Green hydrogen

Green hydrogen

In the brightest day and the blackest night, no opportunity shall escape my sight.

Ok, bar the bad Green Lantern pun, Green Hydrogen is the superpower on everyone’s lips at the moment. From the USA releasing its draft National Clean Hydrogen Strategy and Roadmap a few weeks ago, to the announced changes in the Hydrogen regulation in Europe, even Queensland has jumped on the press release bandwagon, announcing it as a cornerstone within its new Jobs and Energy Plan.

But what is this superpower? How can it help and what does it really do?

Well let’s start at the beginning, what is Green Hydrogen, why is it different to Grey or Blue Hydrogen and why is that important?

Green Hydrogen is produced by electrolysis, by splitting water into its base elements of Hydrogen and Oxygen. The reason it is Green is this process is done using renewable energy. The most preferred approach is to have this PPA (green energy) onsite and therefore Behind the Meter, however it is equally classified, at the moment, from other sources, with both the PPA and electrolyser being grid connected. Noting that there are additional costs if this is not co-located BTM generation as Network costs come into play.

The differential between this and Grey and Blue Hydrogen isn’t the process, but the fuel used to power the electrolysis. Grey Hydrogen comes from Natural Gas and Blue is from Gas but that is coupled with Carbon Capture and Storage (a technology which has been the silver bullet since I was at Uni and despite millions being pumped into the technology remains uneconomic and therefore unused).

Why is this important – well to truly move towards a clean energy future, and for Hydrogen to play a large part in that, the technology used to create the hydrogen must be green, otherwise the end product (the hydrogen) is just an energy transition of the non-renewable source which was used to create it. This is why the Europeans (CertifHy) amongst others, will only allow Green Hydrogen certification from real PPA sources, not greenwashed with carbon credits, and certainly not from any other forms of electricity.

So how can the green hydrogen transform our supply? Well ignoring other uses of the fuel and export at the moment, transportation being a key area which could benefit as their fuel is hard to abate without a viable alternative as well as Ammonia and Methanol production. There is the obvious use if the fuel can be used for power supply.

This is moving closer with the planned Tallawarra B 200MW dual fuel power station (natural gas and green Hydrogen) due online in the summer of 2023/ 24. If this technology can be proven, this will be a huge source of clean energy which can be used for grid stability and baseload generation, it could also remove any bumps from the transition away from coal.

To give a sense of scale though 1KG of hydrogen is equivalent to about 33.3KWh of electricity. Last year the NEM supplied around 204TWh of electricity, so we would require around 6.2million tonnes (or 6.2billion KG) of Hydrogen to power the NEM.

Now the part to blow your noodle, to produce that 1Kg of Hydrogen we need to put into the electrolyser around 50KWh of electricity (taking a 67% efficiency rate for an Alkaline or PEM electrolyser, noting Solid Oxide electrolysers can have higher efficiencies.) Using this 67% efficiency rate we need to put in 310TWh of electricity to be able to produce the 240TWh required for the NEM. This is without factoring that Hydrogen which can be used for transportation and that which will be exported (with Japan underpinning many domestic projects how much will be available in Australia initially? But I said I wouldn’t be diverted to this today!).

This means the Hydrogen power industry alone has the capability to more than double the capacity requirements of the NEM. However, this requirement and thirst for power could be its real secret superpower.

Network constraints are the words every solar and wind operator hates, the renewable energy is being produced but either cannot be transported to the load centres or cannot be used in the local distribution zone and as such is wasted. Although the Hydrogen industry may not be able to use all this excess volume, especially in the near term, it certainly can absorb a large amount of it. Thus, reducing curtailment and increasing the renewable penetration to the grid.

But that isn’t its only superpower to assist with the balance of the grid, cast your mind back to this winter with curtailment being requested from every corner of the NEM. Rather than being the off-taker, the electrolysers can provide demand side management. They will naturally be programmed to react to the price and renewable energy generation signals anyway to be efficient. Therefore, turning up and down at these strained periods without needing market intervention will be a benefit we have not previously been able to tap into.

