PROFITABLE OR NOT A METHOD TO STUDY NETWORK INVESTMENT IN THE NEW REGULATION ENVIRONMENT

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1 PROFITABLE OR NOT A METHOD TO STUDY NETWORK INVESTMENT IN THE NEW REGULATION ENVIRONMENT Jukka Lassila *, Samuli Honkapuro, Kaisa Tahvanainen, and Jarmo Partanen Lappeenranta University of Technology Juha Lohjala, and Mika Matikainen. Suur-Savon Sähkö Oy jukka.lassila@lut.fi ABSTRACT The bases for the network investments have changed a lot during few last years. Before modern network regulation, the effects of the investment (for instance a new primary substation) to the electricity distribution were well known; change in network value, improvement in reliability and operational costs. Necessity of the investment was evaluated mostly from the technical point of view. After the implementation of the new network regulation, overall effects of network investments to the business have got difficult to understand. Even the technical consequences (power quality, losses etc.) of the investment have stayed same, the outcome of the investment have changed unpredictable in a business sense. In the paper, the practical method to estimate profitableness of the network investment is studied. The methods and the results of different kind of investment strategies are based on actual network investments in Finnish distribution company Suur-Savon Sähkö Oy. Target area consists of five primary substations and over 1000 km of medium voltage network. Economical and technical effects of five different investment strategies are studied; reinvestment with old technology, rebuilding lines to road sides, implementation of 1000 V low voltage system, covered conductors and underground cables. The profit of different investment strategies are estimated by comparing investment costs, operational costs and outage costs of the strategies. In addition to this, actual profit coming from regulatory model is presented. INTRODUCTION The service lifes of network components are usually long. The techno-economic lifetimes of primary components are typically years; thus, the networks built today will still be in use after 50 years. Long lifetimes emphasize the importance of long-term network planning. In the long-term development planning, the target is to define the guidelines for the development of the network during the planning period, that is, what large and far-reaching investments are required in different years in order for the network to comply with the set requirements during the entire planning period. The development plan provides a basis and background information for detailed network planning. One of the central issues in long-term network planning is to determine the main principles and initial data on which the development planning and also detailed network planning are based [1]. In this paper, few development strategies are presented and benefits of strategies are studied by cost analyses. The results can be exploited in other companies as well when benefits of the strategies are estimated. 1

2 PLANNING PRINCIPLES AND PARAMETERS Traditionally network planning tasks have been based on the optimization of investment costs, losses and outage costs as presented by (1). [2] C T ( C t) + C ( t) C ( t ) = capex( opex + outage dt (1) tot ) 0 Where C tot C capex C opex C outage T = Total costs = Capital costs = Operational costs (for instance losses, maintenance) = Outage costs = Life-time of network The target is to minimize sum of total costs in the long run. Minimization of costs has to be made within the boundary conditions of the planning assignment. Typical boundaries come from voltage drop limits, fault currents and electrical safety regulations. In network planning, not only the construction and loss costs, but also the outage costs have to be financially measurable. The expected value of outage costs plays a significant role in the profitability analysis of network cabling, backup connections, and the remote-controlled switchgear. In the analysis, the impact of different network alternatives on the outage times and on the amount of non-distributed energy has to be elicited. In this study, investments costs of different strategies based mostly on company-specific network component price list. Operational costs come from losses, maintenance and fault repairing. Calculation parameters are presented in more detail in Table 1. Outage costs are formed using outage cost parameters for different electricity consumer groups and interruptions (Table 2.) Table 1. Calculation parameters for losses, fault repairing and maintenance. [3] Parameter Value Voltage 20.5 kv Lifetime 40 a Load growth time 40 a Percentage of onterest 5 %/a cosφ 0.95 Load growth Cost of losses (energy) Cost of losses (power) 1 %/a 30 /kw 0.03 /kwh Peak operating time of losses h Fault repairing costs (overhead line) (underground cable) /fault Maintenance costs (overhead line) 95 (underground cable) 23 /km Table 2. Outage cost parameters for different electricity consumer groups. (HS = High speed) [4], [5] Outage costs for 1 h interruption [ /kw,h] HS-auto reclosing [ /kw] Delayed autoreclosing [ /kw] Residential Leisure residence Agriculture Industry Public Service

