1. “ENERGY EFFICIENCY AND PROFITABILITY ANALYSIS OF REDUCED LOSS TRANSFORMERS: Experiences in Spain" 14 th May 2003 J.Frau Spain Session 5 – Block 1.2

2. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 Contents 1. Introduction 2. Loss saving potential in MV/LV transformers 3. Regulation: Incentives or Dis-Incentives? -Spanish market- 4. A-TOC methodology ENDESA: Profitability analysis 5. EFFITRAFO: Endesa’s analysis tool 6. CONCLUSIONS

3. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 1.- INTRODUCTION (I) 2% of P GEN Losses in Distribution Transformers Dispersed massive effect + 60 Mtransformers/world + 18 nuclear PS/world Spain losses > 2500 GWh/year in MV/LV transformers > 95 M€/year > 50 TWh EU > 60 TWh USA

4. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 ENDESA DISTRIBUCIÓN - 2001 1.- INTRODUCTION (II)

5. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 1.- INTRODUCTION (III)

6. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 LOSSES IN MV/LV Transformers

7. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 2.- LOSS SAVING POTENTIAL in MV/LV TRANSFORMERS Loss saving potential for “inventory” Standard levels of losses HD 428 STANDARD LOSSES IN DISTRIBUTION TRANSFORMERS (Europe 428 –Oil- filled up to 24 kV) Load P var (W)No-load P o (W) A (W) B (W) C (W) A’ (W) B’ (W) C’ (W) 50 100 160 250 400 630 1000 1600 2500 1100 1750 2350 3250 4600 6500 10500 17000 26500 1350 2150 3100 4200 6000 8400 2000 20000 32000 875 1475 2000 2750 3850 5400 9500 14000 22000 190 320 460 650 930 1300 1700 2600 3800 145 260 375 530 750 1030 1400 2200 3200 125 210 300 425 610 860 1100 1700 2500 Rated power kVA * D-D’ transformer = hypothetical unit reduced by 15% respect to C-C’. Reference of efficiency: C-C’ Loss saving for 1 year (new incorporations) 1 year potential saving ~ 7 GWh Hypothesis 2001: Load factor = 42% h equi. losses = 3050 ENDESA

8. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 3.- REGULATION: Incentives or Dis-Incentives ? Challenge - CLIMATE CHANGE EU Governments committed to reducing CO 2 emissions (Kyoto) 22% of the demand for electrical energy (EU) RENEWABLES Target for reducing CO 2 in Transport ? Target for reducing CO 2 in T & D ? Deregulation trends Lower investment cost approach (short-term thinking) Life expansion of existing assets

9. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 SPANISH MARKET CASE (I)  “Pool” system OMEL (marginal schedule price)  Contribution of different MARKETS: Average final price = Dayly + Intra-day + Operation + Power guarantee + Other = 3,859 c€/kWh (2001) 3,158 -0,008 0,250 0,459 -0,001 ~ 81% ~ 13% ~ 6%

10. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 SPANISH MARKET CASE (II) Price sensitivity analysis 1999-2003 Dayly Market Price evolution (cent €/kWh) (> 80% of final price) HIGH anual deviations ! (*) Until March.

11. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 CONCLUSIONS FROM THE SPANISH MARKET High sensitivity of the TRUE COST of losses = f (market) No correlation between cost of losses and incentives Benefits of loss reduction are transferred to the customers: UK : 10 years ENDESA Spain : 8 years NPV = - Investment + Σ 8 n=1 Saving (1+i) n years 100 50 0 % revenue from loss reduction

12. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 4.- Adapted TOC methodology ENDESA (I) IEEE TOC = C i + A.P o + B.P C A: Cost per rated W of no-load losses B: Cost per rated W of load losses C i : Initial capital cost (purchase) of the transformer ENDESA TOC adapt = C i + R.A.P o. K TD + R.B.P C. K TD R = = K TD : Parameter for losses upstream (T & D networks) N ENDESA + N COSTUMERS N ENDESA N TOTAL N ENDESA R.D. 1955/2000

13. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 Ratio R - example N ENDESA N TOTAL R = = f (market, distribution area) R Indirect INCENTIVE for Utilities Distribution area “X” MV/LV TRANSFORMERS - ENDESA

14. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 CALCULATION of A and B parameters (I) A Unit owning cost for NO-LOAD losses  8.760 hours connected  Average energy price over 1 year (3,859 cent€/kWh in 2001) B Unit owning cost for LOAD losses  Price = f (moment in which the loss was produced)  Average weighted price = Load curve 2 x schedule price (4,256 cent€/kWh in 2001) CONCLUSION Efficient transformers are more profitable if the peak load of the transformer is produced when there is a high energy price in the NATIONAL market.

15. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 CALCULATION of A and B parameters (II) Results 2001 A = 114.883 cent €/W B = 5.402 cent €/W Sensitivity analysis  Energy price  Number of years for loss flow (regulation)  Degree of saturation of transformer  Upgrading rate  Growth in demand

16. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 RESULTS Maximum acceptable extracost for efficient C-C’ transformers with respect to the best A-A’ offer - CONFIDENTIAL - For every distribution zone of ENDESA and kind of market - RURAL - URBAN - INDUSTRIAL - TURISTIC

17. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 ENERGY SAVINGS EMISSION SAVINGS PROFITABILITY ANALYSIS EFFITRAFO

18. Barcelona 12-15 May 2003 J.Frau Spain Session 5 – Block 1.2 6.- CONCLUSIONS Efficient transformers NOT justified with actual spanish regulation (in general) Wrong signal to invest in efficiency when removing or sharing benefits in less than 15 years Small incentive in Spain thanks to R parameter (R.D. 1955/2000) Uncertainty of profitability analysis due to high sensitivity of involved parameters (years, price curve,...) = (regulation, market,...) Asymmetrical treatment “RENEWABLES versus EFFICIENCY” (only domestic appliances) under-estimation of losses reduction Need of special incentives to promote efficient transformers