For many, the first of April is marked in calendars as a day for jokes and silly nuisances. For the few, specifically the energy industry, we have it pencilled in for the release of the upcoming year’s Marginal Loss Factors (MLFs). Over the last half-decade, movements in MLFs have received significant attention in the NEM, particularly those of VRE. Many renewable projects in more distant areas have experienced material MLF reductions as more supply connects nearby and, in layperson’s terms, the lines become full. The most significant example of this was the MLF for Broken Hill Solar Farm which saw a whopping 50 pp (percentage point) drop in two years (from 1.2456 in 17/18 to 0.7566 in 19/20). However, no project has seen anything close to this since revenue swings of this magnitude could turn a profitable project into a loss.
In this Chart of the week, we look at the changes in the Final 22/23 MLF (x-axis) with that indicated in the Final 23/24 MLF version (y-axis). Positive pp points are growth in MLF, with negative changes being losses. In the Chart below, dots to the top right are MLFs that have had back-to-back increases, and dots to the bottom left are those with back-to-back negatives. The mean lines represent the average changes seen across the two years on their respective axis.
The Chart shows that the southern states have remained relatively stable in flow dynamics despite some significant wind installs in the state. The small discrepancies have all fallen closer to NSW based on interconnector flows.
There has been a different story in the northern states, as MLFs are prone to fluctuation. QLD saw last year’s decreases largely reversed where Q2 2022’s unexpected coal outages caused flow dynamics in the north of the state to change completely. Now that they have normalised, we have seen increased flow from QLD to NSW, evident in the major changes in northern NSW (all of which sit on the left-hand side of the graph).
This was compounded with the new generation adding further competition (both recently connected Metz solar farm and New England solar farm, Australia’s future biggest active solar farm, both receiving huge 0.035pp drops). Moree SF has the largest swing in two years on project levels, seeing a 0.10 drop. The Hydro nearby, Silverton, Sapphire, and White Rock sites have seen at least 3pp decreases. The changes to the north of NSW may have come down to a lack of strategic planning, given that Moree SF now sits under 0.8 (so it is losing 20% of its revenue) and likely would not be happy with the system operator.
Forty-five projects have seen 2pp losses in the last two years, 24 of which are in NSW. With 14 out of 27 on the positive side, most of which are recovering from the dreaded X5 line constraints previously bringing them down, and two projects must install syncons on-site or nearby. The others being a part of the Molong 94T (or rather the ‘Line of Losses’ marginal bid price constraint that has also seen heavy focus by Transgrid. This year’s big winners of the MLF change were all those connecting into Darlington Point substation, thanks to some line protection works and capacitor reconfiguration.
Across a two-year gap, outside of the X5 line, no projects have seen noticeable continuous improvement as more VRE enters the system. And it’s turned into more of a sawtooth motion. Put simply, enough load is not in close proximity to VRE at the moment. The future addition of batteries has the potential to alleviate this. In particular, a potential Congestion Relief Market (CRM) will likely provide some further revenue for those building in remote locations.
As more renewable generators enter the market, grid challenges such as increased curtailment and decreased MLFs are risks that will continue to be part of NEM for the foreseeable future. The key to the MLF is both location and accessible future load, and those who can install their load (such as through syncons and batteries) prove to be continuous winners. Future work on the CRM may do wonders on how best to incentivise investment to address imbalances in constraints and areas with weak MLFs – something to consider when choosing a location.
Our in-house Power System Analysis and Market Modelling provide MLF forecasting based on sound engineering techniques and assumptions derived from our vast experience, comprehensive research, and independent view of relevant areas. For more information on Power System Analysis or other modelling products, please contact enquiries@cornwall-insight.com.au.
