384
1, FEBRUARY 2004
Loss Allocation in Distribution Networks With
Embedded Generation
Paulo Moisés Costa and Manuel A. Matos, Member, IEEE
Abstract—This paper addresses the allocation of electrical
losses in distribution networks with embedded generation, in a
liberalized environment. The nonlinear nature of the issue, the loss
changes due to voltage variation and, specially, the contribution
of embedded generation to loss variation are considered. The
proposed method is based on tracing the real and imaginary
parts of the currents and has two steps. First, the losses in the
distribution network, in the absence of embedded generation,
are allocated to the consumers (or their providers). Second, the
variations in the losses that result from the influence of embedded
generation are allocated to the generators. These variations are
a measure of the avoided or added costs related to losses. In the
allocation process, made in a branch basis, both real and reactive
powers are considered. The methodology presented in this paper
can be used to evaluate embedded generation incentives or to
design tariffs for the use of the distribution network.
Index Terms—Deregulation, dispersed generation, distribution
networks, loss allocation.
I. INTRODUCTION
U NLIKE generation and sale of electricity, transmission
and distribution activities are generally considered as
a natural monopoly. The costs of these activities need to be
allocated to the network users, namely through network use
tariffs, with a focus on the true impact they have on these costs
[1]. Among others, distribution power losses are one of the
costs to be allocated. This allocation has two main difficulties:
the nonlinearity between losses and the delivered power, which
complicates the determination of the impact of each user
consumption in the network losses [1]; and the definition of
the way losses should be shared between users of the network
(embedded generators and consumers) [2]. No matter the
method of loss allocation, a set of fundamental principles must
be respected, in order to guarantee a correct allocation.
First, the method must be objective, easy to understand and
based on real data of the network [2]. It also has to be econom-
ically efficient, avoiding crossed subsidization between users
and sending out economical signals that may lead to the increase
of the efficiency of the network [2].
Finally, the method has to recover the total value of losses,
avoid discrimination between users, be consistent when applied
to different situations and be applicable to open electricity mar-
kets [2].
Manuscript received March 6, 2003.
P. M. Costa is with the Department of Electrical Engineering, School of
Technology of Viseu, Polytechnic Institute of Viseu, Viseu 3504-510, Portugal
(e-mail: paulomoises@elect.estv.ipv.pt).
M. A. Matos is with the Faculty of Engineering of the University of Porto
and INESC Porto, Campus da FEUP, Porto 4200-465, Portugal (e-mail:
mmatos@inescporto.pt).
Digital Object Identifier 10.1109/TPWRS.2003.820698
0885-8950/04$20.00 © 2004 IEEE
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO.
II. EFFICIENT LOSS ALLOCATION
A large number of different methods for loss allocation have
been published. Most of them are dedicated to transmission net-
works, and can be split in three main families: 1) pro rata proce-
dures, 2) marginal procedures, and 3) proportional procedures
[3].
In the pro rata procedures, the losses allocated to a gener-
ator or a consumer are related to its level of power, disregarding
the relative location within the network [3], [4]. Therefore, re-
motely located generators or demands benefit, at the expense of
all others [4]. On the other hand, procedures based on marginal
costs result in over-recovery of losses, and a process of normal-
ization is thus needed [3], [4]. Proportional methods provide a
computationally efficient procedure for loss allocation [4], but
they allocate all the losses solely to the consumers or to the
generators (unless the values of losses to be allocated to gen-
erators and consumers are fixed arbitrarily [4]). This is also a
frequent situation in the pro rata and marginal methods. Most
of the methods of these three families also ignore the reactive
power flow in the process of loss allocation.
In conclusion, application of these methods in distribution
networks can be difficult, due to two reasons.
1) If the reactive power flow is not considered in the al-
location process, situations of cross-subsidization will
emerge.
2) Distinction between the contribution to the overall losses
of the two categories of users (consumers and embedded
generators) is essential to achieve an efficient technical
and economical allocation.
The last reason implies the allocation to each user of its
impact in the losses of each network element. Therefore, loss
allocation must be made in a branch basis. Several methods
which use this principle have been proposed [1], [5], [6].
Some of these methods use the proportional sharing principle,
assuming that the flows entering any node are distributed
proportionally between the outflows. Generally, these methods
allocate the losses only to the consumers and allow cross-sub-
sidization of two kinds: one related to the fact that the power
losses of a specific branch are a quadratic function with non
negligible crossed terms; the other related to the reactive
power flow influence, once these methods do not consider this
