This consolidated rule change request sought changes to the transmission loss factors framework in the national electricity market. Transmission loss factors are calculated by AEMO to reflect the electricity lost as heat when power is transported across the network.

• On 27 November 2018 Adani Renewables submitted a rule change request seeking to redistribute the allocation of the intra-regional settlement residue (IRSR) so it applies equally between generators and networks users.
• On 5 February 2019 Adani Renewables submitted a rule change request seeking to change the marginal loss factor (MLF) calculation methodology to an average loss factor methodology.

The final rule determination and more preferable rule were published on 27 February 2020.

Final determination

The Commission has not adopted the changes sought by the proponent, Adani Renewables.

The Commission has instead made a more preferable rule to provide the Australian Energy Market Operator (AEMO) with greater flexibility to refine and improve the methodology to determine MLFs.

These changes support AEMO's work to improve the transparency and predictability of loss factors. Together, these changes are in the long-term interest of consumers as they will enable better, more informed decision-making for prospective investors of generation assets.

Pre-final rule determination

The AEMC received two requests to hold a pre-final rule determination hearing in relation to its draft determination to the Transmission loss factor rule change request.

A hearing under section 101 of the National Electricity Law was held on Wednesday 4 December 2019 in Sydney.

The purpose of a pre-final rule determination hearing is to allow stakeholders to present their views on a draft determination to the Commissioners in person. Stakeholder presentations at these hearings are an input into the next stage of the AEMC’s decision-making. These hearings are not designed to provide a forum for discussion or debate with the Commissioners, AEMC staff or other stakeholders. They are in addition to all other consultation stages carried out by the AEMC.

A transcript of the hearing and other related documents are available on the project page.

Draft determination

On 14 November 2019 the Commission published a draft determination to keep the existing marginal loss factor methodology for calculating electricity lost during transmission, rather than moving to an average loss factor methodology.

Some stakeholders, including the proponent, have been concerned about volatility in transmission loss factors. While the Commission understands these concerns, we also recognise the importance of maintaining clear signals for efficient dispatch and future investment in the market. Consumers should not be expected to shoulder such uncertainties when they have no ability to manage or offset them.

For these reasons, the Commission’s view is that a marginal loss factor methodology is the most efficient way of accounting for losses in the national electricity market, and continuing to set these loss factors on an annual, forward-looking basis remains the most appropriate approach given the existing broader market design.

We made a more preferable draft rule that will provide AEMO more flexibility in its methodology for calculating marginal loss factors. 

The draft rule:

• removes the requirement that MLFs must be calculated using a regression analysis, enabling AEMO and stakeholders to consider and test the performance of alternative calculation techniques 
• removes the requirement that MLF values must be based on a 30 minute  interval to allow greater time periods to be used as the basis for calculating MLF values 
• removes the requirement that market network service providers be treated as invariant in the calculation of MLFs, enabling AEMO to use variable market network service provider behaviour in its modelling
• replaces the term "transmission loss factors" with “intra-regional loss factors” to achieve clarity and consistency of terminology throughout the National Electricity Rules (NER). 

Submissions to the draft rule determination and draft rule closed on 16 January 2019.

Related work

The AEMC has two key projects that relate to this rule change request. These are:

• Coordination of generation and transmission investment implementation (COGATI) - access and charging review.  These proposed reforms are designed to deliver the right amount of new transmission infrastructure in the right place at the right time - at the lowest cost to consumers. They are being developed as part of the Energy Security Board’s broader market design work.
• Transparency of new projects final rule made on 24 October 2019. This new rule gives developers better and more up-to-date information on new grid-scale generation projects in the pipeline to help them make better decisions on where to locate new generators and assess project viability.

Consultation

Consultation paper

The AEMC published a consultation paper for the consolidated rule change on 6 June 2019. Submissions closed on 18 July 2019. 35 submissions were received and can be found below.

Public workshop and meetings

A public workshop was held with AEMO on 4 July 2019 in Brisbane to gather views on the rule change requests and the operation of the transmission loss factor framework in the national electricity market more broadly. The presentation slides from the AEMC, AEMO and Adani Renewables can be found below.

The workshop was also webcast. You can listen to the recording of the webcast here.

In addition, the AEMC has held a series of bi-lateral meetings with stakeholders to hear their views on the loss factor framework.

Background

Consolidation of rule change requests

The AEMC consolidated these two rule change requests to enable consideration of broader issues around how the transmission loss factor framework can continue to send the most appropriate signals to investors in the face of power system restructuring. The consolidated rule change request is referred to as Transmission loss factors.

Extension of time

On 26 September 2019 the Commission extended the period of time to make a draft rule determination until 21 November 2019. The Commission considered that this extension was necessary due to the complexity of issues arising from stakeholder submissions, which required further analysis.