Owners of wind and solar farms in Australia’s main National Electricity Market are being warned that they face another significant de-rating of their output as a result of the increasingly congested grid.
The Australian Energy Market Operator has released its draft “marginal loss factors”, which reflects the difference between the amount of electricity produced by a generator, and how much they are credited for and actually reaches a customer
Under the draft calculations for 2019/20, some wind and solar projects have been significantly derated, and face losses of output of 20 per cent or more, undermining their economic viability.
In NSW, these include three projects owned by Neoen – the new 150MW Colleambally solar farm (down from 1.01 to 0.88), the Griffith solar farm (1.06 to 0.92), and the Parkes solar farm (1.06 to 0.92) – and AGL’s Silverton wind farm (1.0 to 0.79) and Broken Hill solar farm (0.97 to 0.72).
In Victoria, the ratings of Karadoc solar farm are slashed from 0.94 to 0.78, the Bannerton and Wemen solar farms each fall from 0.92 to 0.8, and the Kiata wind farm from 0.99 to 0.86. Even the Gannawarra solar farm, despite its adjoining battery, is de-rated from 0.97 to 0.90.
It is the second year in a row that Kiata and Gannawarra have been affected.
Across the NEM, almost every wind and solar farm was affected in some form, many by more than 5 per cent, and most fossil fuel generators are also affected in some way.
Snowy Hydro’s fleet of hydro generators in NSW suffered falls of more than 5%, as did Origin Energy’s Uranquinty gas plants in NSW and other smaller gas and diesel plants.
The Sapphire wind in northern NSW was one of the few to get an upward rating (0.88 to 0.91), along with the Taralga wind farm in southern NSW, the Lake Bonney wind farms in South Australia, and the new battery at Dalrymple in South Australia.
The marginal loss factor numbers are multiples of output. A lower multiple means less credit for power delivered to the customer and reduced payment. Some, like Silverton, are facing losses of more than 20 per cent. In the case of Silverton, instead of getting paid for every MWh of production, it will now receive payment for less than 80 per cent of that production.
Losses are a normal occurrence in any grid – they can be 10 per cent over long transmission lines – and affect all generators, which are paid on the amount delivered rather than the amount produced.
The MLFs are having a greater impact on wind and solar farms because many are being built away from load centres, and the “open access” regime means the local grid struggles to transport the new capacity and some project developers might not know – at the time of construction – what else might be built nearby.
“As more generation is connected to electrically weak areas of the network that are remote from the regional reference node, then the MLFs in these areas will continue to decline,” AEMO says in its MLF draft documentation.
Last year, falls in marginal loss factors of 20 per cent or more were imposed on some projects as a result of grid congestion, or changes to load. That has the potential to dramatically alter the economics of a project, affecting equity owners and lenders alike.
The worst-affected regions this year and last year are north Queensland, south-western and western NSW and north-west Victoria, known now as the “rhombus of regret” – so named because of the shape of the grid and because of the sheer number of projects built and proposed for the area, and the grid limitations.
It is a major issue for investors and lenders in existing generators, and also those under construction. There is concern it may increase uncertainty, and therefore financing and equity costs, for projects that are yet to be developed.
The effect on wind and solar farms was acknowledged by AEMO.
“The NEM is transforming, driven by new technology and a changing generation mix, newly formed supply hubs, leading to large year-on-year changes in MLFs,” operations manager Damien Sanford said in a statement.
“In many locations, MLFs have fallen by large margins, which in turn have material financial implications for existing and intending market participants.”
For some, the scope of the de-rating may come as a surprise.
AEMO warned of further reductions in MLFs last year, particularly in Victoria. One solar project, Kiamal, has turned to synchronous condensers to smooth its connection issues.
The calculation depends on a range of factors – the quality and length of the line, the existence or distance of local demand, and how much other generation is in the same area. And the estimates change each year.
Sanford says AEMO has been working with industry to explore opportunities to minimise impacts of current rules, and will look at immediate interim changes that can be applied, and work with the Australian Energy Market Commission (AEMC) on longer term solutions.
RenewEconomy understand one potential solution is “dynamic” marginal loss factors, which means that rather than imposing one equation for the year, the equation will “float” and be adjusted every 5 minutes.
This reflects the rapidly changing dynamics of an increasingly flexible grid, although if wind and solar farms are to take advantage of that then they will need to have some control over their output. i.e. via storage.
One project developer says it will be more difficult to calculate and forecast, not least because it is hard to predict third party generator behaviour, but is likely to be more fair over the long term.
The Clean Energy Council is calling for an urgent and comprehensive review of the MLF arrangements to avoid “unpredictable hits to the financial sustainability of existing and future renewable energy projects.”
CEC chief executive Kane Thornton said the new ratings will reduce the economic viability of many wind and solar developers, and the problem came from the level of “significant and unexpected” decreases in the last few years.
“While this is a complex issue, the consequences are simple – an unexpected and unpredictable reduction in the viability of wind, solar, hydro and bioenergy projects across the country,” Thornton said in a statement.
“The MLF methodology was established over 20 years ago and is no longer fit for purpose. A comprehensive and holistic review of MLFs by the AEMC is imperative, along with considerations of how this volatility could be controlled in the short term. The industry is calling on the AEMC to complete this review as soon as possible.
“The issue also underlines the need for efficient investment in new poles and wires to relieve the strain on the existing network, which is rapidly becoming congested. This remains one of the highest priorities for our industry,” he said.
“Predicting MLFs into the future is something no-one has been able to do with any accuracy. Consequently the current process introduces risks that are virtually impossible to manage after investment decisions have already been made.”