Power Loss Allocation in Deregulated Electricity Markets

The restructuring of Electricity Supply Industry (ESI) all over the world thatstartedmainlyinthe 20th century introduces an open electricity marketfor trading electricity betweengenerators and suppliers in competitive environments. Market participants utilize thenetwork differently to maximize their profits. This transformation consists of two aspects that are related with each other; restructuring and privatization. However, dueto this change, some problems and challenges have risen. One of it is theissue of power losses allocation. When electrical power is transmitted throughanetwork, it will cause power losses. The generators must compensate this lossbygenerating more power. Under competitive electricity market environment, no generators would want to generate more to compensate this loss asit will increase their production cost. Logically both generators and consumers are supposed topayfor the losses because they both use the network and thus are responsible for the lossesincurred. If there is no specified method to handle this problem, there is a probability that the Independent System Operator (ISO) which is a non-profit entity and does not have source of income will be responsible for this losses. However, if ISO paid forthe losses, itis considered unfair. Thus, this analysis focuses on some existing allocating transmissionlosses.The selected methods are pro rata, postage stamp, and Current Adjustment Factor (CAF) and these methods have been tested using simple bus network and the IEEE standard 14 test bus system.