvantages: Does not reflect the extent of use of the power system which causes congestion, Ignores actual system operation and results in cross subsidy among network users; Fails to send the correct price signals to users of the network and therefore discriminates against low-cost network users Contract Path Method With the contract path method, a specific path is selected for a wheeling transaction, without carrying out any power flow analysis. Advantages: Calculation of the transmission tariff or wheeling charge is simple and easy to understand; The calculation may take account of the power flow to some extent; Provides a better price signals compared to postage stamp method. Disadvantages: Since this method does not take account of actual system operation, it is possible that the selected path will not be the same as the actual wheeling path(s); Flows outside the selected path can cause loop flow problem and create unforeseen transmission congestion problems; Can trigger investment outside the selected path, and may not signal the correct price MW-Kilometre Method (Distance Based) The MW-Kilometre method (Distance-based) allocates the transmission wheeling charges based on the transmission capacity and the wheeling distance. The distance for a specific transaction can be determined based on a straight-line between the points of entry and exist or by using the contract path method. Advantages: It is very simple and easy to understand; Possesses strong cost recovery characteristics; Relatively better than the postage stamp and contract path methods with respect to reflecting the use of the power system. Disadvantages: Recommended Continental Transmission Tariff Methodology for Africa 2

4 Although it takes account of the distance between the delivery and receipt of power, it does not fully take account of electricity flow through the network; Fails to take account of actual system operation as well as the associated costs MW-Kilometre Method (Load Flow-Based) The load flow-based MW-Kilometre method calculates the cost per MW-Km of the line and the total cost, is determined by taking account of the power flow of transaction and transmission length. The load flow-based method thus reflects to a large extent, the actual operations of the power system. The transmission or wheeling charge is calculated as a proportion of the network utilized by individual transactions from a load- flow analysis. Advantages: Gives better price signals since network users face prices which are related to the use of the power system; Results in decreased price discrimination and increased allocative efficiency. Disadvantages: Requires power flow calculation and its operation can be complex; Requires running a set of power flow analysis when multiple transactions are considered; If the total transmission revenue requirement is determined based on historic costs alone, the wheeling charge will not recover the costs of future investment caused by individual transactions. 2.2 Forward-Looking Transmission Tariff Models Short-run Marginal Cost The SRMC approach measures how much it costs the transmission system to accept an additional unit of energy and deliver it to a buyer. The SRMC includes the operating cost of extra use of the transmission system caused by the use of a new transaction. In estimating the SRMC, the marginal operating cost of an extra MW of transmitted power is determined at all the delivery and receipt points. Due to economies of scale associated with the transmission system, the SRMC is usually below the Average Total Cost of the System. Therefore the use of SRMC could lead to under-cost recovery. Disadvantages: In practice, it is difficult to calculate the SRMC of every individual transaction, in the midst of multiple transactions which occur at the same time; Transmission prices based on SRMC can be very volatile, because of the short-term nature of the pricing philosophy. Advantages: From efficiency perspective, SRMC promotes economic efficiency because the price of an individual wheeling transaction is almost equal to the cost imposed on the network due to the transaction Short-run Incremental Cost The Short-run Incremental Cost (SRIC) recovers the additional cost caused by new transactions. In calculating the SRIC, only the operating costs of the existing facilities and new transactions are taken into account and allocated to that transaction Long-run Marginal Cost Recommended Continental Transmission Tariff Methodology for Africa 3

