On 13 April 2021, the AER published its final decision in relation to TransGrid's VNI minor upgrade contingent project application. Our decision approves $6.6 million in expenditure over the remainder of TransGrid’s regulatory control period as efficient and prudent. We have made this decision as:
47 per cent of proposed costs were based on proprietary SmartWires technology that was found to be the most efficient technology in the completed Regulatory Investment Test for this upgrade;
36 per cent of costs were based on competitively tendered costs that we are satisfied reflect a scope of works needed to install the SmartWires technology and
the remainder of proposed costs reflect overhead costs that we are satisfied reflect efficient costs for a project of this scale.
We also accepted the proposed incremental opex on the basis that the majority of this opex reflect maintenance costs for the SmartWires technology that is required to be provided as specialist services to support the investment provided by the SmartWires proponent.
This investment will benefit consumers and producers of electricity by deferring the need to build new generation and storage capacity in NSW, and allowing for more efficient sharing of generation across the NEM, and supporting the ongoing energy market transition.
VNI minor is a joint TransGrid and Australian Energy Market Operator (AEMO) project, which involves increasing the transfer capacity of the existing interconnector between Victoria to NSW by approximately 170 MW during peak demand conditions in NSW.
On 27 November 2020, TransGrid submitted a contingent project application to the AER seeking an increase in its allowed revenue to increase the transfer capacity of the existing Victoria – New South Wales interconnector (VNI minor).
On 26 November 2020, TransGrid sought written confirmation from AEMO that the VNI Minor project satisfies the requirements under the Integrated System Plan (ISP) feedback loop. In conducting the assessment for the purposes of the feedback loop, AEMO is required to confirm that:
- the preferred option identified in the completed RIT-T addresses the relevant identified need specified in the most recent ISP and aligns with the optimal development path referred to in the most recent ISP; and
- the cost of the preferred option does not change the status of the actionable ISP project as part of the optimal development path as updated in accordance with clause 5.22.15 of the NER where applicable.
VNI minor comprises of three key elements:
- installation of a second 500/330 kilovolt (kV) transformer at South Morang Terminal Station
- re-tensioning the 330 kV South Morang – Dederang transmission lines, as well as associated works (including replacement of series capacitors), to allow operation at thermal rating, and
- installation of modular power flow controllers (MPFC) on the 330 kV Upper Tumut – Canberra and Upper Tumut – Yass lines to balance power flows and increase transfer capability.
This project was recommended in the 2018 ISP and identified as an actionable ISP project in the 2020 ISP. In February 2020, AEMO and TransGrid jointly completed a RIT-T to assess the technical and economic viability of this project to alleviate power transfer capacity limitations between Victoria and New South Wales.
Funding for a 'contingent project' is permitted under clause 6A.8.2 of the National Electricity Rules through an adjustment to the maximum allowed revenue under TransGrid's 2018-23 Revenue Determination. Network revenue determinations are made by us and set out the revenue network businesses can collect from electricity consumers through charges within a defined period.
Our role is to determine the prudent and efficient capital and operating costs required to provide a reliable electricity supply most efficiently into the future, and the incremental revenue that TransGrid may recover within the 2018–23 regulatory control period as a result of undertaking the project.