41

4
Economic Consideration and Loss Evaluation

4.1
Present Value and Annuity Method

In the context of power system planning and project engineering, economic

aspects must be considered, compared and assessed for different alternatives and
scenarios, such as investment costs of the project as well as an evaluation of the
losses resulting from system operation. Various methods are available; the most
common ones – present value and annuity method – are explained in the context
of this book [9].
The present value takes account of all incomes and expenditures of the period
under review, which are referred to one reference time instant t0, usually the time
of project commissioning. Payments KBi resulting during the project engineering,
building and commissioning phase of the project will be cumulated to the time
instant t0 in accordance with Equation 4.1a.

K B0 = ∑K Bi ⋅ q i (4.1a)
i

The present value method for investment cost is well-suited for the comparison
of different financing scenarios of projects and also for the comparison of different
prices of equipment. The present value method is also suitable for the comparison
of loss costs during the foreseeable operating time and for comparison of annual
costs of different project concepts and/or equipment resulting from the loss costs.
One includes the costs KRi (e.g. for maintenance and repair), arising during the
operation time, into the present value method according to Equation 4.1b and the
expected incomes KVi according to Equation 4.1c.

K Ri
K R0 = ∑ (4.1b)
i qi
K Vi
K V0 = ∑ (4.1c)
i qi

Costs are to be set as negative values, incomes as positive values. The project is
profitable if the total present value becomes positive over the expected lifespan.

Power System Engineering: Planning, Design and Operation of Power Systems and Equipment, Second Edition. 
Jürgen Schlabbach and Karl-Heinz Rofalski.
© 2014 Wiley-VCH Verlag GmbH & Co. KGaA. Published 2014 by Wiley-VCH Verlag GmbH & Co. KGaA.
 42 4  Economic Consideration and Loss Evaluation

Among other things, the annual costs of the project, financing expenses and
costs of losses can be calculated with the annuity method. The minimal necessary
current sales can also be determined by this method. The annuity method is
appropriate if the annual costs are continuous in order to finance an investment,
for example, with the determination of the annual costs. The investment costs, set
equal to the present value of the investment cost K0 can be calculated with Equa-
tion 4.2.

K = rn ⋅K 0 (4.2)

The method supposes that the entire investment costs are to be financed as
credit and that the credit is repaid at constant annual rates K, the annuity, over
the stipulated lifespan of n years. The annuity factor rn for the lifespan of n years
is given by Equation 4.3, with the interest factor q = 1 + p and the interest
rate p.

p ⋅(1 + p)n q n ⋅(q − 1)

rn = = n (4.3)
(1 + p)n − 1 q −1

The specific costs per unit of installed power k0 as given by Equation 4.4 are to
be converted into annual specific costs per unit of installed power, including the
annuity rn, the expenditures Δk for repair, maintenance, taxes, insurance and
so on.

K0
k0 = (4.4)
Pmax

The annuity rn and the expenditures per year Δk are summed to the fixed service
costs f according to Equation 4.5.

f = rn + ∆k (4.5)

The specific costs per kW and year kP are calculated according to Equation
4.6.

K0
kP = f ⋅ (4.6)
Pmax

4.2
Evaluation of Losses

For the calculation, evaluation and assessment of losses in the context of power
system planning, simplifications may have to be made particularly regarding the
expected load shape of the equipment and the power system. Generally the losses
 4.2  Evaluation of Losses 43

consist of a load-sensitive part (current-dependent) and a part independent from

the load (voltage-dependent). Load-sensitive losses are mainly ohmic losses, which
means losses due to the thermal effects of the current. They are proportional the
square of the current and can also be taken as approximately proportional the
square of the apparent power S.
The losses independent of the load are the no-load losses of transformers and
electrical machines, corona losses of overhead lines and insulation losses and
dielectric losses of cables, transformers and so on, that is, in equipment with no
self-restoring insulation. They are proportional in the first approximation to the
square of the operating voltage. The relevance of the losses to the loss evaluation
in the context of system planning and design have to be estimated and assessed
individually for each project.

