Impact of loss calculation on different loss allocation procedures

Transmission loss allocation is an important problem in markets where the clearing market procedure neglects transmission losses, such as the majority of European electricity markets. Different allocation methods have been proposed and implemented in different markets, and all these procedures are usually post market actions, which may imply an increase in financial volatility for both generators and consumers. Therefore, a more suitable approach would be to have both market clearing and transmission loss allocation on a real-time base. This paper discusses a simple but effective method for real-time estimation of transmission losses and performs a sensitivity analysis in applying this method in conjunction with different allocation methods according to different market designs.