Renewable industry rejects AEMC new pricing proposals, fears investment halt

The complex new market signals proposed by the Australian Energy Market Commission to deal with transmission pricing have not gone down well with the renewables industry, with around 90 per cent rejecting the idea at a formal briefing on Thursday.

The AEMC earlier this week unveiled a complex new market signals – under the auspices of its COGATI project (co-ordinating generation and transmission) – that included locational pricing, transmission rights, and transmission hedges.

But renewable energy developers are concerned about the complexity and uncertainty of the proposals, and wonder whether it will actually deal with short term infrastructure issues. They complain that AEMC has not yet done any modelling and appears unaware of its impact.

After a briefing at the Clean Energy Council on Thursday, attendees said they were frustrated by the fact that AEMC representatives were unable to answer questions as to whether investment in transmission rights would guarantee a certain “marginal loss factor”. Annual changes to MLFs have been cited as one of the major causes for a fall in new investments.

They also expressed concern that the money invested in transmission rights may not see a return, because they may not turn out to be “firm” if the pool residue is not big enough. That’s given rise to fears they may be asked to pay a lot of money (in cases possibly ten million dollars) for no result.

An informal poll of the 20 or so renewable energy developers at the meeting, and about 40 on line, gave an overwhelming thumbs down. About 90 per cent said there would be no benefit, and 88 per cent said the rules should not be introduced.

Another briefing was being hosted by the AEMC in Melbourne on Friday, with some 100 attendees at the seminar and another 90 on the phone. No informal polls had been held, but attendees said many had expressed concern about the complexity and the uncertainty of the new rules.

This should not be a surprise. As David Leitch wrote in his analysis on Monday, the overwhelming majority of submissions to AEMC’s proposals had warned against the idea, again because of its complexity and uncertainty. One leading expert said it would not address the co-ordination problem, while Snowy Hydro said the issue was not one of co-ordination, just the fact that new poles and wires had to be built.

The AEMC is taking its draft proposals to the next COAG meeting in Perth in November. Under the bizarre rules of Australia’s electricity markets, the AEMC is not allowed to come up with ideas of its own. So it needs to write the draft, invite the state energy ministers at COAG to say it is their idea, and send it back to the AEMC for consideration.

The AEMC, in the process of analysing its own ideas, will call for further submissions, and finally do some modelling, which should be complete by around the middle of the year.

Renewable energy developers fear that the whole process will add to the uncertainty in the market, and create another cause for delay in many new project ideas.

“I don’t think they don’t understand what they are proposing,” said one attendee at the CEC-hosted meeting, who asked not be be named. “We are told the people who don’t have transmission rights will pay locational price which goes into a pool, and that pays the people who bought the hedge.

“But there is no guarantees this pool would be sufficient to deliver on the hedges. If you are going to have transmission rights, they have to be firm, otherwise there is no point. It seems like policy on the run, just as we are seeing in federal energy policy.”

Another said that renewable energy companies simply didn’t have the resources to get across the incredible complexity involved in the new pricing signals, unlike the big retailers and utilities.

“Submissions are due in three weeks, and that’s not a lot of time to work out if this is good or bad,” said one attendee at the Friday seminar. “We are concerned it will put a halt to new investment.”