5 The Long-run Marginal Cost (LRMC) is the cost of supplying an additional unit of energy, when the installed capacity increases optimally to meet marginal increase in demand. The LRMC thus takes into account, both the capital and operational costs, by calculating the marginal capital investment plus the marginal operating costs. The marginal investment cost is determined by calculating the future transmission expansion projects with respect to the amount of the new planned transmission transaction. Advantages: Gives correct price signals to users of the network, because users face the long-term costs they impose on the network; Unlike SRMC, the LRMC prices are more stable and predictable. This paves the way for consumers to sign long-term contracts with transmission system owners. Disadvantages: In practice, it is difficult to estimate the investment costs and evaluate the cost caused by individual wheeling transactions, because of the cost causation by multiple transactions which occur simultaneously; Fails to take account of the impact of transmission system reliability; For small systems, this method could lead to higher transmission tariff Long-run Incremental Cost The long-run Incremental cost (LRIC) is determined by taking account of both the capital and operating costs, as well as upgrading and reinforcement costs. The investment costs are determined from the change in cost created by long-term investment plans due to the individual transaction. 2.3 Nodal Pricing Nodal pricing is considered to be an efficient transmission pricing methodology, where each origin and destination node has its own price. This pricing philosophy is justified on the grounds of locational economic signals, since the transmission prices are determined to reflect the costs imposed on the system by the transaction. The prices are set based on the marginal impact on the system and this circumvents the problem of defining the path followed by flows between the nodes. Advantages: Results in both allocative and dynamic efficiency; Enable potential investors in the transmission network to have an indication of the returns they could earn on investment; Ensures that market participants can have an indication of the price of power transfers between nodes. Disadvantages: Even though economic efficiency has been used as the basis for adopting nodal pricing, this methodology could result in under-recovery of fixed costs; Since prices vary over different nodes instantaneously and over time, this can create significant instability in prices and complexity in implementation; Nodal pricing can be complex to understand and implement, and many market participants may see the results as coming from a black box. 2.4 Zonal Pricing or Market Splitting Zonal pricing is used in power markets to manage congestion in transmission pricing. The transmission system operator carries out a load flow simulation on the network. If constraints are identified, geographical areas or zones are identified on either side of the bottleneck, and a new transmission Recommended Continental Transmission Tariff Methodology for Africa 4

6 system price is calculated in each zone or area, taking into account the maximum transfer capacity between the areas. Based on market splitting or zoning, congestion is relieved by ensuring that price decreases in the generation surplus areas and increases in the generation deficit areas. The difference in price in the two zones is therefore due to lack of transmission capacity from one zone to another. 2.5 Analysis of Standard Transmission Tariff Models The standard transmission tariff methodologies reviewed above are analysed and compared against the following criteria for assessment and evaluation: Economic Efficiency, Cost Recovery, Transparency, Correct Price Signal, Simplicity and ease of application and impact on transmission network. The evaluation is done as follows: A mark of 1.0 is awarded if a tariff methodology satisfies a criterion, Zero is awarded if not compliant with the criterion, and 0.5 is awarded if neutral or partially satisfies the criterion. Table 2-1 Analysis of Standard Transmission Tariff Models Cost Transparency Recovery Tariff Methodology Economic Efficiency Correct Price Signal Simplicity of Application Impact on Transmission Network Postage Stamp Contract Path MW-km (Distance-Based) MW-km (Load Flow- Based) SRMC SRIC LRMC LRIC Nodal Total Mark From the above evaluation presented in the table, it can be seen that the MW-Km (Load Flow-based) scores the highest marks measured against the six criteria. The MW-Km (Load Flow-based) approach is followed by LRMC and LRIC. The MW-Km (Load flow-based) possesses the advantage of providing better price signals to users of the transmission network. It takes account of the use of the power system and this results in decreased price discrimination and increased allocative efficiency. Even though the MW-Km (Flow-based) is a historic cost approach, if future investments and reinforcements costs are considered, it could recover the cost of both current and future transmission system investment in the transmission tariff. The LRIC and LRMC being forward pricing methodologies, also provide signals to future developers of generation and load in the network. The postage stamp pricing principle, even though very simple to apply, its usage will imply market participants will not benefit from their location. The use of postage stamp pricing will therefore not transmit locational signal but rather promote price discrimination. Recommended Continental Transmission Tariff Methodology for Africa 5

