Our complex electricity network supports millions of customers across Australia through thousands of kilometres of high-voltage powerlines joined to substations and transformers connecting hundreds of generators. The powerlines that carry electricity from generators to consumers are not perfect conductors, which means some electricity is lost as transmission losses.

In the National Electricity Market (NEM), a marginal loss factor (MLF) is how these transmission losses are measured for each electricity generator. MLFs act as a multiplier that decreases or increases the generator’s revenue. It accounts for transmission losses between the generator and the regional reference node (RRN) – a notional load centre point for each NEM state. In the NEM, static MLFs are annual average values calculated from network flow data for each region from the previous financial year.

Amar Rathore is a senior associate at the Market Advisory Group.

Renewable energy generators are generally located far away from RRNs and regional centres that consume large amounts of electricity. MLFs have a direct impact on how renewable energy output gets credited in the NEM, resulting in lower revenues for renewable generators.

In the past few years, the generator MLFs have continued to decline, which has altered the economics of many renewable projects. The Australian Energy Market Operator’s 2019-20 MLF calculations show that a number of new solar and wind farms located furthest from the main load centres have suffered a major decline in their calculated output. Several wind and solar farms located in north Queensland, western NSW and Victoria will have MLF losses up to 22%.

The renewable energy industry has expressed concerns about the way MLFs are used in the NEM and has asked the Australian Energy Market Commission for a comprehensive review. While the MLF calculations by AEMO are mathematically correct, further investment in the renewable energy industry can be encouraged by finding better ways to present the energy losses to level the playing field.  

The physics of energy losses

The energy lost in transporting electricity from generators to consumers is a sum of transmission and distribution losses. High voltage powerlines transport electrical energy very efficiently but still lose around 10 to 15% of the generated energy.

It reflects the laws of physics that apply to our electricity network – the energy lost due to resistance (or impedance for alternating current) of powerlines over the distance between the generator and the electricity customers.

A well-known law of physics about electrical loss is “I squared R”. Electrical power is proportional to current, and losses increase with the square of the power transferred on a powerline. Electrical losses in a direct current powerline are determined by the equation “I squared R” and alternating current electricity grid loss is dependent on the impedance. A higher impedance path indicates more opposition to alternating current power flow and higher energy losses. The impedance between two points is dependent on transmission line length and transmission voltage. Impedance will be lower where there are shorter-length transmission lines and higher voltage.

In the NEM, MLFs represent this equation of electrical loss between a generator connection point and an RRN. These electrical losses are factored into electricity prices paid to generators and recovered from customers, directly impacting spot prices and generators’ revenue. For example, a generator with an MLF of 0.99 will receive a greater spot market revenue than a similar generator with a lower MLF of 0.80, all other factors being equal.

At the moment the mechanism acts as a price signal, encouraging generators to locate power plants closer to a load centre or an RRN. The NEM rules, however, use regional pricing where large geographical regions are created, each having an RRN arbitrarily selected from the transmission system, which is given a fixed MLF of 1.

The current NEM rules put regionally located renewable generators at a disadvantage compared to fossil fuel generators that are mostly located relatively close to large loads and have better transmission connections. In order to encourage an increase in electricity generated by solar and wind farms, there is an urgent need to find better ways to allocate electrical losses into electricity prices and to find ways to reduce actual energy losses. Moving from the current model to a five-minute dynamic MLF model or to a full nodal pricing model could provide equitable outcome for all electricity generators.

Transformation of electricity grids

Electricity grids across the globe are going through a huge transformation. Existing transmission lines have reached the end of their useful lives and need to be replaced or upgraded. New powerlines are needed to maintain the electrical system’s overall reliability and to provide connections to a growing number of renewable energy generators located far away from electricity users. At present, most transmission lines are high-voltage alternating current (HVAC), but high-voltage direct current (HVDC) transmission has greater advantages.

HVDC transmission lines can transport electricity with minimum losses over long distances and have almost half the losses compared to HVAC transmission. Remote solar farms and offshore wind farms that are connected to the grid via HVDC will have lower losses and better MLFs. It is likely that in the future, HVDC transmission lines will connect continents, opening new avenues to share electrical energy across the globe.    

Superconductivity (cables with almost zero resistance) promises to do away with electrical losses. However, the superconductive cables have to be cooled to about -200°C with liquid nitrogen. This is difficult to do for thousands of kilometres of transmission lines. While scientists are still searching for materials that are superconductive at room temperature, in the future use of such materials in transmission infrastructure could reduce or eliminate electrical losses

In 2014, the city of Essen in Germany switched on the world’s longest superconducting cable, which is more than a kilometre from end to end and hopes to be a model for similar projects around the world. This is game-changing technology that could save hundreds of billions of dollars in transmission losses across the world’s power grids.

The transmission solution

There is an ongoing debate about what should be done for a smooth transition to a 100% renewables-based grid. In addition to finding better ways to present the energy losses, a move to low-loss HVDC transmission can improve the economics of current and new renewable projects. Superconducting cables connecting several countries across continents can only become a reality once room temperature superconducting materials become available.

Australia is well endowed with a range of renewable energy resources. In our lifetime renewable energy could supply 100% of grid electricity. Exporting renewable electricity to neighbouring countries using HVDC powerlines laid under the oceans is a possibility.

Australia’s renewable and storage industry has blown away previous records, with record investment in renewable projects. State policies, plus incentives from the national Renewable Energy Target, has helped a record number of new renewable projects to be funded and built in 2018. However, further investment in this sector is likely to decline unless the right investment signals are provided. Continued investment in electricity transmission networks and better allocation of electrical losses will help to get to and beyond 100% renewables grid in Australia.

Amar Rathore is a senior associate at the Market Advisory Group, an independent advisory service on Australia’s emerging carbon market and the renewable energy sector.