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Investors question ‘credibility’ of MLFs consultation process

The investors call for the Australian Energy Market Commissioner to pay greater heed to quantitative analysis when making its decision.

A group of investors in Australian renewable energy have questioned the “robustness and credibility” of a process to determine whether changes should be made to how transmission loss factors are calculated in the country’s National Electricity Market.

In a submission on the Australian Energy Market Commission’s draft determination on changing the current marginal loss factors framework, the Clean Energy Investor Group reiterated its view that “immediate changes … are required to address material risks to current and future generation investment in the NEM which will ultimately impact the long-term interests of customers through higher electricity prices”.

The CEIG consists of 25 renewable energy investors and developers, including BlackRock, Foresight Group, John Laing, Lighthouse Infrastructure, Macquarie Group, Palisade Investment Partners, and the Powering Australia Renewables Fund (which is 80 percent-owned by QIC). They collectively account for more than 7GW of generation investment in the NEM and have a pipeline in excess of 10GW.

The group is proposing using an alternative method to calculate transmission loss factors, known as average loss factors. It has expressed concern that the AEMC had not done any quantitative analysis to compare ALFs with MLFs when it made its draft determination and still has not done so.

The CEIG said in its submission: “The AEMC’s decision not to undertake the analysis required to support its conclusions in the draft determination while at the same time ignoring or discounting evidence and analysis presented by stakeholders on the merits of a change to an ALF framework raises questions about the robustness and credibility of the consultation process and the draft determination.”

Speaking to Infrastructure Investor, CEIG spokesman Rob Grant said: “We’re happy to live by the umpire’s decision as long as it’s backed up by quantitative analysis.”

Other submissions from investors supported the CEIG view.

QIC said that “increased uncertainty driven by the more volatile MLFs is having a material and adverse immediate impact on new renewables” and cited figures from the Australian Energy Market Operator that show an approximate 95 percent year-on-year reduction in committed new renewable generation from last year.

“We can confirm that, on a relative basis, renewables investments in Australia are now considered a higher-risk option when compared with other infrastructure investments. This increase in risk, due to higher cashflow volatility and lower regulatory certainty, is directly increasing the cost of equity capital and reducing the availability of debt capital, which is also increasing given the perception of higher default risk,” QIC said.

QIC’s minority partner in the Powering Australia Renewables Fund, generator AGL Energy, said that it supported the AEMC’s draft determination to keep MLFs.

AGL said: “We believe that this decision provides a sensible compromise in the interim period while wider policy and regulatory reform discussions regarding the future market design of the NEM and more specifically, transmission access, take place.”

Tilt Renewables, a portfolio company of fund manager Morrison & Co, also came out in support of the draft determination but said that it encouraged a “considered long-term approach to the treatment of transmission losses in the NEM in the context of broader regulatory review processes”.

Tilt has previously been advertised as a member of the CEIG.