Transmission Revamp

It was reported today that Victoria is going it alone and breaking away from parts of the National Electricity Rules in order to speed up new transmission investment.

What is Victoria doing? As always, there will be some important devil in the detail, but in short, they will be tweaking their local version of the national electricity laws to make it easier to build new transmission lines, especially in the Northwest of the state, which has been identified as a promising area to build a lot of new renewable generation.

Transmission lines are large assets that take several years to plan and build, and once built, consumers have to pay off their cost for decades to come. It’s perhaps unsurprising then, that the national rules have plenty of safeguards built in aimed at ensuring only the most worthwhile projects go ahead. Briefly, the local grid planner (in Victoria’s case, this is the NEM’s market operator AEMO) has to consult on a range of options to meet an identified need, and choose the one that has the highest net benefit, with clear rules about what constitutes a “benefit”. Then, the national regulator (AER) has to sign off on the project. Such fiddly processes are of course anathema to politicians who like to show they have their hands directly on the levers of power.

To be fair, the Victorian Government is far from the first to be critical of the existing process, known as the Regulatory Investment Test for Transmission (RIT-T). Much of the criticism is around two aspects:

  • The time it takes to run the test, from initial scoping to final AER sign-off, is around two years. There then needs to be another application to the AER with a more detailed costing to get the budget for the work approved– taking another 18 months before the transmission business that is building the asset is willing to commence works.
  • The types of benefits that can be included in the cost-benefit analysis. These are primarily “market” benefits – the cost reductions in generation that will occur from the project enabling more cheaper generation to be brought to market. They also include technical system benefits, such as improvements to reliability and security. They don’t directly include emissions reduction benefits (or costs if a project was forecast to result in higher emissions) or – perhaps most pertinently in this case – general government policy objectives, such as increasing renewable energy, regional jobs, keeping the lights on at all costs, etc.

The first criticism is somewhat addressed by proposed changes to the national rules for projects that have been identified in AEMO’s Integrated System Plan (which includes some of the projects the Victorian government is keen to progress). These are aimed at knocking two years or more off the end-to-end process. The second issue is largely a function of the energy market bodies’ reluctance to get involved in matters of public policy best left to elected governments. If we had anything approaching consensus on climate change policy in Australia, we would likely have an emissions reduction benefit clause in the RIT-T already.

It’s not clear yet what if any safeguards against gold-plating or pork-barrelling the Victorian government will include in its amended version of the rules, or whether projects get the go-ahead purely through political fiat. Given that Victorian electricity consumers – from large industrial customers down to households – will be paying for everything that gets built under these new rules, they will be keeping their fingers crossed that there are some checks and balances left in the process. Those in other states will be watching nervously to see if their governments follow suit.