Hydrogen certainly looks to be the silver bullet this industry has been craving, and no one wants to be left behind when this train leaves the station. However, with so much in theory and nothing as yet proven to scale, we all hope that it doesn’t turn out to be the Aquaman of the superhero world.

Edge2020 provides energy management and advisory services to buyers and sellers of physical and financial energy products. We specialise in electricity, gas, renewable, environmental, and carbon products. Edge2020 can help ensure you achieve your business sustainability goals by supporting you with strategies that focus on minimising consumption and responsible purchasing of renewable energy. Reach out to our passionate team for support to improve your sustainability outcomes – email: info@edge2020.com.au 

 

Winter is coming

Now I am a major Game of Thrones fan, but I never thought moving to Australia that I would turn into Ned Stark and constantly worry about a Northern Hemisphere Winter. But, as we are hurtling towards those cooler months in t’north and following the tumultuous Q2 and start of Q3 in the NEM, I am preaching that the Northern ‘Winter is Coming’ and even down here in Australia we must be ready.

As background Northern Europe, UK, France, Belgium, Germany etc., rely on feeds of Gas from Norway and Russia. Gas is significant in Europe as a 1-degree shift in temperature can result in around 5% of domestic demand increase, or decrease, due to most homes being heated via Gas-Central heating. With a third La Niña about to be called in the Southern hemisphere and La Niña, correlated with colder winters in Europe, with increased snowfall, as it shifts the jet stream north to the pole and increases storms across Northern Europe, this can only mean an increase this heating demand.

This confluence of events would usually increase my concern for a tight supply in the European market, but this year is different. Ignoring for now the Russian flows, we will circle back to that later, Norway’s Energy Minister has already raised the possibility that they may restrict electricity exports with possible restrictions to Gas flows as well. With much of their electricity coming from hydro, and after an un-seasonably warm summer period, Norway has stated the priority will be to refill the reservoirs over winter, rather than secure the energy supply of their European neighbours. With this flow being restricted into Northern Europe, coupled with a diminishing fleet of coal and nuclear options, gas will be the favoured source of domestic supply for Northern Europe. Although there are other interconnectors, it is anticipated these will either be significantly under utilised or such a price differential within a domestic market will occur to ensure flows to a single market will ensue. This could be facilitated by pushing those areas (countries) price up to exorbitant amounts to ensure flow across the interconnector and shore up domestic supply. With flows of course favouring higher priced regions.

Now let’s put Russia into the mix. Russia announced this week that the Nord-Stream 1 pipeline, a crucial pipeline for gas flow into Europe, required maintenance from the 31st August. This happens to coincide with European markets trying to firm up winter supply by filling storage and Russia increasing aggression to the Ukraine, but I am sure that was a coincidence.

The 3-day maintenance will have a return to service for the 2nd September. But how likely is this to return? Well, if the last outage is anything to go by, where only 40% of the required flow reached Europe and the delivery of the required turbine was strangely delayed, the price increase was significant and totally in Russian control. Now with this latest outage and flows expected to be around 5% of the obligations agreed with the EU, the cynic in me wondered if Putin is trying to offset the sanctions place on Russia by pushing the cost of Gas to exorbitant amounts. If he can sell his 5% for the same as the revenue from the already inflated 40% and free the remaining gas for sale to more amiable neighbours, he is in a win-win situation.

The real fear is that this flow remains low for the whole of Europe’s winter, which would not only put massive strain on the cost of generation but also lead to many retailers simply not able to meet their obligations and go under. There is also a risk of lack of supply and therefore blackouts as well as increasing costs on an already strained economic environment.

To mitigate this, European generators are throwing out their climate targets with the baby and the bath water in favour of supply and are scrambling to shore up gas supply and return coal-fired power stations from cold storage. The Mehrun Coal-Fired Power plant in Saxony Germany came back online at the start of August, Uniper have just announced they are re-commissioning the Heyden plant in North Rhine-Westphalia and in the UK, the government has made moves to re-open the rough gas storage facility, 25% of it initially, ignoring the safety concerns which led to its original closure. But this will not be enough, and this is where Australia needs to brace itself for a secondary wave of impacts.

