TransGrid and ElectraNet – Project EnergyConnect contingent project

Sector: 
Segment: 
Status: 
Commencement date: 
30 September 2020
Effective date: 
1 July 2021
Contact: 
General enquiries - Contingent projects contingentprojects@aer.gov.au
AER reference: 
65362

Overview

On 18 December 2020, the AER published its preliminary position on TransGrid and ElectraNet’s applications to amend their existing revenue determinations to account for the costs of delivering the new South Australia to New South Wales interconnector (Project EnergyConnect) in the 2018–23 regulatory control period.

While we have formed preliminary views on TransGrid and ElectraNet's applications, it would be premature for us to make a determination to increase allowed revenues so that TransGrid and ElectraNet can begin recovering project costs from customers. We are not yet satisfied that the project trigger event has occurred because we do not consider that TransGrid and ElectraNet have committed to proceed with the project if we were to amend their revenue determinations pursuant to the National Electricity Rules (NER).

TransGrid and ElectraNet’s resolutions to proceed with the project are subject to a number of conditions including obtaining finance for the project on satisfactory terms. To this end they have sought changes to the NER to accelerate the recovery of project revenue. The Australian Energy Market Commission (AEMC) expects to make a final decision on the rule change proposals in March 2021.

We are only required to determine the expenditures and incremental revenue required to deliver a contingent project if we are satisfied that the trigger event has occurred. Consumers should not be charged for new significant projects, such as Project EnergyConnect, until the cost is reasonably known and it is certain the project will proceed.

In order to continue to progress the project, we have undertaken an assessment of the proposed costs and are providing our preliminary position. Our preliminary view is that the prudent and efficient capital cost for the project is $2.15 billion, which is 9 per cent lower than the $2.4 billion proposed by TransGrid and ElectraNet.

We expect to be able to make determinations on the Project EnergyConnect contingent project applications after the project trigger event occurs. We welcome feedback from interested stakeholders on our preliminary assessment of forecast capex, and the occurrence of each element of the project trigger event.

Background

On 30 September 2020, TransGrid and ElectraNet submitted contingent project applications to the AER seeking increases in their allowed revenues to construct the new South Australia to New South Wales interconnector (Project EnergyConnect).

Project EnergyConnect involves the construction of a new 860 km 330 kV interconnector between Robertstown in mid-north South Australia and Wagga Wagga in New South Wales, with an augmentation between Buronga and Red Cliffs in north-western Victoria.

TransGrid and ElectraNet forecast the full cost of the project to be $2.4 billion:

  • The New South Wales component is forecast to cost $1.9 billion. TransGrid’s application seeks the incremental revenues required to construct the NSW component within its allowed regulated revenues.
  • The South Australia component is forecast to cost $469 million. ElectraNet’s application seeks the incremental revenues required to construct the SA component within its allowed regulated revenues.

These applications relate to the preferred network investment option identified through ElectraNet’s South Australian Energy Transformation Regulatory Investment Test for Transmission (RIT-T).

Our role is to determine the prudent and efficient capital and operating costs required to construct the Project EnergyConnect contingent project, and the incremental revenue that TransGrid and ElectraNet may recover within the 2018–23 regulatory control period to fund the project.

Funding for additional revenue for a contingent project is permitted under clause 6A.8.2 of the National Electricity Rules through an adjustment to maximum allowed revenues under existing revenue determinations. In order for a transmission network service provider to be able to apply to amend its revenue determination to increase allowed revenues for a contingent project, the specified trigger event must have occurred. We are only required to determine the expenditures and incremental revenue required to deliver the contingent project if we are satisfied that the pre-defined trigger event has occurred.