TRANSMISSION NETWORK INVESTMENT CRITERIA 10th Athens Forum, Athens, April 24-25, 2007 TRANSMISSION NETWORK INVESTMENT CRITERIA DAVOR BAJS GORAN MAJSTROVIC ENERGY INSTITUTE HRVOJE POZAR, Zagreb, CROATIA TRAJCE CEREPNALKOVSKI NEOTEL, Skopje, MACEDONIA

CONTENTS INTRODUCTION EXISTING PLANNING CRITERIA 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria CONTENTS INTRODUCTION EXISTING PLANNING CRITERIA NATIONAL GRID CODES AND DRAFT VERSION OF REGIONAL GRID CODES PREREQUISITES AND ASSUMPTIONS TRANSMISSION NETWORK INVESTMENT CRITERIA METHODOLOGY FOR PROJECT PRIORITIZATION CONCLUSIONS

INTRODUCTION 8th ATHENS FORUM THE STUDY SHOULD ANALYZE: 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria INTRODUCTION 8th ATHENS FORUM GIS and SECI TSP updates transmission investment criteria on regional level list of priority projects THE STUDY SHOULD ANALYZE: the problem of transmission investment in an open market environment defining the most relevant uncertainties in SEE region, review past experience on transmission network planning, analyze transmission planning criteria which have been used by different TSO in the region, review national grid codes and draft version of regional grid code, suggest transmission investment criteria from regional prospective, suggest methodology for project prioritization.

INTRODUCTION (cont.) TRANSMISSION PLANNING UNDER NEW CIRCUMSTANCES 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria INTRODUCTION (cont.) TRANSMISSION PLANNING UNDER NEW CIRCUMSTANCES different target functions uncertainties MOSTLY USED PLANNING CRITERIA n-1 LOLP NPV>0 REGIONAL PLANNING Wrong investment because of the change in bidding behavior

EXISTING PLANNING CRITERIA 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria EXISTING PLANNING CRITERIA SEE TSOs - REGULATORY AGENCIES TRANSMISISON PLANS 1- 15 YEARS AHEAD TRANSMISISON INVESTMENTS FINANCING - TRANSMISSION FEES AND LOANS. PRIVATE INVESTORS NOT ALLOWED !!! TRANSMISSION PLANNING CRITERIA - NATIONAL GRID CODES THE MAIN TECHNICAL CRITERION - (n-1) SECURITY CRITERION. (n-2) CRITERION (Montenegro and Romania) OTHER TECHNICAL CRITERIA - NOT USED (stability criteria and compensation facilities installation criteria in Romania)

EXISTING PLANNING CRITERIA (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria EXISTING PLANNING CRITERIA (cont.) PROBABILITY OF (n-1) EVENTS – NOT VALUATED LOAD FLOW, SECURITY ANALYSIS, SHORT CIRCUIT OPTIMAL POWER FLOWS (Bulgaria, Turkey, UNMIK), STABILITY ANALYSIS (B&H, Bulgaria, Macedonia, Romania, Turkey) PROBABILISTIC ANALYSES - PERFORMED ONLY IN ROMANIA ECONOMIC CRITERIA (Albania, B&H, Croatia, Macedonia, Romania, Serbia&UNMIK) PROFITABILITY INDEX – MOSTLY USED ECONOMIC CRITERION TYPES OF BENEFIT: reduction of the cost of losses, reduction of loss of load costs, reduction of re-dispatching costs, reduction of congestion costs, benefit from telecommunication lines

EXISTING PLANNING CRITERIA (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria EXISTING PLANNING CRITERIA (cont.) UNDELIVERED ELECTRICITY COSTS - LOWER THAN 3 €/kWh ADDITIONAL PLANNING CRITERIA FOR INTERCONNECTION LINES: mostly not applied based on system operational costs (Macedonia) based on the difference between energy prices (Serbia) UNCERTAINTIES (multi-scenario analysis) new power plants size and location generators engagement hydrological conditions market transactions country power balance NO RISK ASSESSMENTS