3 TARGET AREA In these studies, target area is in the Finnish distribution company Suur-Savon Sähkö Oy. The area is located in a lake district area in central Finland. The network consists of five 110/20 kv primary substations and over 1000 km of 20 kv medium voltage networks. The network is built with overhead line technology and cabling rate is only 2 %. There are about customers in the area in 900 distribution substations. More detailed key figures are presented in Table 1. Table 1. Key figures from the target area. Definition Amount Consumers Delivered annual energy 165 GWh 110/20 kv primary substations (10 25 MVA) 5 20/0.4 kv distribution substations (avg. 100 kva) kv medium voltage overhead lines (24 feeders) km - avg. fault frequency and fault distribution: faults/km,a - 20 kv main lines / branch lines (> 70 kw) / branch lines (< 70 kw, ~5 km) 28 /39 / 32 % 400 V low voltage aerial bunched cables / underground cables / 112 km Medium voltage network and primary substations area is presented in Fig. 1. The target area consists 15 % of the company s whole distribution network. The structure of the medium voltage network is mostly radial. Only interconnections between primary substations and few long feeders have backup connections. 20 km = 12.4 miles Fig. 1. Five 110/20 kv primary substations and 20 kv distribution network in the target area. The area of the distribution network is 62 km x 78 km. 3

4 Because reliability plays significant role in the strategy analysis, fault statistics and rates have to be known well before reliable results can be calculated. In table 2 target area is divided to five primary substations. Medium voltage network is divided to three parts in order to find effects of different investment strategies to the reliability. About 40 % of the 20 kv medium voltage lines are so called main or interconnection lines between primary substations or other feeders. The rest 60 % are branch lines; a half low-loaded branches (<70 kw) and a half high-loaded (>70 kw). The division in branch lines is done because different development strategies can be adapted depending on load rate of the line. Table 2. Line lengths and fault rates in the target area in the present situation. Main = main medium voltage line or interconnection, branch 1 = high-loaded (> 70 kw) medium voltage branch line and branch 2 = low-loaded (<70 kw) and <5 km long medium voltage branch line. [3] Line length Fault rate Relative fault rates 110/20 kv primary substations Main Branch 1 Branch 2 Main Branch 1 Branch 2 [km] [km] [km] [faults/km,a] [pc./km,a] [pc./km,a] [pc./km,a] Savonranta Laukunkangas Kerimäki Savonlinna Punkasalmi Total (or average) Actual fault rates are collected by individual medium voltage feeders. The feeder-specific reliability data make possible for more detailed and more optimal development plans to the target area. Before reasonable investment strategy can be evaluated, it has to be known the main reliability causes in the distribution network. In the target area, a major part of the faults (75 %) is due to different kind of weather conditions (windstorms, snow and ice load, etc.). Fault statistics and percentages of customer groups are presented in Fig. 2. Construction, w ork or maintenance failure Vandalism 7 % 0 % Animals 3 % Civilian carelessness 5 % Unknow n 4 % Thunder 6 % Snow and ice loads 22 % Agriculture 6 % Leisure residence 15 % Industry 1 % Public 2 % Service 4 % Windstorms and other w eather conditions 53 % Residential 72 % Fig. 2. Fault statistics and percentages of customer groups in the target area. In addition to reliable and extensive fault statistics, it also has to be known, in which way different strategies affect to distribution reliability. For instance, bare overhead lines are 4

5 vulnerable against weather phenomena especially if the line is located in the forest. Next, overall description of investment strategies is presented. It is also estimated which way each strategy improves reliability in electricity distribution. INVESTMENT STRATEGIES Rebuilding with old technology In this strategy distribution network is rebuilt with traditional solutions and technologies. For instance old line routes (right of ways) are used when line reinvestment is done. This strategy is easy to carry out if age distribution of the network varies a lot. For instance if the medium voltage feeder is partly aged and few poles have to be renovated, it can be done during long time scale. In this way, total lifespan of distribution components can be exploited. This is not possible if the feeder which is partly new and partly old is totally renovated and rebuilt to new location as presented in next alternative. Lines next to road In the target area, most of the faults are due to different weather conditions such as windstorms, snow and ice load. If the line is rebuilt to the roadside, there occur fewer interruptions. Exact improvement depends on the area, but according company-specific statistics, improvement has been so far about %. The length of the distribution network remains almost same after renovation because in many cases customers (and loads) are concentrated near the roads. The principle is presented in Fig. 3. Lines next to road and 1000 V technology In previous alternative, lines were moved to the roadsides to achieve higher reliability in the distribution and easier maintenance work. Adding 1000 V technology to this, it is able to replace low load medium voltage branch lines with 1000 V low voltage systems. This decreases interruptions because every 1000 V system forms its own protection area. It is estimated that about one-third of the total length of the medium voltage lines can be replaced with 1000 V low voltage system. According to fault statistics (Table 2) these low-load medium voltage branch lines are affects relatively more interruptions than main medium voltage lines. Thus, replacing these problematical branch lines with 1000 V technology, total fault rate in the medium voltage feeder decreases at least one-third compared to present situation. Fig. 3 shows the medium voltage feeder before and after the renovation. A new overhead line is rebuilt to the roadside and the branch lines are built with the 1000 V technology wherever transmission distances and power are suitable for that. Typical loads in 1000 V systems are from 10 kw to 70 kw and transmission distances from 0.5 km to 5 km. A 1000 V low voltage system is described more detail in [5]-[11]. 5