4.2.1
Energy Losses

The losses of equipment and power systems are generated in the power station
and transferred from the power station (power-source) through other equipment
up to the equipment under investigation (loss-sink). Losses anywhere in the
system must be generated in the power station. With “green-energy” production
plants without fuel inventory, the loss portion reduces the energy available to the
final consumer. This part of the loss is called energy loss. Energy losses reduce
the current available to be transferred to the consumers through overhead lines,
cables and transformers between power-source and loss-sink. Their importance
depends on the time for which the energy losses have to be transported and
whether thereby the maximum permissible current loading of equipment is
limited or not. As long as the maximal permissible current loading of the equip-
ment is not reached, this consideration may be of less importance.
For description of the importance of the losses the maximum load portion h
according Equation 4.7 can be used. The maximum load portion is defined as the
correlation of the load Pi of the equipment concerned or part of the power system
at peak load time tPmax of the entire system with the maximum load Pimax of the
equipment or a part of the power system.

Pi|t =tPmax
h= (4.7)
Pimax

The energy losses PVi of equipment at peak load time are calculated based on
the maximal losses of the equipment according to Equation 4.8.

hVi = h 2 ⋅PVi max (4.8)

For the losses independent of load, the maximum load portion is equal to unity
in each case. The relation between the factors and the system load is outlined in
Figure 4.1.
 44 4  Economic Consideration and Loss Evaluation

1.6

1.4
Total system
P 1m ax P 2m ax System peak load
1.2 System part I

System part II
1.0
P/Pmax

0.8

0.6

0.4 Peak load factor Peak load factor

System part I System part II
h = 0.91 h = 0.74

0.2

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (hours)
Figure 4.1  Correlation of system load and load of one piece of
equipment with regard to the maximum load portion h [9].

4.2.2
Power Losses

Meeting the losses caused by other equipment necessitates the supply of extra capac-
ity from power in the power stations. This depends on whether the losses arise during
a larger period (e.g. one year) or only for a short time within the year under investiga-
tion. As an example, the typical load curve of a HV/MV transformer is outlined in
Figure 4.2. For the evaluation of losses and for the determination of production costs
the load curve is described by the period of use Tm and the degree of utilization m.
The period of use is defined according to Equation 4.9 as the ratio of the energy W
during the period considered TZ, for example, one year, to the peak load Pmax:
TZ

W ∫ P(t)dt
Tm = = 0 (4.9)
Pmax Pmax

The degree of utilization or load rate m, also termed the utilization rate as given
by Equation 4.10 is the relation of the energy actually produced to the maximal
possible energy during the period TZ.
TZ

Tm ∫0
P(t )dt
m= = (4.10)
TZ Pmax ⋅TZ
 4.2  Evaluation of Losses 45

35

30

25 Hot and dry climate

Load (MW)

20

15 Moderate climate

10

0
0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00

0:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
Time of day
Figure 4.2  Daily load curve of a 31.5 MVA transformer 110 kV/10 kV on the day of yearly peak load.

The period of use Tm, also termed number of full-load hours, represents that
time interval in which the equipment would produce the same energy running
with rated power (full load) as generated actually during the specified period TZ,
see also Figure 4.3.
The energy loss factor ϑ and the period of energy losses TV are defined similarly
to the definitions of load factor m and the period of use Tm. The energy loss factor
ϑ as given by Equation 4.11a is defined as the ratio of the energy losses PV to the
energy losses at peak load (maximal current) PVmax of the equipment.

TZ
R ⋅ ∫ I (t )2 ⋅ dt
PV
ϑ= = 0
(4.11a)
PVmax R ⋅I (t )2max ⋅TZ

If the current is set proportional to the apparent power S, Equation 4.11b is

obtained.

TZ

∫ S(t) ⋅ dt 2

ϑ= 0
(4.11b)
S(t )2max ⋅TZ

The energy loss factor ϑ is difficult to determine due to lack of data in the plan-
ning phase. The energy loss factor can be estimated from the load factor m which
 46 4  Economic Consideration and Loss Evaluation

2
2

Figure 4.3  Explanation of period of use Tm and load factor m:

2, load curve; 1, equivalent area of generated energy.

can be determined comparatively easily using Equation 4.12 for load factors m >
0.25 which is a reasonable assumption for power systems.