LNG and coal exports into Europe will increase, as the price differential will be significant. The ensuing impact through the JKM on the domestic gas market, and coal export price will affect the replenishment of the longer-term running costs of our own generators.

Although significant volume should be pre-hedged, these prices will start feeding through, nothing is stopping the trading opportunity cost being passed through by generators. They will argue the replenishment of the stockpile will need to factor these spot and forwards prices, interesting that doesn’t flow through in a bear’s market though.  What does that mean for our summer, well it means the high prices aren’t going anywhere fast. The shortage of supply in the NEM may be diminished, with most, if not all units now returned from overhaul, yet the price is continuing to take advantage of, and reflect the international fundamentals rather than the real long run average cost of the asset.

With the Capacity Mechanism being put on ice and strengthening Safeguard Mechanisms already announced by the Labor Government, coupled with favourable international fundamental conditions providing political cover for generators, could this be the last hurrah for coal and gas generators to eek the last value from these assets?

Either way be under no illusions, with the Northern winter hurtling towards us, European prices already building in shortfalls in supply and no end to the Ukraine conflict in sight, the Vega sensitivity is going off the chart and is not going to be subsiding anytime soon. As such Australia, and especially its energy markets need to brace, for the fallout.

To circle back to Game of Thrones, Ramsay Bolton stated, “If you think this has a happy ending, you haven’t been paying attention” for ‘winter is coming’ and we must be prepared.

She Can’t Dance

Back in the 90’s Genesis sang “I can’t dance.” I fear from the past week that there is once again a double standard being applied by the media to our leaders, as it seems this lyric only applies to women in politics. I am of course referring to the absurdity of the double standard being laid at the door of the Finnish Prime minister, Sanna Marin.

With too many examples to list, Boris Johnsons “party-gate”, David Cameron’s “Pig-gate’ and closer to home Don Harwin’s holiday home getaway, there are many examples of men breaking rules, and in some cases laws, with little more than slaps on the wrist and a 2-paragraph article on page 6, showing them up for their misdemeanours.

Yet, here is a woman who came from a broken home and was certainly not raised with the political or actual silver spoon in her mouth, yet she has not only successfully led her country through the COVID-19 pandemic but has navigated her way through a border with a country currently waging war on another. Many would play ostrich to this aggression from a neighbour, yet she has had the conviction to stand up for the same thing that landed the Ukraine in the gaze of Moscow, a NATO membership.

However, as the youngest head of state, she was elected at 34, one who is breaking the barriers of what is expected, attending music festivals and becoming a style icon and a mother, she is also balancing the tightrope of the Victorian era expectations of “how one should behave.” Regardless of how antiquated these opinions are, they have not disappeared, and the descendant, mainly male, voices are not missing an opportunity to shout down this young progressive leader.

Whatever your political leaning, you do not have to agree with her political views to surely agree, there is a significant double standard being waged here.

In a private moment, with supposed friends, she did not break the law, a point she is now taking a drugs test to prove, she did not endanger anyone with her actions, and she did not act in a way which would be seen to embarrass or lessen the position of Finland on the world stage. Yet, the nay-sayers are arguing, from their dusty robes and plaid studies, she is behaving inappropriately for a PM and wouldn’t be able to use sound judgement in the event of a sudden crisis. Yet this attitude from the crusty old relics in the corner does make me reflect on past leaders, no one questioned Churchill, who in an actual war would often be known for having wine with breakfast, whiskey for morning tea and Pol Roger champagne at lunch.

Maybe these nay-sayers should read a little Churchill as (to paraphrase) Yes, she was drunk, but you (and your opinions) are ugly. Tomorrow she will be sober, and you will still be ugly.

