Background
The AER has released a new version of its revenue determination guideline for NSW non-contestable projects (Non-contestable Guideline) which is developed by us as part of our role as regulator under the Electricity Infrastructure Investment Act 2020 (NSW) (EII Act). We have updated the Non-contestable Guideline to incorporate the Australian Energy Market Commission's (AEMC) Improving the cost recovery arrangements for transmission non-network options Rule (the ICRA Rule).
In March 2025, the AEMC finalised the ICRA Rule which aims to improve cost recovery arrangements for transmission network service providers that implement non-network options (NNOs) as part of a network infrastructure project.
NNOs include a range of technologies and services that can address identified network needs and provide alternatives to traditional 'poles and wires' investments, such as batteries. In some cases, NNOs can be delivered at a lower cost than traditional network solutions and have the potential to play an important role and benefit consumers as part of the energy transition.
To give effect to the ICRA Rule, on 13 March 2026 we published a network alternative support payment guideline (NER Guideline), which sets out the processes and assessment criteria for applications relating to NNOs under the National Electricity Rules (NER) Chapter 6A.
In 2021 the NSW Government appointed the AER to be a Regulator under the EII Act. As a Regulator, we aim to ensure that the EII regulatory framework remains fit-for-purpose and aligned with reforms to the NER framework. Under clause 47A(3) of the Electricity Infrastructure Investment Regulation 2021 (NSW) (EII Regulation) we are required to, as far as is reasonably practicable, make our Non-contestable Guideline consistent with Chapter 6A of the NER.
We commenced the targeted review of the Non-contestable Guideline after considering a request from the NSW Department of Climate Change, Energy, the Environment and Water (NSW DCCEEW), that the Guideline be updated to incorporate the ICRA Rule.
Scope of the review
The targeted review focused on incorporating the ICRA Rule into the Non-contestable Guideline.
As applied to network operators in NSW, the ICRA rule:
- creates a process by which a network operator can apply to the AER to adjust their network support payment allowance to account for a significant new or changed NNO project mid-regulatory period.
- enables the approval of a proposed payment methodology for a network alternative support payment for a NNO project.
The updates to the Non-contestable Guideline provide network operators with greater clarity on how an application for a determination on payment methodology or expenditure for a NNO project that is implemented as part of a network infrastructure project will be assessed under the Electricity Infrastructure Investment (EII) framework.
The intention of incorporating the ICRA Rule under the EII framework, is to:
- provide network operators certainty about the acceptability of long-term contractual arrangements
- avoid any uncertainty arising out of a prolonged cost-recovery arrangement
- support network operators in their ability to commit to long-term non-network solutions particularly in situations which require a contractual agreement
- help promote lower-cost solutions and improve outcomes for consumers.
Amendments to the Non-contestable Guideline
To incorporate the ICRA Rule, we have added a new chapter to the Non-contestable Guideline to address how we make determinations on cost recovery arrangements for NNOs that are implemented as part of network infrastructure projects under the EII Act. Chapter 8 sets out how a network operator should prepare and submit an application for a determination on proposed cost recovery arrangements for a NNO project. It also sets out how we will assess those applications and the factors we will consider in making a determination. We have also made some minor and administrative amendments to the Non-contestable Guideline.
The new version of the Non-contestable Guideline takes into account feedback received as part of our consultation. The explanatory statement outlines the key issues raised in stakeholder submissions and provides a summary of the AER's response to each of those issues.