AEMC told to go back and consult on Cogati, but MLFs still a battle zone
Attempts by the Australian Energy Market Commission to have its controversial transmission costing proposals for wind and solar farms rubber stamped by state and federal ministers have failed, and the market rule maker has been told to go back and consult with stakeholders.
The AEMC has caused outrage in the renewable energy industry with its COGATI process, which is designed to send a market signal for the co-ordination of new generation and much need transmission needs.
The idea of coordinating investments is good, and the industry is now paying the price for insufficient planning and action on infrastructure.
But the AEMC proposal – along with its refusal to change marginal loss factors and the method of calculating transmission losses – has been criticised by industry bodies, investors and energy analysts because they say it would tilt the market back in favour of fossil fuels.
The Smart Energy Council describes it as a cross-subsidy from renewables to the fossil fuel industry, a view echoed by the Clean Energy Council, the Victoria Energy Policy Centre, and a group of more than 20 large investors.
“COGATI is an extraordinarily complex beast, but its effect would be real and immediate – it would significantly reduce investment in large-scale renewable energy projects,” SEC’s John Grimes wrote on Friday.
The AEMC tried to get its COGATI proposals approved by the COAG energy ministers meeting in Perth, in one of the few items on the clogged agenda that was set down for a “decision”.
The AEMC was represented by its long-standing chair John Pierce, but was asked to come back with an updated work plan at the next scheduled meeting in March, and told of “the need to engage closely with stakeholders as this work progresses.”
“As a key part of this work, and work being undertaken by the ESB, Ministers discussed progress and asked the ESB to expedite work on short-term actions to progress renewable energy zone connections.”
There appears to be several things going on here. One, the state ministers have taken note of the vociferous opposition and warnings of the renewable energy industry that this would be a disaster, raising costs and making state-owned renewable energy targets harder to meet.
It also seems to reflect the fact that the AEMC has charged forward with its plans, and only minor alterations, despite overwhelming opposition to its Cogati proposals.
It could be a recognition that Cogati is too complex, and that any long term market signals should be part of the market redesign that the Energy Security Board is looking at, and not pre-empt them.
And it recognises, perhaps, that short term issues should be looked at through another lens, principally the Integrated System Plan and various initiatives by state governments to ensure that the urgent projects are progressed.
But there are still lingering concerns over another controversial AEMC decision, its refusal to make changes to “marginal loss factors” that is putting a mighty brake on new investment because of the uncertainty it creates over output and returns.
The industry has argued that the design of MLF regime – which decide how much of a generator’s output should be credited as delivered, and therefore eligible for revenue – is no longer fit for purpose and does not reflect the realities of the grid.
One group of investors put forward a proposal for “average loss factors”, which they said would still reflect weaknesses in certain part of the grid, but would reduce volatility and uncertainty.
The AEMC, in its decision, rejected that approach out of hand, but the investor group is furious that it did not take its modelling seriously, and revealed no credible modelling of its own.