Fortunately for Churchill, and unfortunately for Marin, the world of social media is now too accessible. The “being in the know” or “having the skinny” no longer requires you to have been there but being on a friends Instagram account when they post a video of a private party and uploading that to a papers website. This lack of privacy is surely a wider point than a woman, enjoying a legal evening with friends in private?

To circle back to where we started Genesis also sang in their song “Gators getting close, hasn’t got me yet”. Unfortunately for women in the political sphere this is still the reality. Hopefully one day it will change, but for now I say, you can dance Sanna.

The Safeguard Mechanism – not so safe anymore

Once again, the Labor government has shown its teeth when it comes to climate. Last week rebuffing the Energy Security Board’s action for a Capacity Mechanism, which would inevitably only benefit large coal and gas generators, and today bringing out a consultation paper to reform the Safeguard Mechanism.

This hasn’t come as a surprise as it was a cornerstone of their election campaign, but to have done it so quickly may surprise some, and to have a start date for these reforms at the start of the next financial year, 1st July 2023, will surprise many.

To re-cap, the Safeguard Mechanism is the legislation which came in in 2016, it was designed to reduce the emissions of the industrial sectors within Australia with targets or baselines capping the amount of emissions each facility can emit. The flaw was that the large industries could continue to re-set these baselines so as to ensure that as production increased, so did the baseline and as such the emissions would also be increased without penalty. In the Financial year 2020 – 2021, these large emitters made up 28% of Australia’s Carbon Footprint

What is currently being proposed is a type of basic cap and trade model with stricter reduction targets, to help the government achieve their net 43% reductions by 2030 and net zero by 2050. This equates to reductions for these large emitters of an initial 3-6% and increasing post 2030.

The consultations also ask for feedback on whether the concept of using industry average benchmarks should be used to set all baselines. This will be strongly argued against by industry, especially since the published default values are significantly lower than most emitting facilities. However, it may enforce the desired reductions, this I am sure will be a major discussion topic in the weeks ahead.

Other parts of the paper discuss increasing the transparency of the Australian Carbon Credit Units (ACCU) market and the Carbon Offsets used to abate the excess Scope 1 emissions. This would support the tender sent out late last year to establish a trading platform for the Carbon Credits, which would de-mystify the pricing and availability of this currently opaque market. This is a measure, I am sure, will be welcomed across the industry, especially by those projects with excess certificates.

However, what will not be welcomed from the green flank in government, and their supporters, is the possible future inclusion of international Carbon Offsetting certificates. With many of these trading at significant discounts to the Australian government accredited ACCUs, the value of these domestic projects could be significantly eroded if international credits can be applied to excess emissions.

The drafts of the responses will be being formed by C&I regulation teams over the coming weeks, with the aim to try and protect their position and emissions as much as possible. I am sure they will be arguing for facility specific, production adjusted targets with the cheapest offsets possible for over emissions. However, how successful their lobbying will be is yet to be seen. This new government is not afraid to turn the status quo on its head and with ambitious climate targets, and with international eyes watching, I am not sure that industry will receive the desired outcome from this reform. With the consultation closing at the end of September this will certainly be one to watch before the end of the year.

Today is the day we are officially in debt to our ecosystem

Earth overshoot day

Today is earth overshoot day.

Being green isn’t just about renewable energy, cycling to work or using re-usable bags when you do your shopping. It is about being in a state of equilibrium with the planet that we inhabit and not emitting more carbon  dioxide than we can absorb.

When we are not in equilibrium, we “overshoot” our allowance and as with all debt we are borrowing from the future rather than living within our means.

Unfortunately, yesterday we officially spent our allowance and as of today (Friday 29th July 2022) we are in debt to our ecological budget for the rest of the year.

This has been gradually getting earlier and earlier and as you can see the National Footprint and Biocapacity accounts have shown we have been over budget for half a century.

Interestingly not every country overshoots at the same rate. If the planet lived like Australians overshoot day would fall on the 23rd March, but if we lived like Jamaica we would basically be in balance and not overshoot until December 20th. So surely if many countries can live in balance so can we?

