Energy update – Victoria acts to enable transmission upgrades required for renewable generation projects

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On Tuesday 18 February, the Victorian Government introduced legislation to Parliament that will allow it to side-step the national framework for transmission investment under the National Electricity Law (NEL) and National Electricity Rules (NER). 

The amendments are intended to enable the State, in close consultation with the Australian Energy Market Operator (AEMO), to avoid the processes currently applicable to transmission investment under the NEL and NER, and thus fast-track urgent upgrades to the Victorian transmission network and the deployment of grid-scale battery projects.  The Victorian Government’s action demonstrates a genuine commitment to address connection risks affecting numerous Victorian renewable energy projects and seeks to deliver a more favourable commercial environment for investment in renewable energy projects.

“The existing national energy laws have let us down – they have failed to drive investment in our electricity system to provide a 21st century grid for all Victorians” The Hon Lily D’Ambrosio MP, Victorian Minister for Energy, Environment and Climate Change

The call to action

Victoria’s ageing transmission infrastructure is vulnerable to bushfire and severe weather events, insufficient to meet demand generated by extreme heat and, perhaps most significantly, is inadequate to support the lower cost renewable energy projects required to replace Victoria’s ageing coal-fired generators in the Latrobe Valley and deliver reliable supply.

The inability of the State’s transmission system to manage existing, committed and proposed renewable generation is illustrated by the system strength issues in the remote and electrically weak ‘West Murray’ region of the NEM.  In September 2019, AEMO constrained the output of the five solar farms in this region to half of their nominated capacity to address post-fault voltage oscillations, at an estimated combined cost of $1 million per day.  In late 2019, AEMO informed the market that, in the absence of transmission investment, many of the projects in the West Murray area that are committed (pre-commissioning) or in the application phase will not be able to connect or generate at full output.  These conditions are causing many developers, contractors and investors to rethink their commercial appetite to invest in renewable energy generation projects in Australia.

Under the national framework, however, the transmission infrastructure investment urgently required to address these issues will take a number of years to proceed through regulatory approval processes, procurement and construction.  In Victoria, these regulatory requirements and approvals include the requirement to undertake a regulatory investment test for transmission (RIT-T) and a requirement to undertake competitive tender processes to determine who will carry out a contestable augmentation.

How does the Bill work?

The Bill amends the National Electricity (Victoria) Act 2005, which gives the NEL and NER the force of law in the State of Victoria, to enable the Minister, by Order, to modify or disapply provisions of the NEL and NER that apply to augmentations of the Victorian transmission system, and non-network services. 

The details of how the NEL and NER will be modified or disapplied remain to be decided by the Order.  However, the Minister will have significant discretion, in making an Order, to alter the way the national framework applies, ensuring the flexibility required to respond quickly to whatever issues arise. 

The Order may, for example:

  • Modify or disapply AEMO’s functions in respect of the planning and augmentation of Victoria’s shared network and the provision of services by means of that network.
  • Modify or disapply the application of the RIT-T or NER provisions relating to the acquisition or performance of services.
  • Specify an alternative regulatory investment test.
  • Regulate a transmission augmentation, augmentation service or non-network service.
  • Specify the charges for augmentations and how they are to be recovered.
  • Provide that augmentation related costs or non-network service costs may be recovered through the cost pass through regime in the NER.
  • Require AEMO to tender an augmentation or non-network services or AusNet Services to plan, carry out or operate a specified augmentation.
  • Subject requirements of the Order to the NEL enforcement regime.

How does the Bill intend to create a better commercial environment for renewable energy investment?

The amendments are intended to facilitate or expedite specified transmission system augmentations or services to improve the reliability of electricity supply in Victoria.

The Victorian Government will be intending to facilitate the transmission investment required to address connection risk, staunch the recent trend of exits by renewable energy developers, contractors and investors from the Australian market and drive renewable generation investment in the State, once these amendments become law.

As a first step to secure additional transmission capacity, the Victorian Government is proposing to ask AEMO to call for expressions of interest to increase the capacity of the Victoria-New South Wales interconnector.

Parliamentary debate in respect of the Bill has been adjourned until Wednesday, 4 March 2020