6 Fig. 3. An example of the 20 kv medium voltage feeder before and after the renovation. Main lines are rebuilt to the roadsides and low load lines are built with 1000 V low voltage systems (dashed line). Lines next to road with covered conductors and 1000 V technology Compared to previous alternative, in this case medium voltage lines are built with covered conductors instead of bare overhead lines. The reliability of this conductor structure is better than of a bare overhead line, since the tree limbs or birds on the line do not cause an outage. The investment costs of covered conductors are 30 % higher than the costs of corresponding bare overhead lines. Outage costs are about 20 % smaller than in previous case because of fewer short interruptions. Underground cables By using underground cables, a better reliability can be achieved in the network. The failure rate of cables is % of the failure rate of overhead lines. The advantages of the underground cable network became into view in difficult storm and snow load situations where overhead line structure suffers continual interruptions. The precise localization and repair of the faults instead is more time-consuming in the underground cabling alternative. When using underground cables in the medium-voltage networks, in addition to the higher price of the cables, also their effect in increasing the earth-fault currents and the backup connections required due to long repair times have to be taken into account. Also the adaptation of the underground cable network is more difficult and costly than the adaptation of an overhead line network. New branch lines require special switchgear; at medium voltage, so-called ring main units (RMU) or branching from the distribution substation are required, whereas in the low-voltage network, a cable distribution cabinet is needed. In the target area present cabling rate is low (2 %) and the most of the cables are located in the city areas. 6

7 The tightening environmental requirements, the development in cable production and ploughing methods, and the increasing role of the life-cycle cost consideration will lead to an increased use of underground cables also in the rural areas in Finland. This tendency can already be seen in several other Western European countries; in Sweden, the process has already started. COST ANALYSIS OF THE INVESTMENT STRATEGIES In this chapter, results of different investment strategies are presented. Total costs of strategies are presented in Fig Total cost of the strategy [ ] Outages Maintenance Losses Investment 0 Rebuilding w ith old technology Lines next to road Fig. 4. Total costs of the investment strategies. Lines next to road + 1 kv technology Lines next to road w ith covered conductors + 1 kv technology Underground cables Investment costs Investments costs changed from 23 M to 67 M depending on the strategy. The lowest investment costs are in the strategy, where the overhead lines are rebuilt to roadsides and lowload branch lines are replaced with 1000 V low voltage system. This way total line length can be decreased because customers and loads are located mainly near the roads, not inside forests where the present lines locate. The highest investment costs are in the underground cabling strategy. The difference is remarkable; almost 3-times higher costs compared the lowest one. The high price of underground cabling strategy is explained by high cabling and pad-mounted distribution substation costs. The costs can be reduced in the future if the cable ploughing technique is developed also in medium voltage level. Operational costs In operational costs (losses and maintenance) situation is opposite compared to previous study. The lowest costs are in cabling alternative, because the need for maintenance is lesser than in overhead line alternatives. There were 1000 V technology is exploited, losses are higher compared to traditional 20 kv technology. However, differences in operational costs are so small 7

8 that other cost components (investments and outage costs) are in dominant role when final strategy is chosen. Outage costs An important incentive and boundary to this investment strategy analysis has been the need for find a more reliable distribution system compared to present one. Analysis has showed that differences in outage costs are remarkable. For instance, in present network outage costs are almost 5-times higher than in underground cabling alternative. Outage costs can be decreased at least 25 % in alternatives where the lines are removed from forests to roadsides. Reliability requirements Distribution networks are built mostly with vulnerable overhead line technology in rural areas in Finland. The big question is that what are the reliability requirements against major storms in the future. In many cases, operational costs are reduced and cost-efficiency is improved by decreasing maintenance personnel or by outsourcing for instance repairing services. This has certainly affected to capability to survive in unusual situations like big storms. In Fig 5 costs of storm destructions in the distribution company Suur-Savon Sähkö Oy between 1999 and 2005 are presented. The biggest storm (Unto), was in summer 2002 and the costs of the storm were over 1.3 M (about 2 % of annual revenue of the company). The sum does not include customer compensation fees which were implemented in the regulatory model in September 2003 in Finland. It is estimated that wide storm like Unto exists only once in years. Myrskyn Costs of aiheuttamat storm destructions kustannukset [ ] Unto Lumikuormat Snow 2003 Saara Janita Jaakko Janina Storms Myrskyt Fig. 5. Maintenance costs in big storms in the distribution company in (in cost order). The question is what kind of investment strategy should be chosen and what would be the expenses, if there would be requirements to survive all kind of fault situations in certain time, for instance in 12 hours. Present distribution network is vulnerable against storms because it is mostly built with overhead line technology. It is obvious that remarkable changes have to be done both in the distribution network and in organisation. One result of the analysis is that almost 90 % of the distribution network should be cabled if the company should manage big storm like Unto 8

