Clean Energy investor Group AEMC Pre-Determination Hearing - 4 - PowerPoint PPT Presentation

Clean Energy investor Group AEMC Pre-Determination Hearing - 4 December 2019

W H O W E A R E Fo r med in J u l y 2019 Comp r i s ing 20 in v e st o rs o w ning 72 po w e r st a t ion s , comp r i s ing 6 . 5 GW of in st alled capaci ty and a po rt folio v al u e of $ 11 billion - collec t i v el y t he s econd la r ge st gene r a t o r in A ustr alia 1 0 G W p i p e l i n e o f d e v e l o p m e n t p r o j e c t s a v a i l a b l e t o p o p u l a t e t h e I S P M e m b e r s i n c l u d e p e n s i o n f u n d s , i n f r a s t r u c t u r e f u n d m a n a g e r s , s o v e r e i g n w e a l t h f u n d s a n d I P P ' s D e v e l o p e d a n d d e l i v e r i n g a n e d u c a t i o n , a d v o c a c y a n d s t a k e h o l d e r e n g a g e m e n t p l a n r e l a t e d t o t h e M L F r u l e c h a n g e p r o c e s s b e i n g c o n d u c t e d b y A E M C Page 1.

W H A T ' S T H E P R O B L E M ? The ru le s de s igned fo r t hi s v e rs ion of A r e no t p r o v ing fi t fo r p ur po s e fo r t hi s So t he S tr ee t ligh t Effec t ... t he NEM : v e rs ion of t he NEM ... I s ca us ing RE in v e st men t t o fall off a cliff .... Source: Clean Energy Council September 2019 Page 2.

W H A T ' S T H E P R O B L E M ? Option 2: CEIG Members stop investing & left to Acco r ding t o t he AEMO ISP w e need t o deli v e r 35 GW of ne w MLF impac t on deli v e ry co st of t he ISP * oligopoly^^ = $1,075 Option 1: gene r a t ion and 15 GW of st o r age b y 2040 extra per customer ceig members keep investing & include (+2%) MLF premium^ = $430 extra per customer ISP "NEM 2.0" By 2040, need to invest $72 billion to deliver the isp * CEIG calculations based on AEMO's 2018 ISP ^ CEIG survey of WACC and risk premiums ^^ 4-5% cost of equity delta to CEIG Page 3.

M L F V S A L F Fi t Fo r P ur po s e Challenge s of MLF : Diffic u l t t o fo r eca st Vola t ile Can no t hedge Changing t o ALF : S u b st an t iall y r ed u ced v ola t ili ty of lo ss fac t o rs y ea r on y ea r Dampen s impac t of e rr o rs inhe r en t in long - t e r m fo r eca sts P r e s e rv e s t he r ela t i v e loca t ional s ignal C r ea t e s su fficien t ce rt ain ty t o con t in u e t o in v e st I s us ed in man y o t he r ma r ke ts , e . g . Canada , USA & UK Deli v e rs imp r o v ed long t e r m c ust ome r o ut come s Page 4.

