It is time to put an end to AEMC’s controversial transmission pricing plan

The rule maker for Australia’s electricity and gas markets must put to rest its proposed transmission access reforms and end the significant uncertainty facing investors in the renewable energy sector.

The Australian Energy Market Commission’s (AEMC) proposal for the coordination of generation and transmission investment (COGATI) does not, despite its name, actually address the emerging challenges of transmission network capacity. It instead proposes contentious transmission costs that will ultimately hurt and disincentivise investment in wind and solar in Australia.

COGATI has two main components, locational marginal pricing and financial transmission rights, which are designed to shift more of the cost burden of network transmission infrastructure onto new wind and solar developments through complex new market mechanisms. This creates significant risks and investment uncertainty for renewable market stakeholders.

Of particular concern is that the AEMC does not appear to have considered the overwhelming opposition to COGATI in the more than 189 submissions it received in total over the whole consultation process. Among them, key industry players like Tilt Renewables, Infigen Energy and Flow Power, have highlighted the significant issues with the COGATI proposal.

In its submission, Tilt Renewables said it strongly believes that reducing risk is necessary to facilitate efficient investment in the new renewable energy generation and storage technologies that are needed in coming years.

“Unfortunately, this Reform proposal does little to improve the investment environment. In fact, it will have the opposite effect, introducing more complexity, risk and uncertainty into the market, which will be both difficult and costly to manage,” the submission said.

Similarly, Infigen Energy in its submission said the proposed COGATI model does not provide any improved certainty to developers or address the key challenges of ensuring sufficient transmission is delivered in a timely fashion.

“Rather, it proposes to trade the well understood and quantified congestion risks for a complex scheme that exacerbates congestion risks (becoming a binary risk – potentially, either the regional price or zero revenue, even if prices are high and the resource is valuable),” the Infigen submission said.

Fortunately, transmission investment is now being tackled outside the COGATI reforms. The NSW Government’s recent announcement of a $32 billion plan for electricity infrastructure will, among other things, support the construction of 12 gigawatts of new transmission capacity by 2030.

It includes three regional renewable energy zones (REZs) as part of a coordinated approach to transmission, generation and storage that will ensure a cheap, clean and reliable electricity supply across the state. Similarly, the Victorian Government has allocated $540m to develop six new REZs across the state, unlocking the resources needed to deliver 50% renewable energy by 2030.

Furthermore, the development of REZs are widely supported by the industry. “Infigen strongly encourages the AEMC to work with the Energy Security Board and individual state governments to establish frameworks for connecting new generators on specific REZ infrastructure that carries energy to the shared network,” Infigen’s said in its submission on COGATI.

“This would be a far better outcome for consumers as it would facilitate additional supply, placing downward pressure on prices.”

Tilt also supports a national framework for REZs.

“A well-designed REZ framework, which also includes the necessary augmentation of the existing “shared” network, when required, would address the key issue identified by AEMC by better aligning generation and transmission infrastructure: providing a solution to the barrier of coordinating multiple, independent projects to align project timing and funding for new transmission,” its COGATI submission said.

It is clear majority of the energy industry does not support the transmission access reform proposal and given other initiatives underway by the ESB and the actionable items under the Integrated System plan that will improve locational signalling, the AEMC should discontinue work on this reform and redirect resources to other more pertinent market reform issues.

Delaying a decision on COGATI or kicking the can down the road for the ESB will simply leave investments in limbo, risking state renewable energy targets.

It is time to put an end to COGATI and focus on facilitating the efficient and timely investment in transmission and generation that Australia’s energy transition needs.

Stephanie Bashir is founder and CEO of Nexa Advisory.