9 in 12 hours with present operational personnel. In Fig. 6 the investment costs and cabling rates of the different reliability levels are presented. 500 Investment costs of cabling [M ] o Present situation: 1.7 % (Janina and Jaakko) Management of Unto: cabling 89.9 % o Management of Janita and Saara: required amount of cables 45.4 % 1, Cabling rate of whole medium voltage network [%] o Fig. 6. Investment costs and cabling rates if the distribution company is forced to manage big storms in 12 h with present operation and maintenance personnel. For instance 90 % of the medium and low voltage networks should be rebuilt with underground cables if the requirement level would be Unto-storm. Reliability requirements have to be concerned very carefully. It is obvious that customers are not ready to pay all the expenses caused by massive network cabling. In Suur-Savon Sähkö Oy preparation for major storm like Unto would cost 400 M. By a rough estimation, this would cost 4000 /customer as a one-time payment. CONCLUSIONS In this paper method to estimate cost and reliability effects of different investment strategies was presented. The case was based on actual distribution network in Finnish distribution network. The target area was large enough to estimate overall effects if the strategies will be implemented in company-wide. One main result is that underground cabling as an only option is not economical solution in rural area. In cabling option total costs can be almost three-times higher compared to optimal solution. It is essential to do sensitivity analysis when investment strategies are studied. Changes in outage cost parameters affect strongly on profitability of different strategies. It can be said quite surely that weight of outages in electricity distribution will be higher in the future. This may affect on techniques which can be chosen in network developing. - on päätettävä, miten suuriin myrskyihin varaudutaan, toisessa vaakakupissa asiakkaan sähkön hinnan nousu - valvontamallien on mahdollistettava mittavien saneerausinvestointien teko 9

10 References [1] Lakervi E., Partanen. J. Electricity distribution network design [2] Lakervi E., Holmes E. J. Electricity distribution network design. 2nd Edition. IEE Power Engineering Series 21. England ISBN [3] Matikainen M. Development of the electricity distribution system from aspect of reliability. Master s thesis Lappeenranta University of Technology. 117 pages. [4] Järventausta P., Mäkinen A., Nikander A., Kivikko K., Partanen J., Lassila J., Viljainen S., Honkapuro S. Power Quality in Distribution Business. (in Finnish). Publications of the Finnish Energy Market Authority 1/ p. [5] Lohjala, J. Development of rural area electricity distribution system potentiality of using 1000 V supply voltage. Ph.D. dissertation. Lappeenranta University of Technology, Finland [6] Lohjala, J., Kaipia, T., Lassila, J., Partanen, J., Overview to economical efficiency of 1000 V low voltage distribution systems. In proceedings of the NORDAC Conference [7] Lohjala, J., Kaipia, T., Lassila, J., Partanen, J., The three voltage level distribution using the 1000 V low voltage system. In proceedings of the CIRED Conference [8] Lohjala, J., Kaipia, T., Lassila, J., Partanen, J., Järventausta P., Verho P., Potentiality And Effects Of The 1 kv Low Voltage Distribution System. In proceedings of the FPS Conference [9] Kaipia, T., Lassila, J., Partanen, J., Lohjala, J., Experiences of using the 1 kv three phase supply in rural electricity distribution, In proceedings of the IEEE REPC Conference, [10] Partanen, J., Kaipia, T., Lassila, J., Lohjala, J., Rissanen, A., Lahti, K., Kärnä, A. 20/1/0.4 kv three voltage level distribution system. Research report. Lappeenranta University of Technology, Finland [11] Kaipia, T. Economic efficiency of 1000 V electricity distribution system. Master thesis. Lappeenranta University of Technology, Finland I. BIOGRAPHIES Jukka Lassila was born in Ilomantsi, Finland, February He received his M.Sc. degree from Lappeenranta University of Technology in Since then he has been a research engineer and a postgraduate student at Lappeenranta University of Technology. Jarmo Partanen was born in Ilomantsi, Finland, November He received his M.Sc. and D. Sc. (Tech.) of Engineering degrees in Electrical Engineering from Tampere University of Technology (TUT) in 1980 and 1991, respectively. From 1984 to 1994 Jarmo Partanen was first an associate professor and then a professor of Electric Power Engineering at TUT. Since 1994 he has been a professor of Electric Power Engineering and the Head of Electrical Engineering Laboratory at Lappeenranta University of Technology. His main areas of interest are electricity distribution systems and the open energy market. 10