AER approves South Australia – NSW interconnector regulatory investment test

The proposed South Australia-NSW interconnector will facilitate the long term transition of the energy sector to low emission energy sources and enhance power system security in South Australia.

The Australian Energy Regulator (AER) today published its decision to approve ElectraNet’s Regulatory Investment Test for Transmission (RIT-T) application for the SA-NSW interconnector.

ElectraNet was required to submit the RIT-T application for the interconnector to proceed.

“We’re satisfied, on the basis of the information ElectraNet has provided, that the SA-NSW interconnector is the best option for meeting the needs of consumers when compared to alternative options.

“We’ve tested the reasonableness of ElectraNet’s inputs and assumptions across a range of scenarios and found that the project, as set out in the RIT-T, is robust and will deliver a net economic benefit to Australian energy consumers,” said AER Chair Clare Savage.

The Australian Energy Market Operator (AEMO) has identified the SA-NSW Interconnector as a high priority project in its Integrated System Plan.

The RIT-T process requires the AER to analyse the specifics of transmission proposals to ensure they support affordable and reliable energy for Australian consumers.

Based on construction costs of $1.53 billion, the AER review – which incorporated alternative inputs and assumptions to ElectraNet’s – identified $269 million in likely net benefits from the project against the $924 million estimated by ElectraNet.

“ElectraNet assumed that without the interconnector substantial gas-fired generation would be needed to keep the lights on in South Australia even with considerable new investment in wind, solar, batteries and synchronous condensers.

“The AER does not think it’s reasonable to assume that such large volumes of gas-fired generation will be required when there are cheaper sources of generation already available.

“We requested ElectraNet update their modelling to reflect AEMO’s system security requirements and to allow these cheaper sources of generation to compete in the market – this reduced the benefits of the interconnector substantially.

“While the benefits to energy consumers may be smaller than set out in the RIT-T they are still substantial and the interconnector therefore satisfies the requirements of the process” said Ms Savage.

Residential customers in South Australia can expect to pay an extra $9 per annum and NSW customers $5 for the project but these costs will be more than offset by the benefits.

Ms Savage said that while large infrastructure projects like the SA-NSW interconnector will be required as the energy market evolves, it remains critical that consumers pay no more than necessary for safe and reliable energy.

“If there was a material change in the cost of the project such that it was likely to erode the estimated benefits then it would be important for us all to have another look at the viability of this project,” said Ms Savage.

ElectraNet must now make an application to the AER for contingent project funding for the SA-NSW interconnector.

Background

RIT-T

The RIT-T is a cost-benefit analysis that transmission businesses apply before making network investments in excess of $6 million. The purpose of the RIT-T is to identify the network or non-network investment option with the highest net economic benefits across the National Electricity Market. This promotes efficient investment decisions and helps ensure that consumers pay no more than necessary for electricity network infrastructure.

The SAET RIT-T explored options for reducing the cost of providing secure and reliable electricity to SA in the near term, while facilitating the longer-term transition of the energy sector across the National Electricity Market. ElectraNet released its final RIT-T report on 13 February 2019, which identified its preferred investment to build a new 330 kV interconnector between Robertstown in mid-north SA and Wagga Wagga in NSW, via Buronga and with an augmentation between Buronga and Red Cliffs.

Contingent Project Application

The AER is required by the National Electricity Rules (NER) to assess applications by network service providers to amend their revenue determination to include the revenue required for a contingent project.

Sector: 
Issued date: 
24 January 2020
AER reference: 
NR 02/20
Contact: 
AER Media 0466 409 921 media@aer.gov.au