Investors who think all solar and wind farms are pretty much alike will get a sharp shock if they access a new online platform which shows the wide variance between the 150-odd assets around the country. To make money (or not lose it), they need to know what’s driving those differences.

Many people say the best sites for solar and wind projects have been taken – at least until major new transmission links are built to allow more renewables to connect to the grid. The National Electricity Market is crying out for more clean energy generation, however, as the retirement of coal assets inches closer. In the meantime, east-coast states with ambitious clean energy targets are encouraging developers to bid for spots within multiple renewable energy zones.

As they scramble to profit from inclusion in tomorrow’s energy mix, investors have to quickly understand risks that have chopped at the fortunes of some of those who have gone before them. But the energy market is frustratingly opaque. Without really knowing much about the relative success of their peers, how do investors regard their own decisions with any certainty? Do you think, just maybe, that the global consultancies they pay would resort to relying on Google searches when taking a stab at data points when the empirical data just isn’t available?

Owners of some solar plants that have suffered network issues are holding out for transmission upgrades.

“All models are by definition an oversimplification of reality, and forward-looking models often struggle to capture the intricacies of the market,” says Energy Synapse founder and managing director Marija Petkovic. “To fully appreciate the risks and opportunities, investors need to supplement any models with a deep understanding of how the energy market is evolving in practice.”

With her colleagues, Petkovic has developed a tool she says reflects the performance of wind, solar, hydro and battery assets around the country, with real-time data going back to 2018.

“We wanted to create a system that investors could understand and use to benchmark the performance of every clean energy asset in the grid, so that when they get a project on their desk they are evaluating they can do a peer comparison against 150-odd assets to really understand what the drivers of value are for that project and what the risks are.”

Petkovic’s mission for Energy Synapse is to “empower more investment in clean energy”, she says. If investors don’t really understand the opportunities and risks in the market, they’ll be hesitant to commit. “We see it again and again. When it comes to energy markets, there might be one or two people in an organisation who clearly understand them … but it’s just a black box to everyone else.”

Investors are struggling to get their heads around battery storage, Petkovic tells EcoGeneration. “FCAS [frequency control ancillary services] is such a dominant revenue stream and banks and other financial institutions are really hesitant to form a view on those markets.” In truth, they may be struggling to understand how batteries work.

It’s been a long project where hundreds of millions of data points have been crunched into “something that’s useful to people,” she says, but now the paid service is available to the market.

Fortunes far apart

Marija Petkovic … “We wanted to create a system investors could use to benchmark the performance of every clean energy asset in the grid.”

One representation of data that vividly depicts the hazards to investors is a scatter plot of marginal loss factors and capacity factors for every wind and solar farm in the grid, breaking solar into fixed axis and tracking. The top quartile of assets measured by revenue-per-megawatt are blue, the next 50% are orange and the bottom 25% are red.

“In an ideal world you would want to be in the top right-hand quadrant,” Petkovic says, with a high capacity factor and high MLF. Paid subscribers will know which assets are in that bunch, but EcoGeneration can only generalise and reveal they are predominantly wind farms. The bottom left-hand corner shows assets suffering low capacity factors and low MLFs.

“You can see in the way the data is stratified that the capacity factor is a higher provider of value than MLFs,” says Petkovic, pointing to a large NSW wind farm with a pretty ordinary MLF (below 0.9) but high capacity factor (above 40%), which puts it in the top 25% by revenue.

“If you are at a bank and are trying to evaluate a project, being able to put it in the context of everything else is really helpful,” she says. “You can see where it sits and compare it against the full spectrum of assets you could be investing in.”

The big earners

A chart on the tool that plots capacity factors against revenue shows wind outperforming solar, driven by higher capacity factors. “Some assets are earning three times as much as others,” she says, picking out two wind farms in NSW. “It’s a huge discrepancy.” (Petkovic shared a report for 2021 calendar year to late October).

Investors might think all solar farms and wind farms are pretty much alike, but Petkovic says the data shows “here is a huge difference in earning potential”. To make money (or not lose it), investors need to know what’s driving those differences.

Broken down by state, the effects of high penetration of wind and solar in South Australia can be seen in lower revenue results compared with sites in NSW, for example. “There is a price penalty for having a lot of renewables in there, versus a market that is still very coal-dominated,” she says.

Lost in the crowd

The research shows the capacity-factor advantage wind assets have over solar.

Investors who pay a consultant to forecast prices are often given average market prices as a guide, but investors should realise the renewables asset they’re looking at probably won’t earn the average price. “It could end up earning a fair bit less,” says Petkovic.

A chart that plots dispatch-weighted average prices shows clean energy assets earned below the market average. It should be no surprise, she says, as price is lowest when you’ve got a lot of wind and solar in the grid and it spikes when there is a renewables drought and gas and hydro generators get control of the market.

On again, off again

Curtailment is a problem that owners of wind and (especially) solar plants are familiar with, as they battle negative daytime prices and the effects of rooftop solar exports on demand. Another chart in the Energy Synapse tool shows how much energy was dispatched into the market and how much was physically constrained. Developers or investors looking over a project can look at assets generating nearby and see how they are being constrained.

“If nearby assets are experiencing high constraints there’s a pretty high chance their asset will be affected as well,” she says. Petkovic points to huge constraints at a Queensland wind farm in 2020, in nearly 30% of intervals.

Data used in the tool comes from meters connected to the NEM at each asset. No modelling is used.

How to make money in storage

As the pipeline of storage projects grows ever larger, investors will be asked to weigh the risks in what will become a very important sector of the energy market. Energy Synapse’s report looks at every large-scale battery in the grid and splits revenue into contingency FCAS, regulation FCAS and energy arbitrage. So far, most of the revenue in storage comes from FCAS services, which Petkovic says is “such a foreign concept to most of the banks and financial institutions”.

Shallow FCAS markets will become battlegrounds for revenue as more batteries connect to the grid, she says. “But the flipside of that is that as more coal-fired generation comes out of the grid, AEMO’s going to have to procure higher volumes of FCAS to keep the grid stable.”

New markets will see the pool of possibilities for FCAS revenue deepen, she says. The AEMC has proposed two-second fast-frequency response and there is talk of creating markets for virtual inertia and system security. “This revenue stream is not going to disappear.”