A E M C ' S D R A F T D E T E R M I N A T I O N The AEMC a r g u ed str ongl y fo r ( i ) di s pa t ch efficienc y and ( ii ) loca t ional s ignalling a s t he ba s i s fo r main t aing t he st a tus q u o MLF po s i t ion ( i ) Di s pa t ch Efficienc y ( ii ) Loca t ional Signalling Thi s i s su ppo s ed t o be t he main benefi t of MLF s , e s peciall y d y namic one s . The academic t hinking goe s t ha t acc ur a t e ( be i t MLF o r DRP ) lo ss fac t o r r ep r e s en t a t ion In economic t heo ry t hi s ma y be tru e , b ut in t he r eal w o r ld t he benefi ts a r e p r o v ide s a s ignal abo ut w he r e t o b u ild ne w gene r a t o rs . Ho w e v e r di s pa t ch o ut come s demon str abl y min us c u le . p r o v ide no leading indica t o r fo r in v e st o rs . The po t en t ial inc r ea s e in lo ss e s fo r a ne w Thi s i s beca us e p r ice i s no t di str ib ut ed on a s moo t h c urv e like in t heo ry . Bid s a r e gene r a t o r i s no t a t all ob v io us j ust b y ob s e rv ing hi st o r ical lo ss fac t o rs . st epped and non - con t ig u o us . Gene r a t o rs don ’ t nece ss a r il y bid t hei r s ho rt ru n co st The c urr en t loca t ional s ignal s MLF p r o v ide s a r e s impl y s a y ing “ do no t in v e st in t he ei t he r . NEM , u nle ss i t ’ s r igh t ne xt t o a capi t al ci ty ”. Thi s mean s fo r almo st all in t e rv al s t he r e i s no diffe r ence in di s pa t ch o ut come s and In t he ne w di str ib ut ed NEM ( w i t h and w i t ho ut REZ ' s ) b u ilding w ind and s ola r w he r e t he ma r ginal gene r a t ion fo r an y lo ss fac t o r me t hodolog y . r e s o ur ce i s str ong , w he r e land i s cheap , and w he r e i t benefi ts t he comm u ni ty t he Fo r t he in t e rv al s w he r e w e can de t ec t a change in ma r ginal p r ice s e tt e r t he p r ice i s str onge st i s t he be st op t ion fo r con su me rs a s t he r e s o ur ce in t en s i ty benefi t o utw eigh s likel y t o be v e ry s imila r – tw o s imila r bid s w i t h tw o s imila r lo ss fac t o rs mean s a t he tr an s mi ss ion lo ss co st . negligible change in p r ice . Ba s ed on r ecen t anno u ncemen ts b y NSW , mo st ne w tr an s mi ss ion and t he r efo r e The r e i s v e ry li tt le diffe r ence in di s pa t ch w he t he r w e us e d y namic , ALF / MLF o r s impl y gene r a t ion loca t ional s ignalling w ill be achie v ed t h r o u gh a go v e r nmen t - led cen tr al a fi x ed v al u e fo r e v e ry one a s f u el co st i s 97 % of t he ma r ginal p r ice . A s w e mo v e t o planning app r oach t o t he REZ ' s . highe r r ene w able pene tr a t ion s and mo r e f r eq u en t pe r iod s of $ 0 bid s s e tt ing p r ice t he acc ur ac y benefi t of w hiche v e r lo ss fac t o r me t hodolog y w e choo s e become s e v en le ss r ele v an t . Mo st impo rt an t l y , no q u an t i t a t i v e economic o r financial anal ys i s w a s u nde rt aken b y AEMC t o demon str a t ed t ha t t he ( i ) di s p t ch efficienc y and ( ii ) loca t ional s ignall y benefi ts of MLF o utw eigh t he su ppl y s ide benefi ts of ALF . When i t come s t o making a deci s ion in t he be st in t e r e sts of con su me rs and t he NEO , t hi s MUST be done . Page 5.

I N S U M M A R Y CEIG & Ba r inga q u an t i t a t i v e modelling s ho ws ALF i s be tt e r fo r con su me r p r ice s and t he NEO . We r emain open t o being p r o v en wr ong ..... CONSUMER PRICES Bid stack effect*: $10-25p.a. per customer Dispatch efficiency effect: ? per customer Supply-side effect: ~$100p.a. per customer Locational signalling effect: ? per customer MLF IRSR / TUOS netback effect: ? per customer ALF Page 6.

P R O P O S E D N E X T S T E P S The CEIG and i ts membe rs w an t t o w o r k w i t h AEMC t o q u an t i t a t i v el y anal ys e t he r ela t i v e me r i ts of t he MLF and ALF f r ame w o r k s . Specificall y : Work with AEMC and AEMO to establish a reference data set Agree framework to assess impact on operational efficiency Agree framework to assess impact on efficient investment and locational signals based on expected approach to REZ delivery Agree framework to assess impact of supply side (driven by investor certainty) effects Share and review results of analysis Thank y o u fo r y o ur a tt en t ion ! Q & A ? Page 7.

A P P E N D I X S t a t e s w i t h high ne w r ene w able ene r g y in v e st men t and pene tr a t ion ha v e falling p r ice s ($/ MWh ) * , b ut mo st v ola t ile MLF ... RE Penetration Wholesale: 17% 9% 51% 95% 17% Rooftop: 20% 36% 35% 15% 18% * AEMO: https://www.aemo.com.au/Electricity/National-Electricity-Market-NEM/Data-dashboard#average-price-table Page 8.