“Not worth the harm:” Neoen says ESB reforms should be abandoned

One of the most successful and leading edge renewable energy developers in the Australian market, Neoen Australia, has called for Energy Security Board’s proposed suite of National Electricity Market reforms to be binned altogether, describing it as “rushed” and “unquantified.”

France-based Neoen, which has installed roughly 2GW of renewable energy generation capacity in Australia and three big batteries, said in a submission to the ESB’s consultation on post 2025 market design that it strongly recommended the program was “abandoned” it its entirety.

The detailed five-page submission, signed off by Neoen Australia’s senior marketing manager Tom Geiser, acknowledges the “substantial” work the ESB has put into the proposed suite of reforms, but says its “minor or partial benefits … [are] not worth the harm of the whole package.”

Neoen’s voice is important because it is one of the most prominent and successful developers in the country. Its projects include the Tesla big battery at Hornsdale, along with many wind and solar farms. It has many key projects under construction, including the Victoria Big Battery which will be the biggest in the country, the 400MW Western Downs solar farm in Queensland which will also be the biggest in Australia, and the massive Goyder South complex in South Australia that will combine wind, solar and battery storage.

Neoen is just the latest industry player to criticise the ESB’s proposed re-write of Australia’s electricity market rules, but stands alone in its wholesale rejection of the whole package, where other industry representatives have focused on one or two key planks.

As RenewEconomy reported yesterday, the biggest sticking point has been the proposed new mechanism dubbed the PRRO, or physical retailer reliability obligation, that critics say will do nothing for reliability, apart from propping up coal revenues.

Neoen, too, is scathing about the PRRO, which it describes as “a capacity market by another name” and “a mechanism demonstrated to be inefficient in all jurisdictions.”

“The ESB has not demonstrated why they need to interfere with the procurement strategies of the jurisdictions,” the submission says before recommending that the stream be abandoned.

“This line of thinking is not consistent with the historic liberalisation of NEM markets. Either commit to guaranteeing investor returns with higher average costs or allow price shocks to happen and spur investment.”

But the company’s harshest criticism is reserved for the suggested transmission access reform, including locational marginal pricing (LMP) and financial transmission rights (FTR), which it notes the ESB has pushed for despite being presented with ample evidence of the harm of the reform.

Neoen argues that LMP encourages gaming, “is not a leading indicator of anything,” has not been a success in the US, makes modelling congestion harder, and would reduce the locational signal accuracy and, alongside FTRs, raise cost of capital and wholesale power prices in the long-term.

“As a conclusion, LMP is simply the absolute worst reform that could be implemented in the NEM. It can only generate more risks and instability and be a major hurdle to financing any new generation capacity that is most needed,” the submission says.

“Given that there is no longer any time for critical assessment of the issues and straightforward alternatives we must recommend that this stream of work is abandoned.

“It would be better if the NEM committed to no access reform for at least a decade to give certainty that investment won’t be jeopardised in the medium term.”

Ultimately, and somewhat ironically given past experience, Neoen suggests that market reforms be left to the traditionally glacially-paced Australian Energy Market Commission, which it said was already handling all of the important streams.

“With a rushed timeframe, poor problem solving methodology, and demonstrated harm from radical reform, Neoen strongly recommends the P2025 program is abandoned,” the letter summarises.

“We recognise substantial work has gone into this program, yet we should not fall into a sunk cost fallacy. … Reform efforts must refocus on problem exploration and quantification, where possible with the input from those in operations, finance, settlement, and trade roles.

“Economic theory is no basis for instigating change and should only be used as a tool once problems are well understood.”