Research & Innovation Services

Long run incremental cost (LRIC) charging methodology

KTA Partnership Development Award

Department of Electrical Engineering and Western Power Distribution plc (WPD)
Professor Furong Li

“WPD greatly values Professor Li's model, which forms the basis for one of the two extra high voltage pricing methodologies adopted by Ofgem and which has helped to spearhead new approaches to pricing in the electricity distribution sector.”
Simon Yeo, Income and Connections Manager, Western Power Distribution plc

“Our new pricing system will reduce the need for costly infrastructure and will result in lower prices paid by consumers.”
Professor Furong Li, Project Lead, University of Bath

“As a mentor, I was able to work with the project’s programmers and devise a more structured approach to the handling of software, using Version Control, in a manner more suitable for a commercial environment. This worked at two levels, enabling the programmers to work with one another on the latest versions of the software, tracking who had done what, and then releasing compiled versions of the software for use by others, especially Western Power Distribution.”
Dom Jenkins, Project Mentor, Dot Software Ltd

"Our long-term vision is to provide ready-to-adopt solutions for a range of supply industries. This will help with delivering a low carbon economy and give better value for money to consumers."
Professor Furong Li, Project Lead, University of Bath

The challenge

In the UK, typically 21 per cent of a domestic or business consumer’s electricity bill pays for power distribution costs. Generation, transmission and supply charges account for most of the rest. The present method of charging for electrical power distribution relies on a flat rate, irrespective of the distance electricity has travelled or the degree of congestion along the route.  A more equitable means of pricing, which takes account of factors such as distance and congestion, has several benefits. It rewards power suppliers and consumers, based on their location and power usage patterns, and helps ensure that any upgrading of infrastructure is paid for by the customers who benefit. Ultimately, this encourages more efficient energy utilisation.

The response

Since 2006, Professor Furong Li and her research team in the Department of Electronic & Electrical Engineering have been developing a bill-charging methodology for power distribution, called the long-run incremental cost (LRIC), which takes account of factors such as distance and congestion.  Western Power Distribution has been adopting the LRIC model since 2007. However, implementing the new pricing system is costly and time-consuming because it requires bringing together financial and engineering data from different parts of the organisation held in distinct systems with different data formats.  This KTA project is developing a means to quickly, accurately and reliably process data to calculate a customer’s annual network charge for the LRIC model.

Benefits and outcomes

  • Professor Li and her team, working with Western Power Distribution (WPD), have developed PC-based software that converts the traditional pricing methodology to LRIC in a fast, automated manner for display and computation in Microsoft Excel. This system is currently being technically assessed and validated by WPD.
  • A second, web-based system is being designed that will enable WPD customers to estimate the annual network charges using the LRIC model for their own businesses.
  • Once validated, the LRIC software can be made available to other UK electrical power distributors.
  • Power industry regulators in other countries are being approached about employing the LRIC charging methodology with their own power distributors.
  • LRIC charging methodologies have great potential and can be applied to other networked infrastructures: gas supply, water supply, wastewater removal, and road and rail networks.
  • Ultimately, by rewarding efficient utilisation of the electrical power grid and other utility networks, LRIC will contribute to meeting national and international targets for reducing CO2 emissions.

Project team

Professor Furong Li, Project Leader, Department of Electronic & Electrical Engineering
Dr Chenghong Gu, full-time KT Fellow, Department of Electronic & Electrical Engineering
Rob Dowley and Zhanghua Zheng, part-time KT Fellows, Department of Electronic & Electrical Engineering
Nigel Turvey, Industrial Partner, Design & Development Manager, Western Power Distribution plc
Simon Yeo, Industrial Partner, Income and Connections Manager, Western Power Distribution plc
Dom Jenkins, Project Mentor, Dot Software Ltd.

Funded by Western Power Distribution plc and the University of Bath’s EPSRC Knowledge Transfer Account.