When you transport electricity across a network of poles and wires, some of it is lost as heat. Transmission loss factors are calculated by the market operator, AEMO, to reflect this loss of electricity. Generators located at the end of the line where transmission is weak will earn less. Loss factors help show new generators which locations are most profitable - providing an important signal about the best place to locate new generation assets to minimise costs to consumers.

The Australian Energy Market Commission today released a draft determination to keep the existing signals for investment in new generation in the most efficient parts of the national grid – rejecting a request for consumers to pay for electrical losses for generators located in congested areas.

Stakeholder feedback is being sought on the AEMC’s draft decision to retain the marginal loss factor methodology for calculating electricity lost during transmission, rather than moving to an average loss factor methodology.

We are also proposing a more preferable rule to increase flexibility in how marginal loss factors are calculated. This builds on changes made in October 2019 giving developers better and more up-to-date information about what new generation projects are in the pipeline to inform investment decisions.

The request to move to an average loss factor methodology was made by Adani Renewables. The Commission acknowledges that some other investors are also seeking relief from the impact of declining and volatile loss factor values, and has put forward alternative comprehensive reforms that will operate in conjunction with AEMO’s integrated system plan.

Higher physical losses of electricity during transmission are the result of a rapid transition of the power system with many dispersed generators now locating further away from customers, where the lines may not be as strong and where several generators may share the same line.

AEMC Chair John Pierce said the proposal to move to an average loss factor methodology would have driven a wedge between the physics of the power system and generators’ financial incentives.

“While we recognise the need to bring down barriers to entry for renewables, moving from marginal to average loss factors would, in effect, cost consumers money,” Mr Pierce said.

“Rather than penalising generators located in strong parts of the network, or consumers, the underlying challenge is to better coordinate investment in generation and transmission across the national electricity market so that financial incentives and are aligned with the physical needs of the system and everyone can benefit.”

The AEMC’s proposed generator access reforms together with the integrated system plan  are designed to deliver the right amount of new transmission and generation infrastructure in the right place at the right time - at the lowest cost to consumers. These reforms are proposed to be foundational to the Energy Security Board’s 2025 market design work.

Today’s draft determination includes a more preferable rule to give AEMO more flexibility in its methodology for calculating marginal loss factors. This will support AEMO in providing more transparency about the likely physical losses in different parts of the network for  new generation projects.

The Commission also notes the steps AEMO is already undertaking to improve the methodology and information about loss factors including more frequent publication of forecast marginal loss factor values, and consulting with stakeholders to refine aspects of the methodology.

Submissions to the draft determination are due by 16 January 2020.

Media: Prudence Anderson, Communication Director, 0404 821 935 or (02) 8296 7817

BACKGROUND

Transmission loss factors

Physical losses are an unavoidable consequence of transporting electricity. When you transport electricity across a network of poles and wires, some of it is lost as heat. The amount of power lost depends on:

• the distance of the generator from customers - more power is lost the further it has to travel
• the voltage and resistance of the transmission lines - the “quality” of the line
• how much power is flowing through the line - a more heavily loaded line means more heat and more losses.

As the type and location of generators changes, they are getting different signals about how much of their power will be lost in transportation.

Loss factors have always changed year by year – depending on where new generators are being built and where other generators are closing. What’s changing is the predictability of these loss factors, due to the rapid pace of new generators joining the system and the location of these generators.