Background
In March 2025, the AEMC finalised the Improving the cost recovery arrangements for transmission non-network options Rule (the ICRA Rule) which aims to improve cost recovery arrangements for transmission network service providers that implement non-network options (NNOs) as part of an infrastructure project.
NNOs include a range of technologies and services that can address identified network needs and provide alternatives to traditional 'poles and wires' investments, such as batteries. In some cases, NNOs can be delivered at a lower cost than traditional network solutions and have the potential to play an important role and benefit consumers as part of the energy transition.
To give effect to the ICRA Rule, on 13 March 2026 we published a network alternative support payment guideline (NER Guideline), which sets out the processes and assessment criteria for applications relating to NNOs under the National Electricity Rules (NER) Chapter 6A.
In 2021 the NSW Government appointed the AER to be a Regulator under the NSW Electricity Infrastructure Investment Act 2020 (NSW) (EII Act). As a Regulator, we aim to ensure that the EII regulatory framework remains fit-for-purpose and aligned with reforms to the National Electricity Rules (NER) framework. Under clause 47A(3) of the Electricity Infrastructure Investment Regulation 2021 (NSW) (EII Regulation) we are required to, as far as is reasonably practicable, make our EII guidelines consistent with Chapter 6A of the NER.
We commenced this targeted review of the Revenue determination guideline for NSW non-contestable projects (Non-contestable Guideline) after considering a request from the NSW Department of Climate Change, Energy, the Environment and Water (NSW DCCEEW), that the Guideline be updated to incorporate the ICRA Rule.
Scope of the review
Our 2026 targeted review of the Non-contestable Guideline focuses on how we will incorporate the ICRA Rule into the NSW EII framework. The updates will provide network operators with greater clarity on how NNO components of network infrastructure projects will be assessed under the EII framework.
By providing greater clarity on the application and assessment processes, the updated Non-contestable Guideline will provide increased certainty for NNO agreements and support timely investment in NNOs.
The intention of incorporating the ICRA Rule under the EII framework, is to:
- provide network operators certainty about the acceptability of long-term contractual arrangements
- avoid any uncertainty arising out of a prolonged cost-recovery arrangement
- support network operators in their ability to commit to long-term non-network solutions particularly in situations which require a contractual agreement
- help promote lower-cost solutions and improve outcomes for consumers.
Proposed amendments
To incorporate the ICRA Rule, we have added a new chapter to the Non-contestable Guideline dealing with determinations on NNO components. Chapter 8 sets out how a network operator can prepare and submit applications to us for a determination on proposed cost recovery arrangements for the NNO components of a network infrastructure project. It also provides how we will assess those applications and the factors we will consider in making a determination.
In addition, we are also proposing to make some minor and administrative amendments to the Non-contestable Guideline.
As far as reasonably practicable we have sought to align the amendments to our Non-contestable Guideline, to reflect the ICRA Rule, with our network alternative support payment guideline developed under the national regulatory framework. However, there are two main areas where we consider differences in approach are necessary.
Applications for a determination on a payment methodology made prior to the submission of an initial revenue proposal
A key amendment to the draft Non-contestable Guideline is to allow network operators to make an application for an early determination on a payment methodology prior to the submission of an initial revenue proposal. This timing flexibility will allow network operators to apply for an early determination on the payment methodology for a NNO component at least 60 business days prior to the submission of a revenue proposal. An AER determination could then be made on that application within 40 business days, subject to us receiving a complete application which does not require further information or consultation.
This proposed amendment is not reflected in NER Chapter 6A, however allowing for an early determination on a payment methodology supports the key difference between the EII and NER frameworks which is that EII projects are stand-alone projects that require an initial revenue determination to be made.
While a determination on payment methodology will not constitute approval of future costs, it will provide greater certainty as the AER is required to have regard to an approved payment methodology in making future revenue determinations.
By reducing cost recovery uncertainty for network operators, this will allow:
- an NNO component of a network infrastructure project under the EII framework to proceed more quickly,
- support network operators to include NNO components in their network infrastructure projects; and
- support an objective of the EII Act to encourage investment in new generation, storage, network and related infrastructure by reducing risk for investors.
Materiality threshold
A second key difference between the draft Non-contestable Guideline and the NER Guideline is the application of a different materiality threshold which applications must satisfy.
We have proposed that a reasonable materiality threshold is $5 million or more for the expected average annual payment of each NNO component of the network infrastructure project. This is to support the intention of the ICRA Rule and provide certainty to network operators in entering financially significant infrastructure project contracts with NNO components.
In setting an appropriate materiality threshold, we considered the materiality threshold under the NER Guideline which is that the expected average annual payment caused by a NNO project, or portfolio of projects, must exceed 1 percent of AER approved unsmoothed revenues in a regulatory year for the current regulatory control period. However, we consider that a threshold $5 million or more for the expected average annual payment of each NNO component of the network infrastructure project is warranted for the following reasons:
- Under the EII framework there may not yet be an existing revenue determination for an infrastructure project that the NNO component will relate to.
- Determinations under the EII framework are based on a project-by-project basis rather than a portfolio of existing and new projects, and as such overall determined revenue under the EII framework will typically be lower than under the NER.
- It avoids multiple applications and related administrative costs for non-significant NNO components.
Key questions for stakeholders
We ask that interested stakeholders raise any issues or concerns about the draft Non-contestable Guideline in submissions made to us. We also invite stakeholders to consider the following questions on the proposed amendments:
- What feedback, comments, suggestions, or improvements do stakeholders have concerning the proposed addition of chapter 8 to the Non-contestable Guideline? In particular, the following proposed amendments that are not consistent with NER Chapter 6A and our NER Guideline:
- Allowing applications for a payment methodology prior to the submission of an initial revenue proposal
- The proposed materiality threshold
- What, if any, additional matters in relation to NNOs should the Non-contestable Guideline consider?
