Background
The Improving the cost recovery arrangements for transmission non-network options Rule (the ICRA Rule), which commenced on 13 March 2025, amends the cost recovery framework for TNSPs implementing NNOs to meet network needs. TNSPs may seek to enter into arrangements with NNO providers as an alternative to typical ‘poles and wires’ network investment. For example, a NNO could be to contract for energy storage services to support the capacity of the grid in a particular location.
The ICRA rule allows:
- TNSPs to apply to the AER to adjust network support payment allowances for the remaining years of a regulatory control period to incorporate new or changed expenditure for a proposed NNO service
- TNSPs to seek a determination from the AER that a methodology for such payments will be consistent with the operating expenditure objectives, criteria and factors.
The ICRA rule also requires the AER to publish a Network alternative support payment guideline which sets out the eligibility criteria and thresholds TNSPs must meet to submit applications for determinations on NNO payment methodologies and adjustments to network support payment allowances.
In making the ICRA rule, the Australian Energy Market Commission (AEMC) noted that enabling TNSPs to seek AER determinations on NNO payment methodologies and adjustments to their network support payment allowances is intended to:
- reduce barriers to NNO projects and support the application of new technologies and business models in the National Electricity Market (NEM)
- reduce negotiation and transaction costs for NNO projects by improving cost recovery and revenue certainty for TNSPs investing in NNO projects
- level the playing field between network and non-network expenditure in terms of timing flexibility and cost recovery certainty, in order to support lowest cost consumer outcomes during the energy transition.