influence in the allocation process. In [1], several methods with
a careful allocation of the crossed terms are proposed, but some
problems remain, namely the losses are allocated only to the
consumers and only the real power flow is considered in the
allocation process.
COSTA AND MATOS: LOSS ALLOCATION IN DISTRIBUTION NETWORKS WITH EMBEDDED GENERATION
The method proposed in this paper tries to contribute to
overcome the mentioned difficulties. The benefits/costs of em-
bedded generation in terms of real power losses are quantified.
Crossed terms are conveniently allocated and the influence
of the reactive power flow is also considered. In particular,
the method allocates the corresponding losses to a user that
only influences the reactive power flow in a specific branch, a
feature not possible in methods that only use the active power
flow (or current magnitude) in the allocation process.
In the present approach, the embedded generators may be re-
warded for avoided losses or have to pay for increased losses.
This principle was also used in other approaches, as reported
in [7] and [8]. The method, described in [7], for loss allocation
when embedded wind generation is present, uses marginal loss
coefficients that relate the changes in the system losses to the in-
cremental change in nodal active and reactive power injections.
It was developed to quantify the benefits and costs of wind em-
bedded generation in terms of real power losses in distribution
systems and it’s not suitable to do the complete allocation of the
losses between all users (generators and consumers).
In [8], two schemes for loss allocation in distribution net-
works are proposed. The first is based on the concept of marginal
losses and needs a process of reconciliation (because it recovers
approximately twice the amount of losses). The second relates
losses directly to power injections and does not need the recon-
ciliation process. Both schemes do not seem to be able to do the
allocation of the crossed terms of losses. Besides, both methods
allow the consumers to be rewarded in some situations, instead
of paying for losses. Another method that yields negative alloca-
tions that rewards loads is proposed in [4]. This method, devel-
oped for transmission networks, uses the currents in the process
of loss allocation.
These last three methods have a different philosophy than the
one proposed in this paper, which assumes that:
1) The consumers always have to pay losses (which results
from their use of the network when embedded generation
is not considered);
2) The variations in losses (positive or negative) that take
place after the consideration of embedded generators are
allocated to the producers.
This philosophy allows the transmission of adequate econom-
ical signals to the users of the network [2].
Once the currents are the dominant factor in the determina-
tion of losses [4], the contributions of each user to the real and
imaginary part of the currents of each element of network are
used in the method proposed in this paper. These contributions
can be obtained by using tracing algorithms, like the ones de-
scribed in [6], [9] or [10]. These algorithms are based on the
proportional sharing principle previously mentioned.
Although they have been developed to trace powers, their ap-
plication to trace currents is straightforward, since the propor-
tional sharing principle remains unchanged. The only require-
ment for the input data is that Kirchhoff’s Current Law must be
accomplished in all the nodes in the network [6]. As a result,
when the users of the network show different power factors, the
process of tracing currents must be made separately for the real
and imaginary parts of the current.
385
Some authors divide the tracing algorithm in two variants, the
“downstream-looking algorithm” and the “upstream-looking al-
gorithm” [6], [10]. The first variant allows the determination of
the contribution of each consumer to the current components in
each network branch. The second variant allows the evaluation
of the contribution of each generator or network connection (to
the transmission system) to each branch.
By using the two variants of the tracing algorithm, it is pos-
sible to evaluate the contribution of each user to the current com-
ponents in each branch. Therefore, the losses can be allocated
to the consumers and to the embedded generators, considering
their impact on it. This leads to stronger economical signals, be-
cause each user will realize the true costs that he causes in each
element of the network.
III. PROPOSED METHOD
The algorithm of the proposed method operates in three
phases: the first for loss allocation to consumers (or their
providers), the second for loss allocation to the embedded
generators and the third for allocation of the remaining loss
variations (related to the change in the voltage profile).
A. Consumer’s Loss Allocation
In this phase, the losses on the network (without considering
the embedded generators) are evaluated and allocated to the con-
sumers. First, an AC power flow is run without the embedded
generators in the network (base case). This study allows the
determination of the active and reactive power flows in each
branch and of the voltages at each node. The real and imaginary
components of the currents are then evaluated in each branch.
Defining the current in branch i as , we will
