Another day, another interconnector

It’s only a few weeks since Project EnergyConnect, the South Australia-New South Wales interconnector, was finally confirmed to be going ahead. The $2,275m transmission line is the most expensive single project to be built since NEM start. But its record may not stand for long, as an even bigger project cleared its latest hurdle.

Marinus Link is the proposed second interconnector between Tasmania and the mainland (Victoria). The preferred option is two 750MW high voltage direct current (HVDC) cables running under the Bass strait, along with associated transmission upgrades in Tasmania. TasNetworks, the Tasmanian government-owned poles and wires business is the proponent, and it has just published the formal cost benefit report.

The catchily-named Project Assessment Conclusions Report (PACR) estimates the cost of Marinus Link at $3,481, or half as much again as EnergyConnect. However, it estimates the net benefits to be positive, across a range of scenarios.

It’s worth noting that TasNetworks only has to model the costs and benefits out to 2050. This means that the net benefit test only takes into account 2/3 of the costs. Given that the costs post 2050 are certain, while benefits are highly uncertain, this approach helps the business case significantly.

Depending on the scenario the net benefits (benefits less costs, both at present value, to 2050 only) are estimated to be $1,461m – $3,650m. an indicative breakdown of these benefits is shown in Figure 1 below.

Figure 1: Market benefits provided by Marinus Link

Source: PACR summary, TasNetworks

What do each of these benefits mean, exactly?

Avoided fuel costs, means that fossil-fuelled plants, especially Victoria’s remaining brown coal plants, will run less and close earlier. They will be displaced by new wind and hydro capacity from Tasmania that would not be able to export enough energy to be viable without a second interconnector to the mainland.

Deferred and avoided capital costs means that fewer new gas peaking plants or storage (pumped hydro/batteries) will need to be built on the mainland, again due to the Tasmanian wind/hydro capacity. It also appears likely that less mainland renewables will be built

Avoided generator fixed costs, relates to both the early closure of brown coal and the peaking/storage plants that won’t need to be built.

Avoided REZ expansion costs – the extra energy from Tasmania facilitated by Marinus Link will also mean less mainland transmission required to connect up new renewables.

Ancillary service benefits – Marinus Link will allow Tasmania to supply or source frequency control (FCAS) to/from the mainland to a greater extent.

Other market benefits are negligible, notably it is not expected to make any difference to reliability levels.

Other benefits not taken into account in this analysis include emissions savings and Tasmania meeting its 200 per cent renewable energy target, which logically relies on significant exports. No doubt jobs will be cited at some point, although since the market benefits are all about building this rather than other assets elsewhere, this is a dubious claim. Although the benefits are measured in terms of cost savings rather than lower prices TasNetworks have also had price reductions modelled, suggesting wholesale prices could be reduced by $3-$5/MWh across the NEM.

The reason for this latter analysis is the thorny issue of who will pay for the investment. Under current rules, Tasmanian consumers will have to pay around half. But as a small region, if price savings are distributed fairly evenly, then most of the benefits will be enjoyed by customers in bigger regions, particularly NSW and Victoria. So, while TasNetworks will continue the approval process, the go-ahead probably depends on resolving this issue. The Tasmanian government’s iron grip on the electricity supply sector means that it will be the final decision-maker, and they will be highly politically sensitive to imposing costs on local energy users, big or small.

But will the other jurisdictions buy this story, and agree to change the rules or thrash out a bespoke cost-sharing arrangement? They are all busily engaged in underwriting the investments – generation, storage and networks – that will drive their own state’s decarbonisation. They are promoting it – Victoria especially – as driving in-state jobs and investment. Will they want to pay for investment elsewhere even if it’s better value for the NEM as a whole?