Cost-Benefit Reflective Distribution

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008

Cost-Benet Reective Distribution Charging Methodology


Furong Li, Member, IEEE, Narayana Prasad Padhy, Ji Wang, Student Member, IEEE, and Bless Kuri, Student Member, IEEE

AbstractThis paper describes the principle and implementation of a new MW+MVAr-Miles charging methodology, which was developed to reect three key cost drivers in distribution network development: the distance used to support nodal real and reactive power injection/withdrawal; the degree of support offered by the network assets; and the operating condition of the supporting assets in terms of their power factors. The inclusion of the latter driver allows the developed charging methodology to reward network users who are contributing to better power factors and better network utilization, while penalizing customers who worsen power factors and network utilization. As a consequence, the charging model is able to provide forward-looking incentives for network customers to behave in a manner to better the network condition, which will in turn help to reduce the cost of future network development. In addition, the separation of real and reactive power pricing would give network users clear indications of the cost of their reactive power draw from the network, which in turn could help them to evaluate the economics in investing in reactive power compensation devices. The proposed charging methodology is demonstrated on a practical eight-busbar distribution system with a mixed demand and embedded generation (EG). This paper results from work undertaken in a project on distribution charging methodologies for Western Power Distribution. The views in this paper expressed are not those of Western Power Distribution. Index TermsDistribution network charging methodology, embedded generators, network condition, power factor.

I. INTRODUCTION HE electricity supply industry worldwide is undergoing substantial changes, motivated by two major factors. One is to promote plant operating efciency through effective competition, and the other is to enable renewable and efcient energy to make major contribution to future energy provision. These changes aim to benet consumers with affordable, diverse, and sustainable electricity for the future [1]. Distribution use of system (DUoS) charges are charges against generators, large industrial customers, and suppliers for their use of a distribution network. The charges are set to reect the cost of installation, operation, and maintenance of the distribution network. The charging methodology adopted

Manuscript received August 29, 2006; revised June 6, 2007. Paper no. TPWRS-00571-2006. F. Li, J. Wang, and B. Kuri are with the Department of Electronic and Electrical Engineering, University of Bath, Bath BA2 7AY, U.K. (e-mail: F.Li@bath.ac.uk; J.A.Wang@bath.ac.uk; eembk@bath.ac.uk). N. P. Padhy is with the Department of Electrical Engineering, Indian Institution of Technology (e-mail: narayanaprasadpadhy@yahoo.com). Color versions of one or more of the gures in this paper are available online at http://ieeexplore.ieee.org. Digital Object Identier 10.1109/TPWRS.2007.913201

by the majority of distribution network operators (DNOs) in the U.K. is a distribution reinforcement model (DRM), having the following three-step procedure in deriving yardsticks for different voltage levels: 1) cost evaluation: cost of accommodating 500 MW in simultaneous maximum demands; 2) cost allocation: yardsticks at different voltage levels based on their use of upstream assets. Customers at the same voltage level are considered to use the same level of upstream assets; hence, they are charged the same unit price regardless of their location; 3) revenue reconciliation: any shortfalls between the recovered revenue and the allowed revenue is proportionally allocated to all network users. This charging methodology is under close scrutiny by the regulatorOfce of Gas and Electricity Market (OFGEM), primarily driven by the following two major concerns [2]: 1) inability to provide locational signals for the siting and sizing of future generation and demand; 2) inability to facilitate the potentially signicant increases in embedded generation. Lack of forward-looking economic signals is also inherited in other well-known yardstick-based distribution network pricing models [3][9]. A natural approach for economic pricing of distributed networks is to adopt a well-established economic charging model for that of transmission [10][19]. In the case of a MW-Milesbased charging methodology, the use of system or network charges are calculated according to the MW magnitude and the distances traveled in transporting power from points of generation to points of consumption. Since the MW-Miles charging methodology only accounts for the cost of real power transportation, it neglects the cost imposed on the network from reactive power ow. This can be particularly problematic for distribution networks where they tend to operate at a poorer power factor than their transmission counterparts. For example, embedded wind generators may inject real power but withdraw reactive power. As a consequence, if only real power is considered in a charging model, it will credit embedded generators active power contribution but fail to penalize its reactive power drawn. This can result in misleading locational signals, hence, economically inefcient network charges. Pricing the capital cost of holding network capacity, supporting network users reactive power ow, has attracted less attention compared with pricing based on operational cost. Signicant effort has been devoted to pricing the cost arising from operation, accounting for network losses and the need to

