COGATI: A tax on renewables paid to fossil fuels

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COGATI is an extraordinarily complex beast, but its effect would be real and immediate – it would significantly reduce investment in large-scale renewables.

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There has been a ridiculously long list of stupid energy policy ideas over the past decade.

The renewable energy industry, in particular, has faced a conga line of policies that have either deliberately or inadvertently curtailed the industry.

But the Australian Energy Market Commission (the AEMC) may well have taken the cake with its bizarrely named COGATI – the Coordination of Generation and Transmission Investment proposal.

COGATI is an extraordinarily complex beast, but its effect would be real and immediate – it would significantly reduce investment in large-scale renewable energy projects.

The great minds at the AEMC think the answer to grid congestion is this:

Where transmission is constrained, charge (or tax) any newcomers, (read renewables), for the fact the existing generators, (read coal fired power stations), will be constrained further and make the newcomers pay the existing generators to compensate them for that loss.

You could not make this stuff up.

So, at the very time we need to be investing heavily in new transmission and transmission upgrades to unlock the potential of renewable energy zones, the AEMC’s answer is to set up a new cross subsidy from renewables to fossil fuels.

Even the AEMC says that new generation equal to the size of the existing national electricity market will connect to the grid. And that “substantial and timely (electricity) infrastructure…is likely to be required”.

“These changes mean there is a need to have a better way of co-ordinating generation and transmission investment decisions in order to better facilitate the transition that is occurring.”

And their answer to all this – the COGATI renewable energy tax.

AEMO is Against COGATI

COGATI has been developed without proper consultation, and without proper regard for other planning processes already being undertaken through the National Energy Market.

Even the Australian Energy Market Operator (AEMO) belled the cat in its submission on COGATI, in which, they effectively say ‘what the hell are you thinking?’.

Here are their more temperate words:

“the AEMC’s proposed access reforms are major and fundamental changes to the National Electricity Market market design which should therefore be considered in a holistic process with other broader reforms as part of the Energy Security Board’s Post 2025 process.”

AEMO has undertaken a sober, considered and deliberate approach in developing the Integrated System Plan – a long-term plan for the National Electricity Market – and the AEMC has drunkenly stumbled in and tried to dismantle everything.

AEMC Kicking Sand in the Sandpit

So not only is COGATI a dumb idea, by proposing it the AEMC is actively playing a spoiling role.

Canadian Solar, one of the world’s leading solar companies and one of Australia’s leading solar farm developers, has suggested COGATI could represent “the largest disruption of the NEM since its creation leading to a massive drop in new generator investment. Our confidence is based on our witnessing this decline today caused by just the possibility that COGATI may be implemented.”

Canadian Solar is a very conservative company, not prone to hyperbole, but it can see the writing on the wall if this proposal goes much further.

The AEMC proposal is already hindering investment decisions and undermining existing planning and coordination activities.

As AEMO and others have noted, there are far more urgent reforms that are required to address system security and to reduce volatility in the market.

There are more pressing priorities, not least the need for urgent action to reduce Australia’s electricity emissions and to prepare Australia’s electricity system for the impacts of climate change.

Investors Despair 

The Clean Energy Investor Group, (speaking on behalf of major investors and developers with over 6,000 megawatts of generation investment and a future pipeline of over 10,000 megawatts and billions of dollars of investments), has suggested the AEMC’s approach:

– Increases investment uncertainty;

– Will push up the cost of capital for future generation; and

– Will reduce competition through increased barriers to entry.

That is their way of saying that billions of dollars of investment would be up in the air if this COGATI spaghetti mess eventuates. That would be devastating for jobs across regional Australia.

States – Stop this Now

State and federal Energy Ministers will have a unique opportunity to put the brakes on COGATI when they meet in Perth tomorrow.

Ministers need to ask themselves if COGATI is consistent with the electricity market planning processes they have put in place. They need to ask if COGATI will create jobs or destroy investment in their regional communities.

And they need to tell the AEMC to pull their head in and go back to the drawing board.

State and Federal Energy Ministers then need to move quickly to restore investment confidence in large-scale renewable energy projects and continue the task of modernising Australia’s electricity system.

Australia desperately needs a national energy policy and a national climate change policy.

Australia’s renewable energy industry needs policy and regulatory certainty to maintain and grow investment and to generate long-term, sustainable jobs across the nation.

Oh, and you still want to make this a thing?  See you on the TV.

John Grimes is the chief executive of the Smart Energy Council

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