GRID CODES GRID CODES PRESCRIBE: 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria GRID CODES GRID CODES PRESCRIBE: TSOs obligations related to transmission system planning reports and studies the role of the transmission systems (reliable and secure system operation and continuous load supply) planning criteria input data REGIONAL ASPECTS ARE NOT MENTIONED IN NATIONAL GRID CODES THE USAGE OF (n-1) CRITERION (explanation of that criterion is very similar between countries and not permitted consequences of single outages are pretty much the same) OTHER TECHNICAL CRITERIA LIKE SHORT-CIRCUIT OR STABILITY CRITERIA ARE PRESCRIBED SOMEWHERE. TRANSMISSION INVESTMENTS ECONOMIC RATIONALIZATION - NOT MENTIONED IN NATIONAL GRID CODES (except in general term in Bosnian and Romanian grid codes)

10th Athens Forum, April 24-25, 2007 Transmission network investment criteria GRID CODES (cont.) PROBABILISTIC TECHNICAL CRITERIA FOR TRANSMISSION SYSTEM PLANNING - only in Romanian and Turkish grid codes (loss of load probability) NO GREAT DISPROPORTIONS BETWEEN NATIONAL GRID CODES AND REGIONAL GRID CODE DRAFT VERSION OF REGIONAL GRID CODE - CREATION OF WORKING GROUP (plan the network on regional level, especially directing attention on interconnection lines and those internal lines that have great impact on transfer capacities between different countries) MARKET ISSUES IN TRANSMISSION PLANNING ARE NOT SATISFACTORY TREATED planning uncertainties economic considerations of transmission investments balance between security and costs promotion of the private financing congestion costs

PREREQUISITES AND ASSUMPTIONS 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria PREREQUISITES AND ASSUMPTIONS UNIFIED REGIONAL ELECTRICITY MARKET UNIQUE NETWORK PROMOTION OF THE MARKET ACTIVITIES IDENTIFICATION AND PRIORITIZATION OF THE TRANSMISSION INVESTMENT CANDIDATES FROM REGIONAL POINT OF VIEW STABLE REGULATORY FRAMEWORK CO-ORDINATION BETWEEN SEE TSOs (technical standards, balancing rules and congestion management mechanisms) ELECTRICITY MARKET ORGANIZED THROUGH POOL AND BILATERAL CONTRACTS PRODUCTION COMPANIES WILL GIVE THEIR BIDS TO THE POOL AT REGIONAL LEVEL

PREREQUISITES AND ASSUMPTIONS (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria PREREQUISITES AND ASSUMPTIONS (cont.) ELECTRICITY PRICE - market oriented across the region and not significantly dependent on the location in the SEE grid THE MOST IMPORTANT UNCERTAINTIES: new power plants size and locations hydrological conditions generators bids branches and generators availability load prediction regional power balance THE PROBLEM OF INVESTMENTS FINANCING THE TREATMENT OF INTERCONNECTION LINES AND INTERNAL NATIONAL LINES HAVE TO BE THE SAME

TRANSMISSION NETWORK INVESTMENT CRITERIA 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria TRANSMISSION NETWORK INVESTMENT CRITERIA 2 SET OF CRITERIA: technical economic TECHNICAL CRITERIA: (n-1) criterion voltage and reactive power criterion short-circuit criterion stability criterion ECONOMIC CRITERION - PROFITABILITY INDEX (cost/benefit ratio)

TRANSMISSION NETWORK INVESTMENT CRITERIA (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria TRANSMISSION NETWORK INVESTMENT CRITERIA (cont.) Planning time-frame Topology Analyzed operating conditions Technical criteria satisfaction Permitted corrective actions Short All branches and generators available (n) SEE peak load SEE minimum load (1-3 years horizon) Ilines < Imax lines* Umin < Unode < Umax Stability criteria Short-circuit criteria - automatic transformers regulation - switching of compensation devices - network sectioning One branch (line, transformer) or generator or compensation device unavailable (n-1) Ilines < Imax lines** - generators re-dispatching*** - automatic and manual transformers regulation Mid (5 years horizon) Long (10 years horizon)

TRANSMISSION NETWORK INVESTMENT CRITERIA (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria TRANSMISSION NETWORK INVESTMENT CRITERIA (cont.) TYPES OF BENEFIT: benefit due to reduction of expected annual undelivered electricity costs benefit due to annual losses reduction benefit due to reduction of annual re-dispatching costs benefit due to annual congestion costs reduction TYPES OF COSTS: investment costs operation and maintenance costs PIi > 1