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LI et al.: COST-BENEFIT REFLECTIVE DISTRIBUTION CHARGING METHODOLOGY

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reschedule generation as a result of nodal reactive power injection [20][26]. These marginal reactive power pricing models suffer from two major drawbacks. The revenue recovery is very small, requiring a signicant revenue reconciliation to recover the capital cost incurred in providing reactive power. As recognized by Hao and Papalexopoulos [27], in general, the reactive power operational cost only accounts for a small portion of the total cost (typically 1% of real power prices for a well-designed network). As such, the paper suggested that the capital costs incurred should be used in reactive power pricing. The capital costs incurred in providing reactive power comes from three sources: 1) generators that generate reactive power; 2) networks that generate and carry reactive power while maintaining the security and quality of supply; and 3) suppliers that change consumers reactive consumptions. The majority of the development in pricing reactive power service seeks to recover the cost of reactive power provision from generators and reactive power compensation devices [28][31]. As a result, very little revenue can be generated for network owners since reactive power compensation devices cost far less compared with generators [28]. Paper [17] is the rst paper that introduced a MVA-Miles methodology, pricing a network based on real and reactive power ows along different circuits. This is to reect the capital costs of the network in supporting nodal reactive power injection/ withdrawn. The introduction of this method allows further commercial separation between generation and transmission companies, offering better transparency to market operation and regulation. The MVA-Miles approach, however, only reects the apparent power ow along circuits; it does not recognize the leading or lagging condition of the circuits. As a result, it cannot provide indication or incentives for generators/demands to improve their power factors and network utilization. In this paper, a MW+MVAr-Miles methodology is proposed for separately pricing real and reactive power at the distribution level, considering not only distance and magnitude traveled to support a network user but also the users impact on the networks power factor. As a consequence of the latter consideration, the proposed charging methodology is able to provide forwardlooking economic signals to encourage network users to behave in a manner leading to a better network condition. This could in turn help to reduce the cost of future network development. This paper is organized as follows: Section II presents the fundamental principle of the proposed methodology; Section III compares and contrasts the proposed charging model with MW-Miles and MVA-Miles methodologies. The discussion and comparison draw on a range of test cases that were derived from an eight-busbar practical system with a mixed demand and embedded generation; Section IV concludes this paper. II. MATHEMATICAL FORMULATION OF MW+MVAR Miles CHARGING METHODOLOGY This section presents mathematical formulations for the proposed MW+MVAr-Miles methodology. With the proposed model, network users are charged up to the capacity they utilize; the cost of the unused capacity is shared among all network users.

Fig. 1. Contribution of real and reactive power to apparent power.

For a given distribution network, if the cost of a network asset is , and the annual factor is AF, then the annuity cost ( ) for each network asset can be determined with the following equation: (1) For network asset , the relationship between the apparent power ow and its real and reactive power contribution is commonly represented by the following equation: (2) This formula, however, cannot distinguish the direction of reactive power ow, hence, cannot differentiate the leading or lagging nature of the power factor. This paper derived a linear relationship shown in (3) between apparent power and its associated real and reactive power, allowing for the difference between injecting and drawing reactive power to be recognized: (3) This relationship between the apparent power ow and its real and reactive power contribution is illustrated in Fig. 1. If the annuity cost of network asset with a capacity is , then the unit cost to supply 1 MVA along is (4) The asset cost to support real power is given by (5) This leads to the unit cost for real power as (6) while the cost to support reactive power is given by

(7)

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008

This leads to the unit cost for reactive power as (8) If there are a total of network assets to support customer , real power ow along each asset is , and then the cost to support the customers real power is (9) If the reactive power ow along each asset is , then the total network cost to support customer s reactive power is (10)
Fig. 2. Test system.

