When you transport electricity across a network of poles and wires, some of it is lost as heat. Transmission loss factors are calculated so customers don’t pay for power they don’t get.

The restructuring of Australia’s power system is accelerating, as coal-fired generators exit and new wind and solar generators connect throughout the grid.

Generators are getting different signals about how much of their power will be lost in transportation as the type and location of power stations changes.

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.

Transmission loss factors are calculated each year by the market operator, the Australian Energy Market Operator (AEMO). The models and methodology for these calculations are carried out by AEMO in line with the National Electricity Rules and in consultation with stakeholders.

Why do transmission loss factors matter?

Loss factors are designed so that a generator gets paid based on the power that actually arrives, not the power it dispatches.

Also, loss factors reflect physical losses so the true cost of transporting power is clear to investors in new generators. For example, they enable a generator to factor in the cost of physical losses when considering connecting at the end of a long, weak line far away from consumers.

Why this is becoming an issue now?

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.

In the past few years, more generators have connected at the periphery of the system, so electricity has further to travel. This is particularly the case in north west Victoria, northern Queensland and south west New South Wales. These connections are often in weaker parts of the system with lower voltage, which exacerbates power losses.

There is currently an unprecedented number of generators wanting to connect to the power system. And more generators are connecting in places where lots of other generators are already connected, so some lines are becoming heavily loaded – making them hotter and power losses worse.

Loss factor changes can have financial impacts for existing and intending generators. That’s why it’s vital businesses seek appropriate advice on marginal loss factors and the regulatory framework before they connect to the grid.

What is being done about loss factors?

Loss factors are an important part of the market. Without them:

  • customers would pay for the amount of electricity that is dispatched, not the amount electricity they actually get. It would be like having to pay for a full box of apples, when only three quarters of the box arrives, as a quarter of the apples bounced out of the truck on the way.
  • the true cost of power would be hidden, so investors couldn’t make informed decisions on the location, costs, risks and impact of new generation.

However, with the rapid pace of new generators joining the system, it is more important than ever that investors in new generation have access to up-to-date information about new generation projects and access to key technical information such as network modelling data.

This could help developers of new generation better evaluate what loss factors could be and how these could change over time as well as other factors they need to consider before investing. The AEMC is currently exploring how to give market participants more visibility of the change in generation through a rule request to increase the transparency of new projects.

We have also started work on two rule change requests from Adani Renewables to consider how the marginal loss factors framework can continue to send the most appropriate signals to investors in the face of power system restructuring.

Big picture review underway on generation and transmission investment

As the power system restructures there are deeper questions to deal with in relation to how generators connect to, access and use the transmission networks.

An holistic approach is being developed by the AEMC’s review on the coordination of generation and transmission investment (access and charging). This review is looking at how to deliver the right amount of new transmission infrastructure in the right place, to meet future needs – which will also help address marginal loss factors.

Access reform will help provide certainty to generators over how they access and use the transmission network, as well as the level of revenue that generators may earn from the wholesale market.

Our coordination of generation and transmission investment review is part of the AEMC’s broader package of changes to the regulatory framework to support new investment in transmission networks in line with AEMO’s integrated system plan.