Renewable investors fear new AEMC rules will prop up fossil fuels

Australia’s clean energy industry has called on this Friday’s crucial meeting of federal and state government ministers to “summarily reject” the Australian Energy Market Commission’s proposed new rules for transmission costs, saying it is a blatant attempt to tilt the market back in favour of the fossil fuel industry.

The Clean Enegy Council, a group of leading investors including Macquarie Group, and energy analysts have all lambasted the AEMS’ proposals, saying it has turned a “tin ear” to detailed analysis of the problem and will cause the now noticeable slump in renewable energy investment to continue.

The timing of the releases come ahead of the meeting of the COAG energy council on Friday, the first time the energy ministers have met since federal minister Angus Taylor was humiliated at the last meeting in December last year.

COAG will consider a range of important issues, including the Australian Energy Market Operator’s Integrated System Plan, chief scientist Alan Finkel’s hydrogen strategy, and a briefing of a review of the overall market rules by the Energy Security Board.

The renewable energy industry, however, is concerned about AEMC’s proposals under its COGATI (co-ordination of generation and transmission investment) program, and fear minister’s may give it the nod in exchange for bi-lateral investment deals pushed by the federal government.

A group of renewable energy developers and investors representing a development pipeline of more than 10,000MW – the Clean Energy Investor Group – says the AEMC’s obsession with theoretical market approaches will kill investment, which has already shown a 60 per cent fall.

Those proposals, unveiled by the AEMC in mid-October, include locational pricing, “transmission rights” and transmission hedges that the industry describes as a “neo-classical economic” approach that will serve only to further entrench market power, prop up fossil fuel incumbents and undermine renewables.

Further, they argue it would increase wholesale market transaction costs – thus driving up electricity costs for consumers, and allocated grid congestions risk to the wrong entities.

Of particular concern is the treatment of so-called “marginal loss factors”, now seen as one of the greatest deterrent to investment. The industry argues for “average loss factors”, which still send a locational price signal, but is more predictable and better reflects what is happening on the grid.

They accuse the AEMC of ignoring market analysis they provided, and have requested a pre-determination hearing from AEMC to get to the bottom of a quantitative modelling issue that it says is missing from the COGATI draft proposals. They point to support for their position from AEMO and the chief scientist.

“The CEIG is doing a big push this week pre-COAG with the State Ministers to encourage the Energy Council to ensure COGATI in its current form is not sold by AEMC as the answer to MLF problem,” the group said in emailed comments on Tuesday.

“The AEMC has a tin ear to the reality and even when AEMO and (chief scientist Alan) Finkel point it out in practical terms (just like our submission on MLF), they doggedly stick to their economic purist theories even though the ‘fixes’ for their failings are more and more interventionist.”

Similar strong arguments were made earlier this week in a major report by the Victoria Energy Policy Centre’s Bruce Mountain and Steven Percy.

“We think the arguments for Cogati are weak and suggest that it should be summarily rejected by policy makers,” that report says.

“We argue this on the basis firstly that the foundation in theory is weak; that the case for change has not been made … and above all else that it is extremely complex and will massively increase wholesale market transaction costs.”

The Clean Energy Council has also written to state energy ministers ahead of the COAG meeting, urging the energy council not to endorse the AEMC’s approach to progressing Cogati.

“The COAG Energy Council should reaffirm its commitment to effectively actioning AEMO’s Integrated System Plan,” the CEC said in a statement on Tuesday.

“(It should) task AEMO and the AEMC to develop clear ancillary services markets that recognise and monetise the value of services such as inertia, fast frequency response and voltage support.

“Support long-term energy policy certainty, through a combination of harmonisation of state targets and schemes, refinement to existing policy measures (such as the Emissions Reduction Fund) to support new clean energy investment or progress new coordinated policy measures such as the National Energy Guarantee.”

The COAG Energy Council meeting, which will take place in Perth this Friday, is shaping up as a busy and potentially fiery affair – not least because it will be the first – and likely only – face-to-face meeting of the state and federal energy ministers for the entire calendar year.