obtain, after applying the “downstream-looking algorithm”, a
separation of the contribution of each load j to the real and imag-
inary parts of the current:
(1)
So, the losses in branch i may be expressed as:
(2)
where represents the resistance of branch i and Z is the
number of consumers.
The development of this expression shows that the consumer
j has impact in the following terms:
which are exclusively due to consumer j;
which result of the simultaneous influence of consumer j and of
the remaining consumers k in the components of the current in
the element i.
386
These crossed terms must be also allocated. The allocation
can be made in a proportional, quadratic or geometric way, as
mentioned in [1]. The quadratic scheme is adopted, once it is
more consistent with the relationship between losses and cur-
rents. Based on this assumption, the losses of the element i of
the network allocated to consumer j are:
(3)
The global value of losses to be supported by consumer j re-
sults from the sum of the losses allocated to it in each element i
of the network, as shown in the following equation:
(4)
where N represents the number of network elements.
If the losses are allocated to providers, then each one will
support the losses that were allocated to their customers.
B. Loss Allocation to Embedded Generators
In this phase, the loss variations due to the presence of the
generators are evaluated and allocated to them. A new power
flow is run, now with the presence of embedded generators, and
the new values of the real and imaginary parts of the current
in each branch are calculated. The application of the “down-
stream-looking algorithm” shows how each consumer j now
contributes to the components of the current in each element
i of the network, and . the current in branch i, and, simultaneously, contribute
At this point, an important definition for the operation of the
method must be made. The way current components flow in
each element of the network in the base case is, by definition,
the direct direction, and therefore is considered positive. In some
branches (e.g. connection branches of embedded generators to
the network), where power flows only exist when embedded
generation is considered, a particular situation takes place. In
these cases, the direct direction is defined by the components of
the current after the insertion of the embedded generators.
Therefore the values and can be positive or neg-
ative, according to:
if is in the direct direction
(5)
if is in the inverse direction
Note that, in these and in the following equations, “x” is used
to represent either “p” or “q”, in order to avoid the duplication of
formulas. Once these values are calculated, the following step
is the determination of the variations in the components of the
currents in each element of the network due to each consumer.
The variations are given by:
(6)
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 1, FEBRUARY 2004
The referred variations are then allocated to the embedded
generators responsible for them. However, we first need to cal-
culate some auxiliary quantities, through the application of the
“upstream-looking algorithm” presented in [6]:
contribution of generator k to the real or imaginary
current of consumer j;
contribution, in the inverse direction, of generator k
to the real or imaginary component of the current in
branch i;
contribution, in the direct direction, of generator k
to the real or imaginary component of the current in
branch i;
The allocation is now calculated according to the type of vari-
ations [2]. If , then the variation of the real or imagi-
nary components of the current in branch i, due to consumer j,
that is assigned to embedded generator k is given by:
(7)
If , then:
(8)
where:
is the set of embedded generators that contribute to the
real or imaginary current of consumer j without con-
tributing, in direct direction, for the same component
of the current in branch i;
is the set of embedded generators that contribute, in in-
verse direction, to the real or imaginary components of
to the same component of current of the consumer j.
is the set of embedded generators that contribute, in
the direct direction, to the real or imaginary current in
branch i and, simultaneously, contribute to the same
component of the current in consumer j.
Two particular cases of allocation of the variations in the
components of the currents may occur. The first case happens
when a meshed distribution network exists, as shown in Fig. 1.
The presence of the embedded generator leads to a decrease of
active power flow (and real current) in branch 1-2 and conse-
quently to the reduction of losses in this branch. The avoided
losses must be allocated to the generator. It is easy to see that
. Thus, .
This variation must be allocated using one of the (7). How-
ever, the application of the “upstream-looking algorithm” im-
putes to the generator the responsibility of a part of the real cur-
rent in branch 1-2, in the direct direction. So, the application of
(7) is not possible and the variation is not allocated to the gen-
erator.
To solve this problem, the power produced by the embedded
generator, that reaches node 1, should be considered as be-
longing to the network connection. Obviously, the contributions
of the generator to the power flow (and real current) of branch
COSTA AND MATOS: LOSS ALLOCATION IN DISTRIBUTION NETWORKS WITH EMBEDDED GENERATION 387