Equations (6) and (8) are the key development in the proposed charging methodology; they provide simple formulae for deriving the unit cost for network assets with different operating conditions. If the supporting network assets are operating at a poorer power factor, then the cost of accommodating the users reactive power would be high. If the supporting network assets are operating at a good power factor, then the cost of accommodation users real power would be high. Since the network revenue will be generated from both real and reactive power charges, a customer who operates at a good power factor generally will pay less overall network charges. III. RESULTS AND DISCUSSIONS This section rstly applies the newly developed MW+MVArMiles methodology to an eight-busbar system with demand customers only. This paper then goes further to demonstrate the value in recognizing the cost/benet to the network of connecting an EG with varying leading and lagging power factors to the network. A. Test Network The 8-busbar test system shown in Fig. 2 is a subset of the practical Western Power Distribution network with only demands connected to buses at the 33-KV voltage level. The objective of the study is to allocate the networks annuity cost of 1 289880 among eight load customers. As shown in Fig. 2, there is a mix of different industrial, commercial, and residential customers with power factors varying between 0.7 leading to 0.92 lagging. In addition, buses 1 and 2, 3 and 4, 5 and 6, and 7 and 8 are coupled, and it is expected that they will have similar charging proles. The peak demand of the sample network is 210.55 MVA. Within the network, assets used by buses 1 and 2 are low because they are close to the grid supply point, whereas assets used by buses 7 and 8 are more extensive as they are further away from the grid supply point. B. Results The general approach for each charging methodology is to allocate the network cost up to the used capacity. The unused network cost, either due to the lumpness of network assets or for

TABLE I NETWORK CHARGING USING THE MW-MILE MODEL

TABLE II NETWORK CHARGING USING THE MVA-MILES MODEL

the purpose of system security, is proportionally shared among all network customers. Table I presents charges against eight demand customers based on the MW-Miles method. The charges are separated into the revenue generated from the used capacity and unused capacity. From the table, it can be observed that the unit prices at buses 1 and 2 are minimal whereas the unit prices at buses 7 and 8 are maximal. This reects the fact that customers at buses 7 and 8 use network assets more extensively in drawing a unit MW power compared to the customers at buses 1 and 2. However, because the charging methodology cannot differentiate the poor power factor that bus 2 possesses, it results in the same charges for nodes 1 and 2. Table II gives charges using the MVA-Miles method. As clearly shown in the table, the charges reect both the extensiveness of the use of the network and the network users power

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TABLE III NETWORK CHARGING USING THE MW+MVAR-MILES MODEL

TABLE V USE OF NETWORK CHARGE FOR BUS 5 CUSTOMERS

D = 29 66 + j31 03
: :

TABLE IV CUSTOMER CHARACTERISTICS FOR FIVE TEST CASES

TABLE VI USE OF NETWORK CHARGES FOR CUSTOMERS WITH DIFFERENT POWER FACTORS : : , CUSTOMER : :

D1 = 14 28 + j11 54

D2 = 15 38 + j19 49

factors, hence, higher overall revenue recovery compared with MW-Miles method. Table III presents separate charges for real and reactive power using the proposed MW+MVAr-Miles method. It is clearly shown from the table that although revenue is separately recovered from real and reactive power charges, the total revenue recovery is very close to that of the MVA-Miles method, with revenue recovery based on users apparent power. The slight difference is due to the limited decimal points taken for power factors. This conrms that the MW+MVAR-Miles charging model is essentially the same as the MVA-Miles method when customers real and reactive power are in the same direction, i.e., customers either withdraw real and reactive power at the same time or inject real and reactive power at the same time. Section III will show how the MVA-Miles charging differs from the MW+MVAr-Miles model when customers inject real power but withdraw reactive power and vice versa. C. Impact on Network Charges From Connecting Embedded Generators With Varying Power Factors To demonstrate the value of the proposed MW+MVAR-Miles methodology for networks with embedded generators, this section introduces an embedded generator at busbar 5 in addition to the demand customer, operating at varying power factors. Five cases were derived to show the benets: 1) demand customers only; 2) demand and generator customers, where the generator reduces the circuits real power ow but increases its reactive power ow; 3) demand and generator users, where the generator increases the circuits real and reactive power ow; 4) demand and generator users, where the generator decreases the circuits real and reactive power ow, providing counterows; and 5) demand and generator users, where the generator increases the circuits real and decreases its reactive power ow. For each case, the assumed generators ratings, its associated reactive power supporting bus 5 outputs, and resultant power ow over line are shown in Table IV.