7 Country 3 International Transmission Tariff Models In order to recommend an appropriate continental transmission tariff model, it is imperative that a review is carried out on some of the international transmission tariff models in terms of their design and implementation, so that lessons learnt can be taken into consideration. This is in line with the ToR for Activity 2 which requires among others, the need to investigate transmission models at regional and intra-regional levels. In carrying out this task, the tariff methodologies for following operating power pools were reviewed: European Network of Transmission System Operators for Electricity (ENTSO- E), National Grid (Great Britain), Southern African Power Pool (SAPP), Nord Pool, PJM (USA). 3.1 European Network of Transmission System Operators for Electricity (ENTSO-E). ENTSO-E was established by Regulation (EC) N0.714/2009, to allow the cooperation of Transmission System Operators (TSOs) of the European Union. ENTSO-E represents 43 electricity TSOs from 36 countries ENTSO-E s Transmission Tariff Approach In carrying out its transmission tariff analysis, ENTSO-E adopts the Unit Transmission Tariff (UTT) approach. This approach does not compare individual transmission tariffs but rather re-calculates the country tariff, and the UTT is structured to cover tariffs related to the following costs: TSO costs: Refers to infrastructure costs such as opex, depreciation and return on capital, costs of purchasing system services and loss compensation costs. Non-TOS Costs: These are costs which are not related to TSO s activities and refer to costs such as stranded costs, costs of Renewable Energy or co-generation support schemes, regulatory levies etc. Table 3-1 Characteristics of Transmission Tariffs in Selected Countries in Europe Sharing Network Operator Charge Price Signal Are losses included in the tariff? Are System or Ancillary Services included in the tariff? Generation Load Seasonal Location Austria 43% 57% No No Yes Yes Belgium 7% 93% X No No Yes Bulgaria 0% 100% No No Yes Yes Denmark 3% 97% No No Yes Yes France 2% 98% XXX No Yes Yes Germany 0% 100% No No Yes Yes Great Britain 23% 77% No Yes No Yes Greece 0% 100% X No No Yes Ireland 25% 75% No Yes No Yes Italy 0% 100% No No Yes Yes Norway 38% 62% X Yes Yes Yes Portugal 8% 92% XX No No No (Source: ENTSO E, 2016, overview of Transmission Tariffs in Europe) NB: X in the table means time differentiation; One X means One-time differentiation; Two X (or more) means there are two (or more time) differentiations. Recommended Continental Transmission Tariff Methodology for Africa 6

8 3.2 National Grid (Great Britain) The National Grid plc. is the system operator for Great Britain. The National Grid is the high-voltage electric power transmission network in Great Britain. The costs of operating the National Grid System are recovered by National Grid Electricity Transmission plc. (NGET) through the levying of Transmission Network Use of System (TNUoS) charges on users of the system. The costs are split between generators and the users (i.e. loads) in the ratio of 23%: 77% National Grid s Transmission Tariff Methodology The Transmission Network Use of System Charges is used by National Grid to recover the cost of installing, operating and maintaining the transmission system so that the transmission owner can provide the capability for the flow of bulk transfers of power, while providing system security and reliability. The basic rationale behind this TNUoS charge methodology is that efficient economic signals are provided to network users, since services are priced to reflect the incremental cost of supplying them. The charges also reflect the impact that users of the transmission system at different locations, have on the following transmission costs: Investment cost, Operation and maintenance cost, Maintaining a system capable of providing a secure bulk supply of energy. 3.3 PJM (USA) PJM Interconnection is a regional transmission organization (RTO) in the USA that coordinates the movement of wholesale electricity in all parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM utilizes locational marginal pricing that gives an indication of the value of the energy at the specific location and the time it is delivered. The prices are also determined for transmission zones, thus making use of zonal and nodal pricing PJM Tariff Model The PJM operates a day-ahead, a real-time energy market and a daily capacity market. In addition, it operates a monthly and multi-monthly capacity markets, a regulation market, a spinning market, as well as a monthly fixed transmission rights auction market. All network customers pay daily demand charges to PJM transmission owners using the applicable zonal or non-zonal network integration Transmission Service rates. The daily demand charges are calculated as network customers daily network service peak load contribution times 1/365 th of the applicable zonal rate(s) for the zone(s) in which the network load is located. Firm point-to-point customers pay demand charges for reserved capacity at the applicable tariff rates based on the term of the reservations. 3.4 Southern African Power Pool The Southern African Power Pool (SAPP) was formally created in 1995, when the energy Ministers in the Southern African Development Community (SADC) signed an Inter-Governmental MOU. Regarding transmission tariff arrangements, the original approach was based on a postage stamp pricing philosophy. This tariff was based on 7.5% of the energy cost for one wheeler, and 15% of the energy cost for more than one wheeler. The MW-Kilometre (Load Flow-Based) methodology was adopted later where all the assets that wheel at least 1MW, are identified on a network and the compensation is determined based on the proportion or the level of asset usage. Under the MW-Kilometre (Load Flowbased approach), the wheeling charge is based on the path in each transaction and the buyer pays for 100% of the wheeling charge SAPP s Transmission Tariff Methodology Within the SAPP, bilateral contract is the main trading tool which is negotiated between a buyer and seller. Most of these contracts are subject to periodic reviews to take account of exogenous factors such as inflation and actual quantities supplies and demanded. The transmission/wheeling charge Recommended Continental Transmission Tariff Methodology for Africa 7