The understanding of Climate Change and acknowledgement of action is now widely recognised, but I feel the sheer scale of the effect of inaction is yet to be fully understood.

Energy is one major way we can help ourselves reach the goal of balance in our biosphere.

Reducing the carbon output of our energy by 50% will move the overshoot day by over 3 months and by utilising existing energy efficient technologies in energy, buildings and industrial processes we can push this another 21 days.

The decarbonisation of our energy economy is not only becoming more crucial from a resilience to international cost pressure perspective, but is crucial to assisting us push the overshoot  date out,  to balance the budget of our biocapacity by not  ‘overspending’.

Edge2020 provides energy management and advisory services to buyers and sellers of physical and financial energy products. We specialise in electricity, gas, renewable, environmental, and carbon products. Edge2020 can help ensure you achieve your business sustainability goals by supporting you with strategies that focus on minimising consumption and responsible purchasing of renewable energy. Reach out to our passionate team for support to improve your sustainability outcomes. email: info@edge2020.com.au 

Is UFE the UIG of Australia?

Anyone who knew me in my past life in the UK knows that I harped on about Unidentified Gas (UIG) A LOT!

The idea behind UIG is simple, allocate the gas which couldn’t be attributed to a meter in an area across all end users in that area, in which it was used (off-taken). Seems simple right. But when was the last time you actually gave a meter reading? Possibly six months to a year ago? Well that means your off-take (unless you are on a smart meter) is estimated and you will be either over or under on allocated unidentified gas.

Although this seems sensible with everyone eventually giving a meter read and therefore it will all work out in the wash, what exacerbates the issue, especially at the moment, is the extreme increase in the gas price at which these charges are now passed through to retailers and then in turn our bills.

Now what does understating this UK gas usage or allocation have to do with Australia? Well, quite a lot. The system is similar, but not the same.

Following Global Settlements being introduced by AEMO we have started seeing Australia’s version of these charges coming into our bills. We allocate the unidentified – called Unaccounted for Energy (UFE) within each region by the off-takers in that area.

What we are not doing yet, which in the UK’s defense they do there (through XOServe), is take into account those meters which are half hourly ready (smart(er) meters) and therefore their usage should be known. Currently in Australia the offtake in a region will be directly linked to your proportion of an energy being allocated to you and you literally have no say in these charges, despite having updated metering capability.

The sore point of it all is that this is occurring at a time when our electricity market is extremely high and therefore there is a possibility of the combination of large UFEs  being passed through to end users at high prices, with companies having no control over the volume or price it is passed through at. This is leading to significant shocks to companies’ outgoings, as there is little to no visibility on the charge on any given month, and no way to forecast them to budget.

I fear that UFE will become my new soap box issue, and I can guarantee this isn’t the last anyone will hear on this. I am pretty sure I won’t be the only one who will be making noise.

Is this happening to your business? If you feel you need more control of your company’s energy spend, please reach out to discuss joining our Edge Utilities Power Portfolio (EUPP) where we use the power of bulk purchasing to help Australian businesses of all sizes save on their energy bills. Read more: https://edgeutilities.com.au/edge-utilities-power-portfolio/ or call us on: 1800 334 336 to discuss. 

 

Labor pushes ahead with a controversial capacity market

What is the goal of a capacity electricity market?

You may be forgiven for not sitting through the full press conference last Thursday, where the Albanese government stated Australia would be strengthening their 2030 targets to 43% under the Paris Agreement. However, if you had, around 30 minutes in you would have heard Chris Bowen, the newly appointed Minister for Climate Change and Energy state, “in relation to the short term, State and Territory Ministers agreed with me last week, that we should proceed at haste, at pace, with the capacity mechanism. I asked, on behalf of all Energy Ministers, the Energy Security Board to proceed with that work, at speed, and they are doing that. I am very confident I will be able to get agreement of State and Territory Ministers for a comprehensive capacity mechanism and I’ll have more to say when that work is ready.”

