AER finalises improved cost-benefit guidance for network investment

A key test applied to large scale network investments is set to become more robust, efficient and timely after the Australian Energy Regulator (AER) announced improvements to its regulatory investment test (RIT) guidelines.

The new guidelines follow the Council of Australian Governments Energy Council’s (COAG EC’s) review of the test for transmission networks, the RIT-T, last year. Following from COAG EC’s recommendations, we have improved guidance on how to account for option value, policy developments and high impact, low probability events.

Following an AER request for changes to the National Electricity Rules, these transparent cost-benefit assessments now not only apply to network augmentations, but also to large replacement projects.

The new RIT guidelines also support a system-wide approach to planning in the National Electricity Market. They have been developed to complement and use information in the Australian Energy Market Operator’s integrated system plan (ISP) so network businesses take a more consistent and holistic approach to cost-benefit analysis.

Further work on strengthening the role of the ISP in efficient network planning and investment is being undertaken by the Australian Energy Market Commission and the Energy Security Board. These bodies will soon advise COAG EC on how to better coordinate generation and transmission investment and turn the ISP into action.

About the AER

The AER works to make all Australian energy consumers better off, now and in the future. 

We regulate electricity networks and covered gas pipelines, in all jurisdictions except Western Australia. We set the amount of revenue that network businesses can recover from customers for using these networks.

We enforce the laws for the National Electricity Market and spot gas markets in southern and eastern Australia. We monitor and report on the conduct of energy businesses and the effectiveness of competition.

We protect the interests of household and small business consumers by enforcing the Retail Law. Our retail energy market functions cover New South Wales, South Australia, Tasmania, the ACT and Queensland. We do not set the prices consumers pay.

We drive effective competition where it is feasible and provide effective regulation where it is not. We equip consumers to participate effectively, including through our Energy Made Easy website, and protect those who are unable to safeguard their own interests. We use our expertise to inform debate about Australia’s energy future.

About the ‘RIT’ cost–benefit analysis

The cost-benefit focus of the RITs is a key part of the planning undertaken by network businesses relevant to investment decisions and draws on other planning outputs, such as the Australian Energy Market Operator’s proposed ISP. The role of the RIT is to seek cost effectiveness for the consumer by increasing the transparency of individual investment decisions. It encourages network businesses to consider a wide range of possible solutions to meet an identified network need. Finally, it provides a predictable framework that all market participants can understand and participate in.

A RIT assessment is tailored to individual, project-specific circumstances and takes local factors such as the cost of easements and other site-specific factors into account.

In contrast, the national strategic plan in the form of the ISP and individual network service provider’s planning activities both have important roles in determining network development, costs and consumer prices.

Issued date: 
14 December 2018
AER reference: 
AC 153/18
General enquiries - RIT