9 Access Fee methodology used in SAPP is the MW-Km (Load Flow-based) method, where the tariffs are based on the amount of power traded and the distance between the buyer and seller. The wheeling charge is calculated based on a load flow analysis to identify the specific transmission assets which are used for the wheeling and also used to calculate the wheeling routes. With the MW-km approach, all assets that wheel at least 1MW are identified on the wheeler s network and remunerated in proportion to or the share of asset used in the wheeling. As per the SAPP guiding principles, the wheeling charges must cover the following: Rent to recover the proportion of assets used for the wheeling services, plus allowance for operation and maintenance costs and the marginal cost of additional losses arising from provision of the wheeling services. 3.5 Nord Pool Nord Pool covers the following countries: Norway, Sweden, Denmark, Finland, Estonia and Lithuania Nord Pool s Tariff Model The transmission pricing approach for access to the grid is the Point-of-Connection (POC) Tariff. The POC principle implies that payment of transmission tariff in one point, which is the point of connection, gives the network user access to entire network. The transmission tariff models adopted by the countries are summarized in Table 3-2 below. Table 3-2 Losses Pricing Differentiated tariff based on marginal loss rates at each connection point Congestion Pricing Market Splitting Occasionally, Counter Trade Transmission Tariff Models in Nordic Countries Norway Sweden West Denmark East Denmark Finland Point-of- Point-of- Point-of- Connection Tariff Connection Tariff Connection Tariff Differentiated tariff based on marginal loss rates at each connection point Differentiated postage stamp, only to consumers Point-of- Connection Tariff, applied only to consumers Postage stamp, only to consumers Point-of- Connection Tariff Different postage stamp for customers, Uniform postage stamp for generators Counter Trade Counter Trade Counter Trade Counter Trade Recommended Continental Transmission Tariff Methodology for Africa 8

10 3.6 Recommended Continental Transmission Tariff Methodology In recommending an appropriate Continental Transmission Tariff methodology, it is imperative that the proposed approach meets the following transmission pricing objectives: Promotes Economic Efficiency, Ensures Price Transparency and is Non-discriminatory, Ensures Cost Recovery, Is Simple and Easy to Implement, Promotes Open-Access and Competition. In practice, it is difficult to find a single tariff methodology that satisfies all the above objectives, since some of the tariff principles may be in conflict with others. Figure 3-1 gives a simplified indicative comparison of the various transmission tariff methodologies with respect to economic efficiency and degree of complexity. Though Postage Stamp is simple to calculate and has good cost recovery characteristics, it fails to provide good price signals and therefore it is economically inefficient. At the other end of the spectrum, nodal pricing which is rated high on economic efficiency, is very complex to implement. Figure 3-1. Economic Efficiency Efficiency versus Complexity of Transmission Tariff Methodologies. Nodal Pricing High LRMC/LRIC MW km (Load Flow-Based) MW-km (Distancebased) Low Postage Stamp Low Complexity of Method High Based on the analysis of the standard transmission tariff models and taking cognizance of observations from the review of the international transmission tariff models, the point-to-point MW- Km (Load flow-based) seem to represent a good balance in terms of cost recovery, simplicity and ease of application, economic efficiency, as well as providing correct price signals. The MW-Km (Load Flow-based) is thus more transparent and provides good locational signals to the wheeling party. It is important that in choosing the transmission tariff methodology, a balance is struck among the competing objectives. Based on the above analysis, the MW-km (point-to-point) load flow- based tariff methodology is recommended to the AUC as the continental Transmission Tariff Methodology. The recommended tariff methodology is also compatible with competition and tends to promote open and non-discriminatory access to the transmission network. Additionally, the wheeling charge takes into account the extent of use of the network for wheeling services. The proposed approach also supports market trading arrangements, as has been shown by SAPP over the years. It is also consistent with the approach being considered by ERERA for adoption for the West African Power Pool. Recommended Continental Transmission Tariff Methodology for Africa 9