Well that work dropped this morning (20th June) at 7am. They have given those who wish to respond until (25th July) to submit their views on this paper so at pace it shall be. However; given the response following the ESB Post 2025 paper I am not sure that any amount of noise and lobbying from the industry is going to stop this juggernaut from achieving its goal, especially since it is being backed by those generators who have the most to gain from this market. Not only that, but unless there is a big bump in the road, a first look Capacity Mechanism will be in place by 1st July 2025.

What is the goal of this market? – Well in my opinion there is only one reason that this would be encouraged and that is to subsidise coal-fired power stations which have had their financial viability severely questioned by the growing penetration of lower cost renewables within the system. Don’t get me wrong, the longer-term markets have the potential to encourage other faster starting generators onto the market, but this hasn’t really been the case in other capacity markets i.e. Great Britain (GB).

This argument is only further strengthened when looking at how the GB Market ended up achieving their stability, in their high renewable penetrated market, which is from nuclear power which has been guaranteed a strike price of £92.50/MWH or ~$163/MWh. Thus, making any capacity market payment minuscule in comparison to the underpinning of the generation at that rate.

The ESB are arguing, and convincing themselves and the government in the process, that this mechanism is the answer to AEMO’s ISP step change scenario, in which demand increases and coal exits the system. If that is indeed their argument, then they are ultimately stating they cannot efficiently run a system in which coal is not part of the generation mix and unless this is financially managed there will be a ‘disorderly transition.’

The question therefore isn’t will there be a capacity mechanism from July 25, but how centralised or decentralised will the final design be? Will it sit as a Physical Retailer Reliability Obligation – PRRO design, one in which the market determines for itself the level of the required capacity, or do we go wholly down the regulated route with AEMO determining in long term auctions (similar to the GB model which has several T-year auctions) and they forecast demand and supply to determine the required level of capacity and sell these capacity certificates to retailers to meet their requirements.

There is no grey area for the ESB, they have stated openly in the paper they wish for the forecasting and determination of the capacity requirements to be centralised and for AEMO to manage these purchases on behalf of market participants. In essence they would moderate the capacity of these generators, for a cost, at certain times of day or periods of high system stress to allow them to ensure capacity is available to the market operator when needed. End users would then pay for that management of the system and their portion of that capacity.

The other point to note, keenly hidden within the paper is the four yearly review of the Reliability Standard and Settings Review (RSSR) that is about to be undertaken, with significant interest been taken in the Market Cap, especially given the gas price cap is equating to a marginal cost of generation higher than the electricity price cap (Presuming a normal heat rate of 8-12). If the caps are risen for both the caps $300/MWh and spot $15,100/MWh markets as expected, could the requirement of ‘capacity’ in the market become a moot point? Surely the exacerbation of the current situation could be avoided if the gas generators were certain of meeting the cost of generation and you cannot truly believe that a market cannot efficiently run with enough capacity if they are achieving $15,100/MWh or possibly more?

The real key argument which has not been addressed by the paper however, is the idea that aging coal plants are unlikely to be able to ramp in time to fill the gaps between this growing renewable penetration. Therefore, the question really needs to be asked is this the right investment if you really want to transition this grid or should this be put into different technology rather than prolonging the life of unsuitable assets?

Ultimately however the bottom line remains ‘user pays.’ As such any one of the options being floated will be passed through to end users through retailer or network tariffs.

I will let the retailers and generators pick apart the nuances of the paper, but needless to say the government will be pushing ahead with this in some form, the only question will be how much say we will have in the centralisation of the market or not, and therefore how much control retailers will have on the costs of this capacity.

Written by Kate Turner, Senior Manager – Markets, Analytics, and Sustainability

Could Hydrogen be the next ‘Green’ initiative?

Much of the gas industry is looking towards hydrogen as the solution to de-carbonising heating demand in Australia and across the world. This was given further support at the end of September when the COAG panel shared their ambitions for hydrogen. 