The asset cost to support bus 5 is 236 760/yr having a rated capacity of 90 MVA. For easy comparison, only bus 5 charges are presented for all ve cases. 1) Case 1: Case 1 forms the base case, connecting demand customers only. The network charges from MW-Miles, MVA-Miles, and MW+MVAr-Miles methodologies are shown in Table V. From the table, the MW-Miles model recovers a smaller amount of revenue since only real power was considered, leaving large unrecovered revenue to be allocated in a uneconomical fashion. Both MVA-miles and MW+MVAr-Miles models recovered signicantly greater revenue from the used capacity due to the fact that both real and reactive power were considered. In addition, MW+MVAR-Miles provides the economic signal of the cost of drawing respective real and reactive power. If a demand is made up of two customers operating at different power factor, MVA-Miles and MW+MVAr-Miles are still able to penalize customers with poorer power factors. Considering busbar 5 again, assume that the demand is made up of two customers with different power factors: customer , customer . Since the power ow along the support circuit remains to be the same, the unit charges from MVA-Miles and MW+MVArMiles would still stand. The difference between the two customers is that for the same unit of real power draw from the network, customer 2 (with poorer power factor) will draw a larger quantity of reactive power. Therefore, the true cost of withdrawal 1unit of real power by customer 2 is greater; this is shown in Table VI. 2) Case 2: In this case, the generator injected 20 MW but withdrew 20 MVAr from the network at the time of system peak. From the load ow results, it has been found that the real power drawn from the network by the demand customers was reduced due to the real power injection. However, the loading increased by 21% due to the level of the supporting circuit

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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 23, NO. 1, FEBRUARY 2008

TABLE VII USE OF NETWORK CHARGES FOR BUS 5 CUSTOMERS : : ,

D = 29 66 + j31 03 G = 020 + j20

TABLE IX USE OF NETWORK CHARGES FOR BUS 5 CUSTOMERS : : ,

D = 29 66 + j31 03 G = 020 0 j20

TABLE VIII USE OF NETWORK CHARGES FOR BUS 5 CUSTOMERS : : ,

D = 29 66 + j31 03 G = 080 + j20

TABLE X USE OF NETWORK CHARGES FOR BUS 5 CUSTOMERS : : ,

D = 29 66 + j31 03 G = 080 0 j20

reactive power drawn by the same customer. Table VII gives the charges to both generation and demand customers from the three charging models. When the MW-Miles methodology was adopted here, the cost due to the reactive power was lost, leading to a favorable assessment for EGs. EGs were credited with signicant revenue despite the customers substantial reactive power drawn from the network. The majority of the cost recovery from the demand customer was used to pay for EGs, resulting in very little network revenue recovery. As for the MVA-Miles model, since it does not recognize the direction of reactive power ow, it credits the bus 5 customer for both its real power injection to and reactive power drawn from the network. In comparison, the proposed MW+MVAr-Miles model was able to respect both cost and benet of the EG. Since the EG has reduced real power drawn from the network, the EG was credited for its real power provision but charged for its use of the network for withdrawing reactive power. Because of the exoperates, the unit charge for tremely poor power factor that real power is signicantly less compared with reactive power. This led to signicantly higher charges to the EG. 3) Case 3: In this case, the EG injected 80 MW to and withdrew 20 MVAr from the network; as a result, the loading level of the supporting circuit was increased by 40% due to the generators real power injection as well as reactive power drawn. The supporting network asset was dominated by reverse real power ow; hence, the EG should be charged for its real power injection. In addition, the EG should also be charged for its reactive power drawn. Table VIII gives the charges to both generation and demand customers from the charging models. As shown from the table that the MW-Miles charging method did not penalize customerss reactive power drawn, the revenue recovery from both customers were low. The MVA-Miles

