Loss Factors

Marginal Loss Factor (MLF)

The Marginal Loss Factor represents the marginal change in total system losses when one additional megawatt-hour is injected or withdrawn at a connection point. For generators, an MLF below 1.0 means that an extra MWh produced results in less than one MWh reaching the market reference point; the difference is lost in the network. For loads, MLF reflects the marginal loss associated with supplying an extra MWh at that point.

MLFs are used in energy settlement: a generator's dispatched energy is multiplied by its MLF to determine its settled quantity. They also influence interconnector flow modelling and loss allocation in the dispatch engine. Connection points with poor network topology—long lines, radial connections, or high congestion—typically have lower MLFs.

Distributed Loss Factor (DLF)

The Distributed Loss Factor allocates a share of total system losses to each connection point based on its average contribution to network flows. DLFs are used in conjunction with MLFs for certain settlement and reconciliation calculations. They provide an alternative view of loss allocation that can differ from the marginal view, especially in meshed networks where flows are complex.

For most analytical purposes—including dispatch and spot revenue estimation—MLFs are the primary focus. DLFs become relevant when interpreting settlement statements or reconciling energy accounts.

How loss factors affect dispatch and revenue

In NEMDE, loss factors are incorporated into the dispatch model so that the optimisation accounts for network losses when deciding which generators to dispatch. A generator with a low MLF may need to produce more physical energy to deliver the same effective quantity to the reference point, which can affect its competitiveness relative to generators with higher MLFs.

For revenue, a generator is paid the regional spot price multiplied by its settled quantity (dispatch × MLF). A lower MLF directly reduces revenue per MWh produced. New generators in weak parts of the network, or existing generators whose MLF has been revised down, can see significant revenue impact. Conversely, MLF improvements (e.g. after network upgrades) can increase effective revenue.

Publication and revision

AEMO publishes loss factors annually, typically in April, for application from 1 July. The calculation uses a representative snapshot of the network (load flow) and generation/load patterns. Loss factors can be revised during the year if significant network or demand changes occur, or if errors are identified.

Generators and loads can request a revision if they believe their MLF or DLF is incorrect. AEMO also publishes loss factor reports explaining methodology and key drivers of change. Understanding the timing and basis of loss factor updates is important for financial modelling and investment decisions.

MLF vs DLF at a glance

The table below summarises the main distinction between MLF and DLF.

Interconnectors and marginal loss

Interconnector flows are also subject to losses. AEMO applies marginal loss factors to interconnector flow calculations so that the dispatch solution accounts for losses on the link. The MARGINALLOSS variable in interconnector data reflects this. Losses on interconnectors affect the effective transfer capability and can contribute to price differences between regions.

Related

Dispatch & Pricing explains settlement and spot revenue. Interconnectors describes marginal loss on interconnector flows. For facility metadata including loss factor references, see Facility metadata.