The hydrogen gas solution acts like traditional gas in many ways, however there are potential flaws to trying to introduce this into existing infrastructure at any high blend percentages. The leakage rate is higher, embrittlement is a big problem on traditional pipes and to replace pipelines to more suitable plastic pipelines would be a huge undertaking both logistically and financially. 

So, are there any other alternatives which could be considered but are currently being overlooked?

One such source is Biogas, sometimes seen to be unattractive but it could be very effective. This is gas which comes from anaerobic (Oxygen free) digestion of organic matter.  This could be food scraps, animal waste, energy crops or sludge from waste water treatment plants. 

The gas is captured in the anaerobic digester, cleaned and blended before being pressured to be injected straight onto the grid to go into electricity production or into homes. It can also go into filling stations for transport and can be significantly cheaper than diesel as well as providing low NOx and up to 70% less carbon dioxide emissions. The remaining output (digestate) is used as chemical free fertiliser.

It is estimated that Australia has a biogas potential of 103TWh or 371PJ based on an average biogas units output and this could alone have a 9million T/CO2e benefit. 1

It seems a simple solution but ultimately the projects are slow to get going in Australia due to the infancy of the industry, coupled with a lack of appetite to encourage investment from government policies. This is further exacerbated by the lack of renewable gas targets and little to no encouragement for landfills to maximise the use of their landfill gas.

However, with a push into hydrogen and the potential for a gas equivalent to the Renewable Energy Target, could biogas be about to have its day in the sun?

If you would like to know more, please contact Edge Energy Services on 07 3905 9220 or 1800 334 336.

1 Deloitte, «Decarbonising Australia’s gas distribution networks,» 2017.

Are the physics of MLF elementary ?

At the end of September AEMO announced that it was pushing back its draft Marginal Loss Factor (MLF) determination around rule changes put forward by Adani Renewables to November. 

Now don’t turn off, Marginal Loss Factors are not the new Dan Brown or Stephen King novel, but they are a hot topic of the NEM at the moment and ultimately will affect the cost of the electricity we all buy.  So what are they and why are they important?

What is an Marginal Loss Factor?

Think of a block of flats and you need to fill a bath on the 1st and 10th floors. However, to do that you need to climb up a ladder with a leaky bucket.  Each time you fill the bucket and start climbing the ladder you will have more left in the bucket when you reach the bath on the 1st floor than when you reach the bath on the 10th floor.  Therefore, to fill the bath on the 10th floor, you are required to use more water (and more trips), compared to filling the bath on the 1st floor.

That is exactly what happens on the Electricity networks (Distribution and Transmission networks). The further away your power generation source be it a thermal station, wind or solar farm, is from where you need to use the electricity i.e. our homes and offices, the larger the losses are (the more water that is needed to fill the bath to the same level)

A MLF is a factor given to each power station which represents how much electricity will be lost between the point it is generated and where it is needed. It is “lost” due to the resistance in the high voltage cables increasing and converting some of this power to heat.

But how does that affect energy consumers?  Let’s go back to the bucket for a minute and assume you only need 1 bucket to fill the bath on the first floor but need 10 to fill the bucket on the tenth floor. The company is going to charge you for filling that bucket 10 times (even though it is their leaky bucket and that they only put a tap on the ground floor and not one on the 9th which is causing the problem!) They don’t want to absorb the cost of those losses and affect their profitability, so they pass it through to us. So the bill is more for the person who is on the 10th floor than that of the 1st floor.

It is the same with MLFs, if a station needs to produce twice as much energy to supply a site with electricity due to the MLF, then that cost will be reflected in the sites electricity cost.

AEMO are the calculators of these MLFs and consider the distance from the load centres (Regional Reference Nodes, RRN), the capacity of the current networks, the type of generation (i.e all solar in one area would have relatively similar dispatch patterns) and the new projects coming on in those areas. They then assign each generator their own MLF.

We can’t change physics so why is this news?

So why is this MLF’s a popular topic in the National Electricity Market?

