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 Australian Energy Market Operator (AEMO), to reflect this loss of electricity.

Generators located at the end of the line where transmission is weak will earn less. Transmission loss factors help show new generators which locations are likely to be most profitable. In this way, transmission loss factors provide an important signal about the best place to locate new generation assets to minimise costs to consumers.

Australia’s power system is restructuring, 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 travels
  • 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 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?

Physical losses are an unavoidable consequence of transporting electricity. Transmission loss factors reflect these 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 whether to connect at the end of a long, weak line far away from consumers.

Recent experience with loss factors

Loss factors have always changed year by year – depending on which generators are operating and how much the load changes, as well as where new generators are being built and 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 and the networks operate at lower voltages. 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 electrical 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 the electrical losses worse.

What is being done about loss factors?

With the rapid pace of new generators joining the system, it is more important than ever that investors in generation assets have access to up-to-date information about new generation projects and access to key technical information such as network modelling data. In October 2019 the AEMC made a new rule to give developers better information about what new generation projects are in the pipeline to help inform their investment decisions.

In addition, AEMO is taking steps 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.

The underlying challenge is to better coordinate investment in generation and transmission across the national electricity market. The AEMC’s proposed COGATI reforms aim to deliver the right amount of new transmission infrastructure in the right place at the right time - at the lowest cost to consumers. The reforms are proposed to be foundational to the Energy Security Board’s 2025 market design work and will operate in conjunction with AEMO’s Integrated System Plan which identifies what transmission investment needs to happen.