Regulation Impact Statement Updates

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Changes to the Transmission Loss Factors Framework in the National Electricity Market

COAG
27th February 2020

COAG Decision Regulation Impact Statement – Australian Energy Market Commission

On 27 February 2020, the Australian Energy Market Commission (AEMC) released a final rule determination in which it decided to amend the National Electricity Rules and provide the Australian Energy Market Operator (AEMO) with greater flexibility to refine and improve the methodology to determine Marginal Loss Factors (MLFs) in the National Electricity Market (NEM). 

When electricity is transported across a transmission network, some of it is lost as heat, and Transmission loss factors are calculated to reflect this loss of electricity. Loss factors are used in the market settlement process so that generators are paid for the electricity received by users rather than the amount generated. MLFs represent the value of electrical energy lost when the next or marginal unit of electricity is transmitted across the transmission network. Specifically, an MLF value represents the losses for the marginal unit of electricity that occur between a generator or load connection point on the network and a regional reference node (RRN). This "marginal" approach to calculating transmission losses is consistent with how other aspects of dispatch and pricing currently operate in the NEM.

The AEMC’s decision will also enable AEMO to refine and improve the marginal loss factor methodology, and to consult with stakeholders on a greater range of alternative calculation details for the marginal loss factor methodology while maintaining accuracy and providing clear, efficient locational and dispatch signals to the market. Specifically, the final rule:

  • removes the requirement that the inter-regional loss factors 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 marginal loss factor values must be based on a 30 minute interval to allow greater time periods to be used as the basis for calculating marginal loss factor values, and
  • removes the requirement that market network service providers be treated as invariant in the calculation of marginal loss factors so that AEMO can forecast variable market network service provider behaviour in its modelling.

The substantive changes under the final rule will commence on 5 March 2020.

The final rule determination has been assessed by the Office of Best Practice Regulation as compliant with requirements for a Council of Australian Government’s Decision RIS.

Please note: any accessibility queries should be directed to the Australian Energy Market Commission.

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