charging method could not deal with the differences in the directions of customers real and reactive power ow, leading to over-credit the demand customer. The proposed MW+MVArMiles model, on the other hand, was able to penalize the EG for both of its real injection and reactive power drawn. 4) Case 4: In this case, the EG injected 20 MW and 20 MVAr to the network, supporting the demand customer for its real and reactive power requirements. As a result, the EG was credited for both real and reactive power injection when using both MVA-Miles and MW+MVAr-Miles charging models, while the MW-Miles method only crediting the EG for its real power contribution. Table IX give the comparison of the three charging models. 5) Case 5: Finally, when the EG was operated with 80 MW and 20 MVAR injection, the EG caused reverse real power ow but reducing its reactive power ow. With the in circuit MW+MVAr-Miles charging model, the EG was penalized for its domination in real power ow but rewarded for its reactive power provision to the demand customer, while the demand was rewarded for its reduction in real power ow but penalized for its reactive power drawn. On the other hand, both MW-Miles and MVA-Miles models failed to accurately acknowledge the contribution and pitfalls from the network users, as shown in Table X. To summarize, the MW-Miles charging methodology has the advantage of simplicity. Its major drawback is not being able to account for the contribution/pitfall from users reactive power injection/drawn. The MVA-Miles methodology works well if both real and reactive power ows in the same direction, but it cannot distinguish the cost and benet to the network when they ow in the opposite direction. The proposed MW+MVArMiles methodology can properly account for users cost/benet from their respective real and reactive power injection/withdrawal. This ability is ideal in providing forward-looking economic charges for distribution networks with EGs.

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IV. CONCLUSIONS This paper presents the principle and implementation of a new MW+MVAr-Miles charging methodology that reects three key cost drivers in the network development: the distance used to support nodal real and reactive power injection/withdrawal; the degree of support offered by the network assets; and the condition of the supporting network assets in terms of their operating power factor. The inclusion of the third cost driver allows the developed charging methodology to reward network users who improve power factors and network utilization while penalizing those users who worsen power factors and network utilization. In addition, the separation of real and reactive power pricing could give network users clearer indications of the cost of their respective real and reactive power draw from the network, which in turn could help them to evaluate the economics in investing in reactive power compensation devices. The proposed charging model was demonstrated on an eight-busbar system derived from a practical system. The charges derived from the proposed charging model are compared with that of the well-established MW-Miles and MVA-Miles methodologies. The comparison suggests that the developed charging model is able to provide appropriate incentives/penalties to network customers who help to improve power factors and network utilization. This will in turn lead to reduction in the cost of future network development. REFERENCES
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[14] A. Zobian and M. D. Ilic, Unbundling of transmission and ancillary services Part I: Technical issues; Part II: Cost based pricing framework, IEEE Trans. Power Syst., vol. 12, no. 2, pp. 539558, May 1997. [15] D. Kirschen, R. Allan, and G. Strbac, Contribution of individual generators to loads and ows, IEEE Trans. Power Syst., vol. 12, no. 1, pp. 5260, Feb. 1997. [16] G. Strbac, D. Kirschen, and S. Ahmed, Allocating transmission system usage on the basis of traceable contributions of generators and loads to ows, IEEE Trans. Power Syst., vol. 13, no. 2, pp. 527534, May 1998. [17] J. Bialek, Allocation of transmission supplementary charge to real and reactive power loads, IEEE Trans. Power Syst., vol. 13, no. 3, pp. 749754, Aug. 1998. [18] P. Jiuping, T. Yonael, R. Saifur, and J. Koda, Review of usage-based transmission cost allocation methods under open access, IEEE Trans. Power Syst., vol. 15, no. 4, pp. 12181224, Nov. 2000. [19] Y. M. Park, J. Park, J. U. Lim, and J. R. Won, An analytical approach for transaction costs allocation in transmission system, IEEE Trans. Power Syst., vol. 13, no. 4, pp. 14071417, Nov. 1998. [20] M. Caramanis, R. Bohn, and F. C. Schwqp, The costs of wheeling and optimal wheeling rates, IEEE Trans. Power Syst., vol. 1, no. 1, pp. 6373, Feb. 1986. [21] M. Caramanis, N. Roukos, and F. C. Schwqp, WRATES: A tool for evaluating the marginal cost of wheeling, IEEE Trans. Power Syst., vol. 4, no. 2, pp. 594605, May 1989. [22] H. M. Merrill and B. W. Erickson, Wheeling rates based on marginalcost theory, IEEE Trans Power Syst.., vol. 4, no. 4, pp. 14451451, Nov. 1989. [23] M. L. Baughman and S. N. Siddiqi, Real time pricing of reactive power: Theory and case study results, IEEE Trans. Power Syst., vol. 6, no. 1, pp. 2329, Feb. 1991. [24] Y. Z. Li and A. K. David, Pricing reactive power conveyance, Proc. Inst. Elect. Eng. C, vol. 140, no. 3, pp. 174180, May 1993. [25] Y. Z. Li and A. K. David, Wheeling rates of reactive power under marginal cost pricing, IEEE Trans. Power Syst., vol. 9, no. 3, pp. 12631269, Aug. 1994. [26] A. A. El-keib and X. Ma, Calculating short-run marginal costs of active and reactive power production, IEEE Trans. Power Syst., vol. 12, no. 2, pp. 559565, May 1997. [27] S. Hao and A. Papalexopoulous, Reactive power pricing and management, IEEE Trans. Power Syst., vol. 12, no. 1, pp. 95104, Feb. 1997. [28] D. Chattopadhyay, K. Bhattacharya, and J. Parikh, Optimal reactive power planning and its spot-pricing: An integrated approach, IEEE Trans. Power Syst., vol. 10, no. 4, pp. 20142020, Nov. 1995. [29] K. Bhattacharya and J. Zhong, Reactive power as an ancillary service, IEEE Trans. Power Syst., vol. 16, no. 2, pp. 294300, May 2001. [30] J. Zhong and K. Bhattacharya, Toward a competitive market for reactive power, IEEE Trans. Power Syst., vol. 17, no. 4, pp. 125136, Nov. 2002. [31] J. Zhong, E. Nobile, A. Bose, and K. Bhattacharya, Localized reactive power markets using the concept of voltage control areas, IEEE Trans. Power Syst., vol. 19, no. 3, pp. 15551561, Aug. 2004.