11 Additionally, the EAPP Proposed Principles for Long Term Wheeling Service is consistent with the recommended continental transmission tariff methodology. The EAPP approach indicates that longterm wheeling service must be applied in a non-discriminatory manner, and that the calculation of the fixed cost of providing transmission service between two points, should be based on the actual capital and operating cost of the transmission assets that are expected to be in service, as of the date of the initial service under the wheeling agreement, that materially support the long-term service being provided. This is exactly what the recommended MW-Km (Load Flow-Based) approach seeks to achieve. 3.8 Identification of Transmission Tariff Cost Components The main cost components to be recovered in the recommended transmission tariff are listed below. The cost components to be recovered through the transmission tariff methodology can be classified as follows: Infrastructure and Network Costs: Asset Value or Capital Costs, Depreciation, Cost of Capital, Operation and Maintenance, Taxes; Losses; System Services or Ancillary Services; Congestion Costs and Management; First Connection Charges. 4. Data Gathering Template The Consultant is required under the ToR, to design a template to collect data from the power pools and the regional regulators on the continent. The analysis of responses from the questionnaire, will form the basis for developing appropriate Continental Guidelines for implementing the Transmission Tariff Methodology. The data gathering template and questionnaire when approved by the AUC, will be sent to the following: Southern African Power Pool (SAPP), West African Power Pool (WAPP), East African Power Pool (EAPP);, Central African Power Pool (CAPP), Maghreb Electricity Committee (MEC), Regional Electricity Regulators Association (RERA) for Southern Africa, ECOWAS Regional Electricity Regulatory Authority (ERERA), Independent Regulatory Body (IRB) for EAPP, Regional Association of Energy Regulators for Eastern and Southern Africa (RAERESA). Table 4-1 Data Gathering Template Name, Address and location of Organization: Contact Details of Person(s) who completed this questionnaire Name(s): Position(s): (s): Telephone Number(s): Recommended Continental Transmission Tariff Methodology for Africa 10

12 Transmission Tariff Determination Has your organization developed a regional transmission tariff methodology? Yes or No If the answer is Yes, please complete the following: What is the title of document? In what year was the document developed? What is the main transmission tariff methodology (i.e. Postage Stamp, MW-Kilometre: Load flow-based or distance-based, Nodal Pricing etc.) What is the structure of the tariff (i.e. whether in KW, KWh or KVA)? Who pays for the transmission/wheeling charge (i.e. Generator or Buyer or both)? What is the percentage share or allocation of the transmission/wheeling tariff between generation and load?(i.e. buyer) List the cost components that go into the transmission or wheeling charge calculation? What is the asset valuation method? (i.e. Historic or replacement value). Please provide a brief explanation What depreciation method is used? (i.e. Straight line or other approach used? Please indicate method. What are the asset lives used to calculate depreciation for: HV lines, transformers, substations etc.? What is the method for determining return on investment (Example: Return on Equity, Return on Assets etc.) HV Lines: Transformers: Sub-stations: Buildings: What is the allowed Return on investment or Weighted Average Cost of Capital (Real or Nominal) What is the allowed cost of debt? How are losses treated in the tariff? Calculated separately or included in tariff. Please provide a brief explanation How is congestion taken into account in the transmission tariff methodology? Please provide a brief explanation of Recommended Continental Transmission Tariff Methodology for Africa 11

13 congestion management. How are ancillary services costs treated or recovered using the transmission tariff methodology? Please provide a brief explanation. What type of markets are in operation (i.e. Bilateral, Day Ahead, Short Term Energy Market, Imbalance Market etc.)? Please, provide a brief explanation How are connection charges for connecting to the transmission grid determined for generation and load (i.e. network customers)? What type of connection charge policy is applied? Are there any other non-transmission system operator costs included in the tariff (i.e. RE support schemes, Regulatory levies etc.) If regulatory levy or other non-tso costs are included in the transmission tariff, briefly explain the basis for determining such costs/levy. Attach a copy of the draft or final version of the transmission tariff methodology. Please indicate if this is attached. Technical Issues What are the transmission voltages levels operated in the region? Please list and provide brief explanation What method is used to identify the transmission assets involved in wheeling? Please provide brief explanation on the approach or methodology. Are there congestions on any international connectors? Please list the congested lines List existing international interconnections in the region and indicate the operating voltage levels Please, list copies of relevant technical documents attached to the questionnaire Recommended Continental Transmission Tariff Methodology for Africa 12

