The Australian Energy Regulator has approved the Heywood Interconnector upgrade contingent project for ElectraNet. The project will increase the capacity of the interconnector between South Australia and Victoria from 460 MW to 650 MW.
The AER estimates the cost at $47m (nominal). This is lower than the costs proposed by ElectraNet of about $66m (nominal). The project is expected to deliver a net market benefit to consumers of more than $190m when completed.
"The AER is satisfied this project should proceed immediately. The upgrade will increase the trade of energy between Victoria and South Australia and has a very high potential to reduce future energy costs for consumers in both regions," AER Chairman Andrew Reeves said.
"However, we were not convinced that all of the work ElectraNet proposed was necessary to complete the project. ElectraNet proposed to demolish two existing lines at a cost of about $20m on safety grounds. We consider there is a lower cost safe option.
While ElectraNet’s approach achieves a very high safety standard, the AER considers the cost of achieving this standard is excessive and unnecessary. The preferred alternative is to delay the demolition and adopt a comprehensive passive safety program. The AER has authorised funding to ElectraNet on this basis.
“Across South Australia, the average transmission tariff will increase by approximately 1 per cent, but being able to draw more power from across the border on days of peak demand will more than compensate consumers through lower peak prices,” Mr Reeves said.
The increase to the transmission tariff will occur from 2014/15 but will not be fully implemented until 2017/18. Because transmission network tariffs typically account for about 9 per cent of residential retail bills in South Australia, on average the overall effect on retail bills will be very small, less than 0.1 per cent increase.
To upgrade the interconnector work must take place in both the South Australian and Victorian transmission systems. Work on the Victorian system is being undertaken under contracts administered by the Australian Energy Market Operator (AEMO). Earlier, in 2013, ElectraNet and AEMO undertook joint work to conduct a regulatory investment test evaluation which was separately approved by the AER. ElectraNet and AEMO will continue to work closely to complete the South Australian upgrade.
The funding arrangements for the Victorian work are managed under different arrangements that apply to Victoria and were not considered as part of this proposal.