In the past most generation came from large power stations, connected to the transmission network and supplied the main demand “load” centres. This meant that Australia had relatively stable MLF’s and any changes to these factors were negligible. Generators are paid for their bids (to supply the electricity) multiplied by the MLFs, so it affects their cost of generation. Thus, it is important to understand as it affects the costs which are passed through to consumers and for investment decisions for new build generation.

However, we are now in a new world with new types of generation connecting into the network in remote areas and with less predictable dispatch patterns. In many cases these are renewable generation projects which can be built significantly quicker than their thermal counterparts. Reducing the time AEMO have to consider the impact this will have on the network in those areas. This coupled with mothballing of traditional thermal coal units and transmission line constraints has resulted in a significant trend of reduction in the MLFs, which is exacerbated in renewable generation.

Source AEMC TLF Rule

To try and address the reduction in these MLFs there have been many requests by companies requesting that AEMO change their calculation methodology, with Adani Renewables gaining the most traction in their recent request. Adani Renewables have requested that AEMO change the methodology from a site specific MLF to an average loss factor methodology, basically a regional loss factor for an area regardless of generation type. They argue that it would make the market more competitive and result in lower prices. It would also result in more stable MLFs, giving certainty to investors which will drive investment in existing and new renewable projects due to it creating more financial stability.

How am I impacted?

If this is passed, an average MLF could potentially reduce your bill, either directly due to better competition in the areas with high renewables or through a reduction in Transmission charges. However, this relies on the retailer passing these benefits on.

But if this is not adopted there would be two main impacts to consumers.

The first and most obvious is that with reducing MLFs, the cost of generation in high renewable areas could potentially increase and be passed through to end consumers due to inefficiencies in the market, ultimately leading to higher bills.

The second is a twofold impact and is concerning the cost of LGC’s.

As these are being created through generation in the remote and highly constrained areas of the grid and are linked to their allocated MLF, which are the lowest and fastest reducing MLFs. Less would be generated and therefore available and this could increase their value. The second impact is a longer-term view, in that a reducing and uncertainty in renewable MLFs has the potential to significantly reduce direct investment and development in renewables going forward. With ever increasing requirements for these certificates from industry, end users and retail tariffs the continuance of this pattern could set an upward trend in the price of the certificates.

If you would like to know more about MLF’s and the impact on your cost of electricity, please contact Edge Energy Services on 07 3905 9220 or 1800 334 336.

STAFF PROFILE – Kate Turner

What is the best piece of advice you have ever received?

The best piece of advice I’ve ever received is to pull a pram on a beach and not try and push it. Less of an issue in England but it is coming into use now I live in Australia.

Name a place you have never been to and would like to visit. Why?

I would love to go to Alaska. I find it fascinating the juxtaposition between big industry and natural resources, versus the sheer rawness of the wilderness and landscape. Plus there are over 100 volcanos and its bear to people ratio is 1:21 – that’s pretty roarsome!

Who or what inspires you?

People who push the boundaries of what is possible. This ranges from the Elon Musk’s of the world who decide that the electrification of vehicles should be happening faster so build their own car company; to Bill Gates who is looking for efficiencies in vaccination programs to try and eradicate Polio. Their minds work in such non-linear ways, which allows them to really think outside of the box. I find it fascinating to follow what they do, how they come up with the ideas and how they deal with any failures along the way.

What is one of the biggest challenges facing energy customers today?

I think the energy industry as a whole, investors, producers and consumers are struggling with a lack of direction from those bodies who set the long term strategic direction. Without this the investment won’t come.  The evolution and integration of large scale renewable can’t progress and the industry will ultimately fail to protect consumers from increasing costs. This is usually due to the implementation of second rate policies rather than direct policies, which add unnecessary internal and external costs.

What does a typical day look like for you at Edge?

I am usually working on new projects, doing internal analysis to ensure our clients portfolios are being efficiently optimised or looking into new or changing legislation to our client’s markets. No day runs the same but the outcome is always consistent: to provide the best service to our clients.