14 Regulatory Policy and Market Issues Is wheeling undertaken as part of power trade? Are IPPs allowed to engage in power export? Does the policy encourage operational autonomy of Transmission System Operator (TSO)? List countries in the region with unbundled/independent TSO s or National Grid Companies Is there a policy to support tariff unbundling to promote power trading in the region? Is there an open-access electricity market policy? How is this being implemented? List copies of relevant regulatory policy documents attached 5. Conclusion and Recommendations Following the analysis of Standard Transmission Tariff Models, as well as review of the tariff models used by ENTSO-E, Southern African Power Pools, PJM, National Grid (Great Britain) and Nord Pool, the point-to- point MW-Km (Load flow-based) transmission tariff methodology has been recommended as the Continental Transmission Tariff Model for Africa. This Transmission Tariff approach has been recommended because it represents a good balance in terms of recovery of existing transmission cost, simplicity and ease of application, economic efficiency, as well as providing correct price signals. The MW-Km (Load flow-based) approach, also takes account of network constraints and the actual network flows used when calculating the transmission tariff or wheeling charge. The recommended approach also supports open and non-discriminatory access to the transmission network. Adoption of the proposed methodology will be easier for the power pools because it is to a large extent consistent with the approach used by SAPP, as well as the proposed methodology for adoption by ERERA for WAPP. Additionally, the recommended methodology is consistent with the proposed approach for Long Term Wheeling Service for EAPP. The EAPP approach indicates that long-term wheeling service must be applied in a non-discriminatory manner, and that the calculation of the fixed cost of providing transmission service between two points, should be based on the actual capital and operating cost of the transmission assets that are expected to be in service, as of the date of the initial service under the wheeling agreement, that materially support the long-term service being provided. The EAPP approach requires that the cost allocation should include the transmission lines along the most direct route between the receipt and delivery points. A critical analysis of the MW-Km (Load flow-based) shows that it addresses all the key issues identified in the proposed EAPP wheeling methodology. With the MW-Km (Load flow-based) approach, the wheeling charge is based on a load flow analysis to identify the actual transmission assets which are used for the wheeling services. It is further recommended that as applied by SAPP and National Grid (Great Britain), all assets that wheel at least 1MW are identified on the wheeler s network from the load-flow analysis, and the wheeler remunerated in proportion to the share of the asset used in the wheeling. This methodology has the Recommended Continental Transmission Tariff Methodology for Africa 13

15 added advantage of preventing the recovering of the entire capital cost of the domestic transmission assets. As was shown by ENTSO-E, there is no correct approach for allocating the transmission tariff between generation and load (i.e. buyer) by the countries in Europe. In that regard, it would be recommended that the split of transmission of tariff or wheeling charges between generation and load could be harmonized at the regional level for international power trades, and not necessarily at the national or country level. Regarding recovery cost of losses, it is recommended that only incremental losses caused by the specific wheeling service on the network, should be compensated for. In order to ensure the financial sustainability of the power pools and regional regulatory authorities, it is further recommended that as pertains in most regulatory jurisdictions, the AUC in consultation with the regional regulatory authorities and the power pools should agree on the level of regulatory levies to be recovered as non-tso costs from the transmission tariff. For instance in the USA, the FERC Annual Recovery Charge of US$ /MWh is currently charged to transmission customers based on their usage of PJM transmission system. There is also the PJM States, Inc. (OPSI) funding charge, which is set at the 2017 rate of US$ /MWh charged to transmission customers based on their usage of PJM transmission system. Additionally, there is the PJM Settlement charge, set at US$ /MWh charged to transmission customers based on their network load and exports, to providers of generation and imports, and to day-ahead energy markets participants based on their accepted increment offers, decrement bids, and up to congestions bids. Recommended Continental Transmission Tariff Methodology for Africa 14

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