MLF risk to new wind and solar projects

There is industry concern to news that Australia’s fleet of wind and solar projects – and many thermal generators for that matter – will be “de-rated” in the next financial year because of severe congestion in parts of the grid.

Tt was the second major de-rating in a row for many wind and solar projects as the Australian Energy Market Operator advised on the latest “marginal loss factors” (MLF) for each power plant.

Renew Economy reports the MLF is a key calculation because it can make or break a power project. It reflects how much of a power plant’s output at source arrives at destination (load) and is credited for payment.

An MLF of 1.0 means a power plant gets credited for all its output. An MLF of 1.04 means it gets a premium, probably because it is close to load. But an MLF of lower than 1.0, such as 0.9 or 0.8, means a big reduction in output credits, and revenue.

Many solar and wind farm operators say the latest downgrades – of up to 20 per cent in some instances, and more than 5 per cent in many cases – will have a major impact on the industry.

Developers say that some existing projects may face equity calls or refinancing demands from lenders because of the anticipated fall in revenue. Other projects that are not yet developed, or yet to get finance, may find themselves stalled at the gate.

“Some projects won’t go ahead,” said the head of one international developer.

Such an outcome will have impacts on both wholesale electricity prices, and potentially on the price of large-scale certificates, the currency that underpins the renewable energy target. It will also push up the costs of wind and solar farms, because equity owners and lenders will demand more return for the increased risk in revenues.

The worst aspect of the annual MLF calculations, according to the developers and project owners is the constant change.

It is a situation not experienced elsewhere. In Texas for instance, the grid owner is responsible for the MLF, and for building enough capacity to cope with output.

Read the full story