On 9 August 2019, the AER made a final decision in relation to ElectraNet's main grid system strength contingent project application.
Our decision departs from ElectraNet's proposed revenue amendments by providing for a reduced forecast of total net capital expenditure required to deliver the project of $166 million, and by assigning a 40 year standard asset life to the synchronous condensers that will be installed to provide system strength.
Our decision will facilitate the prudent and efficient implementation of a four high-inertia synchronous condenser solution to address the system strength gap in South Australia that the Australian Energy Market Operator (AEMO) identified in December 2016 and confirmed in October 2017. Increased transmission charges from addressing the system strength gap are expected to increase the bills of ElectraNet customers by $2 to $8 per year for residential customers or $12 to $36 per year for small business customers over the next three years. However, ElectraNet has estimated that the four synchronous condensers will help to reduce the current annual cost of market directions in South Australia, offsetting the cost of this network investment.
Background
On 28 June 2019, ElectraNet submitted an application to the AER seeking an increase in its allowed revenue to fund the installation of four high-inertia synchronous condensers in South Australia. The synchronous condensers will address a system strength gap in South Australia declared by AEMO.
Funding for a 'contingent project' is permitted under clause 6A.8.2 of the National Electricity Rules through an adjustment to the maximum allowed revenue under ElectraNet’s 2018-23 revenue determination. Network revenue determinations are made by us and set out the revenue network businesses can collect from electricity consumers through charges within a defined period.
The contingent project application follows a determination we made on 18 February 2019 that ElectraNet's proposed investment to install synchronous condensers satisfies an economic evaluation equivalent to a regulatory investment test for transmission (RIT-T). This determination was a trigger event for the contingent project and did not reflect whether ElectraNet's $140–180 million estimated capital costs of the four synchronous condensers represented efficient and prudent costs, which have now been determined through this contingent project assessment.
Interested parties were invited to make submissions on ElectraNet’s contingent project application by close of business 15 July 2019. We received three submissions.