Disclaimer: This blog post, which answers “How are transmission losses calculated and settled in RTO markets?,” was generated using PCI’s ISO/RTO Documentation AI Chatbot, powered by ChatGPT. While the content is based on curated market documentation, it is intended for informational purposes only and may not reflect the most up-to-date or comprehensive information. We recommend verifying any key details directly with relevant sources before making business decisions.
For the latest answer to this question, generated live, visit our free ISO/RTO Documentation Chatbot.
Â
Â
Electricity doesn’t travel from power plants to homes and businesses without a hitch. Along the way, some energy is lost as heat due to resistance in transmission lines, transformers, and other equipment. These transmission losses are an unavoidable part of delivering electricity, but they’re also a critical factor in how Regional Transmission Organizations (RTOs) like PJM, MISO, and SPP operate their markets.
In this blog post, we’ll explore the physical causes of transmission losses, how RTOs calculate these losses using marginal or average methods, and how they charge market participants for them. We’ll also look at how these charges appear on settlement statements, giving you a clear picture of how losses are managed in energy markets.
ISO/RTO Documentation Chatbot
Use our AI to search Business Practice Manuals from ISO/RTO markets at no cost.
What causes transmission losses?
Transmission losses occur because electricity encounters resistance as it flows through wires, transformers, and other components of the grid. This resistance converts some of the electrical energy into heat, which dissipates into the environment. Losses are influenced by factors like the distance electricity travels, the voltage level, and the type of transmission equipment used.
For example, high-voltage transmission lines are designed to minimize losses by reducing the current required to deliver the same amount of power. However, even with these efficiencies, losses can’t be entirely eliminated.
How RTOs calculate transmission losses
RTOs use sophisticated models to calculate transmission losses, often relying on either marginal or average loss methods. Let’s break these down:
Marginal losses:Â This method calculates the incremental cost of delivering an additional unit of electricity to a specific location. Marginal losses reflect the real-time conditions of the grid, such as congestion and the distance between generation and load.
Average losses: This approach spreads the total losses across all market participants based on their proportional use of the grid. While simpler, it doesn’t account for the varying costs of delivering electricity to different locations.
For instance, PJM calculates both day-ahead and real-time locational loss prices for every settlement interval. These prices are based on the difference between the loss price at the injection point (where energy enters the grid) and the withdrawal point (where energy is consumed).Â
How RTOs charge participants for losses
Each RTO has its own rules for charging market participants for transmission losses, but the general principle is the same: participants pay for the increased cost of delivering electricity due to losses.
PJM: In PJM, transmission loss charges are assessed for both day-ahead and real-time settlement intervals. For day-ahead intervals, charges are calculated as the scheduled MWh multiplied by the difference between the day-ahead loss price at the sink point and the source point. Real-time charges are assessed for deviations from the day-ahead schedule, using real-time loss prices. Â
MISO:Â MISO also calculates loss charges based on the difference in locational marginal prices (LMPs) between injection and withdrawal points. These charges are included in the overall LMP, which combines energy, congestion, and loss components.
SPP:Â In SPP, losses are managed through a system of loss pools. Each pool calculates its contribution to over-collected or under-collected losses, and participants are allocated charges or credits based on their share of energy injections and withdrawals.Â
How loss charges appear on settlement statements
Loss charges are typically itemized on settlement statements, making it clear how much each participant is paying for transmission losses. For example:
- Day-ahead transmission losses:Â The sum of day-ahead loss charges for all applicable intervals.
- Balancing transmission losses:Â The sum of real-time loss charges for deviations from day-ahead schedules.
- Transmission loss credits: In some cases, participants may receive credits for over-collected losses, which are redistributed based on load ratios or other factors. Â
These charges ensure that the cost of transmission losses is fairly allocated among market participants, reflecting their actual use of the grid.
Why understanding transmission losses matters
Transmission losses might seem like a small detail in the grand scheme of energy markets, but they have a big impact on costs and operations. By understanding how losses are calculated and settled, market participants can better manage their positions and anticipate charges.
Whether you’re a market participant looking to optimize your strategy or just curious about how electricity gets from point A to point B, understanding transmission losses is key to navigating the complexities of RTO markets.
For the latest answer to this question, generated live, visit our free ISO/RTO Documentation Chatbot.
