Type
Communications
Sector
Electricity
Segment
REZ
Transmission
Issue date
AER reference
AER24010395
Contacts
General enquiries - REZ

The AER has today published a preliminary position paper on Transgrid’s hybrid revenue proposal for its System Strength Project for the 2026–31 regulatory period. 

Transgrid’s revenue proposal contains three main elements:

  • the supply and maintenance of synchronous condensers;
  • associated works enabling the installation and connection of the synchronous condensers, and
  • Transgrid integration works. 

For the System Strength Project, Transgrid has proposed $1,185.0 million ($ September 2026) in total capital expenditure, which includes $918.1 million of contract-related (contestable) expenditure and $261.5 million of non-contestable expenditure.

Our preliminary position paper follows consultation on Transgrid’s revenue proposal and provides an early indication of our assessment. Our assessment highlights two key focus issues for stakeholder consideration and feedback:

  • Transgrid’s approach to managing risk, and
  • labour and indirect costs. 

Our preliminary positions are informed by stakeholder submissions and highlight areas of Transgrid’s proposal which we are likely to not accept or consider would benefit from focused feedback from stakeholders.

Stakeholder feedback on our preliminary positions will inform our revenue determination on Transgrid’s System Strength Project hybrid revenue determination. We will endeavour to make our revenue determination on the project prior to the proposed regulatory period commencement date of 1 October 2026.

 

Background

Under the National Electricity Rules, Transgrid is the designated System Strength Service Provider for NSW. It is responsible for forward planning to ensure the system strength standards set out by the Australian Energy Market Operator are met. These standards ensure an ongoing secure and stable power system across the state.

In 2025, transmission system planning processes identified a potential future shortfall in system strength. This prompted the NSW Government to issue a Priority Network Infrastructure Project (PNIP) Direction Order under the EII Act for Transgrid to carry out the System Strength Project. In March 2026, the NSW Government issued an updated version of the PNIP direction to cover transport works required for the project.

The System Strength Project involves the deployment of 10 synchronous condensers at 5 sites within NSW that will work to maintain voltage and system stability and is part of a broader portfolio of solutions to maintain system strength in NSW. The PNIP direction also required the System Strength Project be delivered through a mix of competitively procured, contestable elements and non-contestable elements. 

This is the first time under the Electricity Infrastructure Investment Act 2020 (NSW) (EII Act) that we are making a revenue determination for an infrastructure project that combines both contestable and non-contestable components in one revenue determination. We refer to this as a hybrid revenue determination. 

In December 2025 and March 2026, we found the tenders undertaken by Transgrid for the Synchronous Condenser and Associated Works contestable works packages, were genuine and appropriate processes. Transgrid’s hybrid revenue proposal was subsequently submitted under the non-contestable framework. We have 126 business days from receiving a compliant revenue proposal to make our revenue determination. Our role is to ensure that Transgrid only recovers the prudent, efficient, and reasonable capital costs for undertaking the network infrastructure project.

We will make our determination on Transgrid’s System Strength Project hybrid revenue proposal in accordance with the EII Act, the EII Regulation and our Revenue determination guideline for NSW non-contestable projects.