METHODOLOGY FOR PROJECT PRIORITIZATION 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria METHODOLOGY FOR PROJECT PRIORITIZATION LIST OF CANDIDATE PROJECTS TECHNICAL ANALYSIS REVIEWED LIST OF CANDIDATE PROJECTS ECONOMIC ANALYSIS PRIORATIZATION: technical economic

METHODOLOGY FOR PROJECT PRIORITIZATION (cont.) 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria METHODOLOGY FOR PROJECT PRIORITIZATION (cont.) CANDIDATE PROJECTS ARE TECHNICALLY PRIORITIZED ACCORDING TO NETWORK CONSTRAINTS THAT ARE REMOVED BY CANDIDATE PROJECTS: first importance group: candidate projects that remove network constraints with (n) available branches second importance group: candidate projects that remove network constraints with (n-1) available branches FURTHER TECHNICAL PRIORITIZATION IS MADE ACCORDING TO: the number of planning scenarios in which candidate project removes network constraints voltage level of overloaded transmission lines the number of network constraints that are removed by a candidate project EVALUATION AND PRIORITIZATION OF CANDIDATE PROJECTS ACCORDING TO THE ECONOMIC CRITERIA IS BASED ON THE MAXIMUM AVERAGE PROFITABILITY INDEXES

10th Athens Forum, April 24-25, 2007 Transmission network investment criteria CONCLUSIONS PLANNING CRITERIA USED BY SEE TSOs TODAY ARE GENERALLY SIMILAR AND MAINLY CONCENTRATED AROUND (N-1) SECURITY CRITERION MARKET ORIENTED TRANSMISSION INVESTMENTS AND INVESTMENTS FROM REGIONAL PERSPECTIVE ARE NOT MENTIONED AND SATISFACTORY TREATED IN NATIONAL GRID CODES NATIONAL TRANSMISSION NETWORKS ARE MAINLY PLANNED ACCORDING TO TECHNICAL CONSIDERATIONS AND ECONOMIC RATIONALIZATION OF NEW INVESTMENTS GENERALLY REMAINS OUT OF INTEREST METHODS USED BY TRANSMISSION PLANNERS ARE BASED ON DETERMINISTIC APPROACH, WHILE PROBABILITIES OF DIFFERENT EVENTS ARE NOT TREATED SATISFACTORY WHICH DOESN’T ALLOW BETTER ECONOMICAL CONSIDERATIONS OF NETWORK DEVELOPMENT AND INCLUSION OF ECONOMIC CRITERIA INTO DECISION MAKING PROCESS SEE TRANSMISSION SYSTEM PLANNING PROCESS HAS TO INCLUDE DIFFERENT UNCERTAINTIES WHICH WILL OCCUR IN AN OPEN ELECTRICITY MARKET ENVIRONMENT

10th Athens Forum, April 24-25, 2007 Transmission network investment criteria CONCLUSIONS (cont.) TRANSMISSION DEVELOPMENT IN SEE MAY BE MORE EFFECTIVE AND FASTER IF FOLLOWING REQUESTS ARE TO BE FULFILLED: full independency of Transmission System Operators from production and supply companies acceleration of national authorization procedures for transmission facilities construction effective market design and stable regulatory framework introduction of market oriented signals for transmission investments attraction of private investments into transmission development coordination and full cooperation between SEE TSO’s in planning issues and establishment of stable financing mechanism that will support regionally important projects OFFICIAL REGIONAL TRANSMISSION PLANNING GROUP SEE transmission system issues collection of planning data planning scenarios common network models preparation (load flow, dynamic, short-circuit, probabilistic models) analyses comparison of candidate projects and defined criteria prioritization of the investments preparation of reports concerning SEE transmission system future bottlenecks congestion predictions and development suggestions

THANK FOR YOUR ATTENTION ENERGY INSTITUTE HRVOJE POZAR 10th Athens Forum, April 24-25, 2007 Transmission network investment criteria THANK FOR YOUR ATTENTION DAVOR BAJS ENERGY INSTITUTE HRVOJE POZAR ZAGREB, CROATIA dbajs@eihp.hr