Network connection erators are given by (2). When the embedded generators are con-
1
sidered, the value of losses in the same branch change to:

6 MW

2 MW 3

2 (10)

4 where H is the number of embedded generators.

5 Using the same principles described in Section III-A., (11) is
C1 1 MW
C2
used to allocate the loss variation in branch i to the embedded
8 MW
generator k.
Network connection

1
1 MW
G
2 MW

2
1 MW
6 MW
4
5 C1 1 MW
C2 8 MW
Fig. 1. Particular case of loss allocation.
2-5 and to the load should be reduced according to that.
Therefore, the contribution of the embedded generator to the
real current in branch 1-2 will be null, and the avoided losses
will be allocated to it. This procedure does not imply increment
of costs for any entity.
The second case happens when, in low load situations, the
embedded generators do not produce reactive power. In these
situations, it can be possible for the reactive power to flow from
the network to the embedded generators, and so the imaginary
component of the current will take the same direction.
This situation implies the existence of variations in imaginary
currents of some network elements due to embedded genera-
tors. Those variations must be allocated to the generators. The
“downstream-looking algorithm” allows to determine and to al-
locate those variations to each generator, considering fictitious
loads to represent the demand of the generators of an imaginary
current.
The global value of variations in the components of current
in each network element, allocated to each generator, can be
calculated by:
(11)
This process must be applied to all generators and elements
of the network, in order to allocate all loss variations. The
global value of losses that are allocated to embedded generator
k equals:
(12)
C. Voltage-Related Loss Variation
The procedure described above allocates the major part of the
loss variations due to the presence of the embedded generators,
but does not account for variations in losses due exclusively to
the change in the voltage profile. For example, in Fig. 2, in the
absence of embedded generation, only the network connection
supplies load C. When the embedded generation is operating,
the received power flow in branch 2-3 stays unaffected, but, due
to the improvement of the voltage profile of the network, the cur-
rent in this branch decreases, as well as its losses. This variation
in the losses is not allocated to the generators by the algorithm
steps described so far.
The total of these voltage related loss variations can be cal-
culated using:
(13)

where and are the values of total losses in the network,

(9)
The next step consists on the allocation of the variations in
the losses of each element of the network to the generators. The
losses in branch i before the consideration of the embedded gen-
respectively with and without the embedded generators, and
is the total value of losses allocated to the embedded generators
by the previous steps of the algorithm.
In order to allocate these variations to the embedded gen-
erators, several alternatives could be considered [2]. The
most straightforward way is to distribute them proportionally,
388 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 1, FEBRUARY 2004

Network connection 1

G2 2
G1 3 4
28
3 MW G2 5
2 15
9 13
2 MW 6
7
5 MW
14
3 11
10 8
C
G1
10 MW
27
12 16 17
Fig. 2. Example of voltage related loss variation.

