Briefing Note | February 2021
Regulatory Investment Tests
The regulatory investment tests for Transmission and Distribution (RIT-T and RIT-D) are the processes to determine whether or not to build new transmission lines and distribution networks: these are the monopoly, regulated network infrastructure that move electricity from generators to markets, between states (transmission lines) and around cities and towns (distribution networks or “poles and wires”).
This process is used to assess whether to provide a stable, regulated rate of return to the asset developer, because the value delivered by the project warrants it. These types of asset are often expensive and have long working lives. There is no competitive market for monopoly assets.
The process of considering and approving (or vetoing) new infrastructure like this is run by the network business itself and checked by The Australian Energy Regulator. The expected benefits to consumers need to outweigh the expected costs for the expenditure to go ahead.
The network must consult with stakeholders and consider alternative solutions, including those that don’t entail building more poles and wires.
This process is increasingly important given a lot of new generation will be built in different locations than existing thermal power stations, and will all need to be connected together in the most efficient way. This makes the process of approvals in some cases more challenging too.
A streamlined process for transmission projects that are part of the Integrated System Plan has been developed by the AER.
It is still possible for any business to seek approval to build transmission and distribution as unregulated assets. The Basslink transmission cable between Victoria and Tasmania is an unregulated asset that has negotiated its own revenues as a share of the electricity it transports.