ϑ ≈ 0.17 ⋅ m + 0.38 ⋅ m 2 (4.12)

The period of energy hours, sometimes called loss hours TV is defined according
to Equation 4.13 as the ratio of energy losses WV during the period concerned to
the maximal loss PVmax.
TZ

WV ∫ I(t)2 ⋅ dt
TV = = 0 2 (4.13)
PVmax I (t )max

Increase in the equipment load leads to an increase of the power losses and of
the energy losses, which are called “added losses.” Apart from the questions of
loss evaluation described here in the context of power system planning, knowledge
of the “added losses” is necessary for clarifying the costs of energy transfer through
other power systems. The “added losses,” consisting of additional power and
energy losses, are defined as in Equation 4.14a for constant load increase during
the total planning period.

( )
2
 ∆P ∆P 
∆PV = PV ⋅ 2 ⋅ + (4.14a)
 P P 
 4.2  Evaluation of Losses 47

With small load changes ΔP in Equation 4.14b and the additional energy losses
in Equation 4.14c the added losses can be evaluated with knowledge of the addi-
tional cost of the equipment taking account of the load-dependent losses and the
maximal load portion h.

( ∆PP )
∆PV ≈ PV ⋅ 2 ⋅ (4.14b)

∆W = W ⋅(2 ⋅ )
∆P
V V (4.14c)
P

It is difficult to determine the additional cost of equipment because the invest-

ment (for example, construction of a new line or substitution of a transformer to
increase the transfer capability) must be determined and justified by detailed and
careful planning. The additional costs of equipment have to be assigned to the
various system voltage levels (transmission, distribution level). Further, the losses
resulting from transmission of energy must be included in an increase of trans-
mission capacity and thus in an increase of investment cost for the respective
voltage level.
For the evaluation of the energy costs, the production costs of electricity must
be determined. With external supply, the contractual energy prices can be taken
for this. If energy is produced in the user’s own power station the production costs
will be calculated from the energy cost and the cost per installed power. Energy
costs of a power station comprise first of all the fuel costs. The costs for transmis-
sion losses can be taken into account by a fixed loss factor or the transmission
efficiency ηN. The energy costs are calculated from Equation 4.15

A
kW = (4.15)
H ⋅ ηPS ⋅ ηN

with
A = unit price of fuel
H = caloric value of the fuel
ηPS = efficiency of the power station
ηN = transmission efficiency of the power system.
The total generation costs K in the period considered Tz, referred to the energy
unit, are given by Equation 4.16.

K = kp ⋅Pmax ⋅TZ + kW ⋅W (4.16)

If one refers the total costs K to the energy produced W, one obtains the produc-
tion costs kE as in Equation 4.17.

kp
kE = + kW (4.17)
m
 48 4  Economic Consideration and Loss Evaluation

For the evaluation of the losses in the context of power system planning over
the entire long-range planning period, the losses are usually determined for each
year and will be represented as present value, discounted on the time of the invest-
ment decision or commissioning. The losses in one year i are calculated using
Equation 4.18.

 k 
K Vi = WVi ⋅  P + k wi  (4.18)
 ϑ i ⋅TZ 

The present value of the costs of losses are calculated from Equation 4.19
n
K Vi
K V0 = ∑ (4.19)
i =1 qi

with the interest factor q = 1 + p. If future load increase with an annual growth
rate g is taken into account, the annual losses and the annual cost of losses are
increased in accordance with Equation 4.20a,
n
K Vi 1
K V0 = ∑ ⋅ (4.20a)
i =1 q i
(1 + g )2(i −1)

and for continuous annual costs of losses KV according to Equation 4.20b with the
increase factor r = 1 + g,

q n − r 2n
K V0 = K V ⋅ (4.20b)
q n ⋅(q − r 2)
If the load of the equipment under investigation or the power system does not
increase continuously from the initial loading S to the final loading k × S over the
long-range planning period, but rather experiences several load cycles (number j)
of S on k × S during n years, then the present value of the cost of losses is given
by Equation 4.21.

q jn − 1 (q n − r 2n )⋅(q − 1)
K V0 = K V ⋅ ⋅ (4.21)
q ⋅(q − 1) (q − r 2 )⋅(q n − 1)
jn

with
KV = cost of losses
j = number of load cycles
n = number of years
q = interest factor: q = 1 + p
r = load increase factor r = 1 + g
p = interest rate
g = load increase rate.
The second term in Equation 4.21 indicates the annuity factor for discounting
of the constant cost of losses KV and the last term takes account of the increase of
load in the load cycles described.