Furong Li (M00) was born in Shannxi, China. She received the B.Eng. degree in electrical engineering from Hohai University, Nanjing, China, in 1990 and the Ph.D. degree from Liverpool John Moores University, Liverpool, U.K., in 1997 with a thesis entitledApplications of Genetic Algorithms in Optimal Operation of Electrical Power Systems. She is a Senior Lecturer with the Power and Energy Systems Group at the University of Bath, Bath, U.K. Her major research interest is in the area of power system planning and operation and power system economics.

Narayana Prasad Padhy was born in India. He received the Electrical Engineering degree, M.Sc. degree in power systems engineering with Distinction, and the Ph.D. degree in power systems engineering in 1990, 1993, and 1997, respectively, from universities in India. Then he has joined the Department of Electrical Engineering, Indian Institute of Technology (IIT), Roorkee, India, as a Lecturer, Assistant Professor, and Associate Professor during 1998, 2001, and 2005, respectively. In 2006, he was working as a Visiting Staff in the Department of Electronics and Electrical Engineering, University of Bath, Bath, U.K., under a Boyscast Fellowship. His eld of interest is power system privatization, restructuring and deregulation, transmission and distribution network charging, articial intelligence applications to power systems, and FACTS.

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Ji Wang (S04) was born in Henan, China, on November 24, 1978. He received the B.Eng. degree in electrical power system and automation at the University of Zhengzhou, Zhengzhou,China, in 2001 and the M.Sc. degree in electrical power with Merit at the University of Newcastle upon Tyne, Newcastle upon Tyne, U.K., in 2003. Currently, he is pursuing the Ph.D. degree in the area of network charging methodologies at the University of Bath, Bath, U.K.

Bless Kuri (S03) received the B.Sc. degree from the University of Zimbabwe, Harare, in 1996 and the M.Sc. degree from the University of Bath, Bath, U.K., in 2003, where he is currently pursuing the Ph.D. degree. He held the position of Project Engineer for two years with Autocontrol Systems, planning and implementing industrial automation and control projects. In 2000, he joined the Zimbabwe Electricity Supply Authority as a Planning Engineer in distribution systems. His areas of interest are electricity market design and power systems planning, operation, and control.

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