Briefing Note | March 2021

Marginal Loss Factors (MLFs)

Key Points

Marginal Loss Factors (MLFs) are a way of accounting for the amount of electricity that is lost in being transmitted from the source of generation to the end user.
The MLF determines how much of a generator’s output is actually sold into the electricity market. It is therefore a critical factor in the commercial viability of all types of generators.
MLFs are updated in April each year by the Australian Energy Market Operator (AEMO) and apply to the following financial year. Losses tend to occur when generation is located a long way from the end users, when voltages are lower and when generation from a region is congested.
The higher the losses attributed to a generator the lower their MLF, and vice versa.
MLFs can change because of increased congestion on some transmission lines caused by more generation competing for limited transmission capacity.
This is particularly important for renewable generators which sometimes locate in more remote parts of the electricity grid where the risk of losses and constraints (and therefore lower revenue) is higher. It tends to be less critical for large thermal power stations around which the existing transmission network was originally built.
Reducing losses by increasing transmission capacity raises questions of who pays for this transmission investment.

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