21
according to the apparent power of each generator, which leads 22
to: 18 19
26
23
(14)
24 25 20
where represents the apparent power of generator m.
Fig. 3. Test distribution network.
IV. APPLICATION
The methodology presented in the paper was applied to a test TABLE I
distribution network presented in Fig. 3, whose data can be seen LOSS ALLOCATION TO GENERATORS
at [2] or requested to the authors. The method was applied con- Loss variation Voltage
sidering two load scenarios: peak load and low load. In both Total loss
allocated to related loss
variation
situations, the total losses that exist in the network without em- variation
Branch (kW) G1 (kW) G2 (kW)
bedded generators are allocated to the consumers. These alloca- (kW)
1-2 -270.840 -143.928 -126.912
tions show that: 1-3 -54.779 -54.343 -0.436
1) Each consumer only has allocated losses at branches to 2-4 -194.268 -183.353 -10.915
which power flow it contributes. 15-2 -14.315 -14.315
3-9 -44.194 -43.968 -0.226
2) In some cases, only the reactive power and respective
4-5 -169.224 -161.324 -7.900
losses of a specific branch are allocated to consumers. 5-6 -36.521 -36.479 -0.042
3) Consumers placed on the right side of Fig. 3 had more 5-7 -2.810 -2.810
losses allocated than the ones placed on the left side. This 6-8 -38.715 -38.715
is due to the fact that these consumers use branches with 7-11 -1.534 -1.534
8-17 -6.726 -6.726
greater currents. 8-27 27.605 27.605
9-10 -22.605 -22.605
At peak hours, the insertion of embedded generators reduced 10-12 -1.990 -1.990
the total losses of network in 56.4%. However, losses increased 10-13 7.353 7.353
11-16 -0.235 -0.235
in branches 8-27, 10-13, 13-14, 14-15 and 28-15. 12-21 -0.421 -0.421
This increase reflects the positive variations that occur in the 12-22 -0.189 -0.189
components of the current in these branches. The second column 13-14 11.903 12.018 -0.115
of Table I shows the variations in the losses of each branch. The 14-15 29.371 30.127 -0.756
28-15 33.702 33.702
variations of losses that occur in branches 8-27 and 28-15 are
17-18 -0.682 -0.682
totally allocated to generators 1 and 2, respectively. This was 17-19 -6.615 -6.615
expected because these branches are the paths of each generator 19-20 -1.029 -1.029
to the network. 21-23 -0.535 -0.535
The third and fourth columns of Table I show the loss vari- 21-25 -0.043 -0.043
22-26 -0.043 -0.043
ation of each branch that is allocated to each generator. In the 23-24 -0.048 -0.048
fifth column the voltage related loss variations are presented (a Total -758.427 -536.194 -178.943 -43.29
non negligible 5.7% of the total loss variation). These remaining
variations are shared between the generators, according to their
apparent power ( and ). losses were credited to generator 1 (73.1%), by two main rea-
The final allocation reveals that both generators must be paid sons: first, the better location of generator 1 which allows it to
for avoided losses, as described in Table II. Most of the avoided avoid more losses; second, generator 2 increases the losses in
COSTA AND MATOS: LOSS ALLOCATION IN DISTRIBUTION NETWORKS WITH EMBEDDED GENERATION
TABLE II
TOTAL LOSSES ALLOCATED TO GENERATORS
Generator Losses allocated (kW)
G1 -554.718
G2 -203.661
some branches (besides its connection branch). In fact, the in-
fluence of generator 2 increases the current in branches 10-13,
13-14 and 14-15 as Table I shows.
In the low load situation, the embedded generators were con-
sidered to produce only active power and their production was
greater than the sum of the power of the consumers and the
losses. Therefore, in this situation, active power flows from the
distribution network to the transmission network. However, the
reactive power needed for the consumers and for the generators
comes from the transmission network. The introduction of em-
bedded generators decreased the network losses in 21.65%, but
note that the embedded generators have different influences on
the network losses.
In the end, generator 1 has to be paid for avoided losses while
the generator 2 has to pay for increased losses. This is due to
the geographical location of each generator. In fact, generator
1 can avoid a lot of losses, as for example those provoked by
consumers 8, 17, 18, 19 and 20 in branches as 1-2, 2-4, 5-6
and 6-8. Generator 2 avoids losses in some branches, like 1-3,
3-9 and 9-10, but, on the other hand, it increases the losses in
some branches (15-14, 14-13 and 13-10). The result is that the
increased losses are more significant than the avoided losses, so
the generator 2 must pay for increased losses.
When embedded generators were considered, the power flow
analysis was performed defining each embedded generator as
a PQ bus. This corresponds to a situation where the Q/P coeffi-
cient is imposed or known. Other approaches would be possible,
like the use of PX buses [11], with no change in the proposed
method.
V. CONCLUSION
The branch-based operation of the proposed method ensures
that each user only has allocated losses at branches for which
current it contributes. This fact, associated to the careful sharing
of crossed terms of the losses and the consideration of reactive
powers, allows the minimization of the situations of cross-sub-
sidization.
The proposed method makes a differentiation among network
users, depending on the characteristics and state of load of used
network elements. So, a tariff with nodal characteristics may
emerge. However, the methodology proposed can also be useful
when the postage stamp principle is used for tariffs. In this situa-
tion, the distribution company that guarantees the public service
must pay the total losses of its customers. A structure of mar-
ginal tariffs in time can also be implemented, defining periods
for the application of the methodology.
Referring to the embedded generators, the process of loss al-
location transmits appropriate economical signals. The concepts
389
of avoided and increased losses allow those users to become re-
sponsible for their impact in the losses of the network. Finally,
it is essential to mention that the method is based on AC power
flow studies. This is important in distribution networks where
the assumptions of DC power flow studies may not be adequate,
mainly due to the importance of reactive power flow and to the
influence of the voltage profiles in the network.
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Paulo Moisés Costa was born in 1975 in Viseu,
Portugal. He received the Bachelor degree in
Electrical Engineering from the School of Tech-
nology of Viseu, Polytechnic Institute of Viseu,
Viseu, Portugal, in 1996. He received a graduation
(“Licenciatura”) and the M.Sc. degrees in electrical
engineering from the Faculty of Engineering of
the University of Porto, Porto, Portugal, in 1998
and 2002, respectively. He is currently pursuing
the Ph.D. degree at the University of Porto, Porto,
Portugal.
Manuel A. Matos (M’94) was born in 1955 in Porto,
Portugal.
Currently, he is Full Professor at the Faculty of
Engineering of the University of Porto, Portugal, and
the Manager of the Power Systems Unit of Instituto
de Engenharia de Sistemas e Computadores do
Porto (INESC), Porto, Portugal. He also collaborates
with the Management School of the University of
Porto. His research interests include fuzzy modeling
of power systems, optimization, and decision-aid
methods.