Renewables sector slams new network pricing proposals, says it will kill investment

The renewable energy industry has slammed the Australian Energy Market Commission’s proposed approach to transmission investment and reform, saying it would increase the cost and complexity of connecting vital projects to the NEM, while undermining investor certainty, and bring a halt to new projects.

In separate submissions to the AEMC, a group of 20 renewable energy developers and investors representing a development pipeline of more than 10,000MW, and the Clean Energy Council, criticised the AEMC’s Locational Marginal Pricing (LMP) and Financial Transmission Right (FTR) proposals.

As RenewEconomy reported last month, the complex new market signals proposed by the AEMC to deal with transmission pricing included locational pricing, transmission rights, and transmission hedges.

The reaction from the industry is that the complexity and uncertainty of the proposals will not actually deal with infrastructure issues, and will have unintended short and long-term consequences. They want institutions to actually “Do Something” and get the new investment built, rather than relying on market theory to hope the problem will be solved that way.

The Clean Energy Investor Group said in its submission on Monday that the proposals – part of the AEMC’s Coordinating Generation and Transmission Investment (COGATI) project – made a complex problem worse and would ultimately drive up power prices for consumers.

“The CEIG strongly believe that creating a robust investment environment that will enable the efficient investment in new generation, storage and transmission capacity is imperative to achieving the long-term customer outcomes as set out in the National Electricity Objective,” the submission says.

“The introduction of LMP and FTRs does not address long-term investment uncertainty and will increase the cost of capital for future generation and storage investment and reduce competition through increased barriers to entry.”

In particular, the group – which includes the likes of BayWa r.e., Pacific Hydro, FRV and Neoen Australia – is concerned that the proposed changes would exacerbate marginal loss factors, a major thorn in the side for large-scale wind and solar developers.

“Under the LMP proposal, MLFs will be replaced with loss factors determined through dispatch which the AEMC acknowledge could potentially increase the volatility of loss factors,” the submission says.

“This is expected to result in an increase in the cost of capital for new generation investment and ultimately higher customer electricity prices.”

The CEIG’s view is backed by peak industry body the Clean Energy Council, which said in a separate submission to the AEMC that it did not support the proposal in its current form.

“We are …still concerned that it is a highly complex model that has significantly moved away from addressing the key underlying problem and impetus for the COGATI access review, and that the implementation timeframe is overly ambitious and rushed,” the CEC said.

The CEC said the proposed reforms failed to address the pressing need for new transmission, and was instead aimed at “second-order objectives.”

“Its implementation may increase costs to generators and therefore consumers, and could lead to a freeze in new generation investment at a time when this investment is critical to maintain reliability and put downwards pressure on prices as a number of coal-fired generators close,” it said.

The CEC also warned that timeframe for the development and implementation of the reforms was overly ambitious and rushed: “the model is not fully formed and has not been fully tested, and cannot be practically implemented in July 2022,” it said.

As David Leitch noted back in August, the broad sentiment of the industry appears to be that there should be less talk – or modelling – about coordinating transmission investment, and more actual investment.

Leitch quoted Neoen Australia’s Tom Geiser at the Clean Energy Summit in Sydney, who said that if the S.A.-NSW interconnecter had been built at the time the whole RIT process started, it would have already paid for itself and both NSW and South Australian consumers would have been better off.

“The transmission company representatives were more guarded in their comments (naturally) but it was pretty obvious they didn’t like it much. The wind and solar developers pretty much thought it stinks,” Leitch wrote at the time.

What everyone does agree on, however, is the need for grid access reform, and other important market reforms required to enable the clean energy transition.

“The CEIG believe the priority should be implementing marginal loss factor (“MLF”) reform followed by putting in place a framework that will deliver the transmission network required to facilitate the energy transition,” the group’s submission goes on to say.

“The CEIG believe the renewable energy zone reforms should be consolidated with the actioning of the ISP consultation process given the inextricable link between renewable energy zones and transmission planning, augmentation and operation.

“Wholesale market reform should be considered more holistically as part of the broader reform packages rather than being developed independently.”