The Australian Energy Regulator has released a determination on the proposal by ElectraNet and the Australian Energy Market Operator (AEMO) to upgrade the South Australia to Victoria (Heywood) electricity transmission interconnector.
ElectraNet submitted a request to the AER on 5 April 2013 for a determination on whether the investment option selected in the 'South Australia – Victoria (Heywood) Interconnector Upgrade project assessment conclusions report' satisfies the Regulatory Investment Test for Transmission, under the National Electricity Rules.
The AER finds that the option identified by ElectraNet and AEMO in their report provides the maximum economic benefits, and satisfies the requirements of the investment test. The upgrade, which involves new equipment at Heywood near the Victoria border and reconfiguring the network in the south-east of South Australia, would increase the capability of the network to transfer electricity between the two regions.
"A stronger interconnector at Heywood would increase energy flows between South Australia and Victoria, especially in peak times when prices can be volatile. The interconnector upgrade would introduce further competition for generators, and would enable consumers in both regions to access cheaper sources of energy,” AER Chairman Andrew Reeves said.
Further information on the AER's decision
ElectraNet is the transmission network owner in South Australia. AEMO is responsible for transmission planning in Victoria and, more broadly, the wholesale market operator of the NEM. ElectraNet and AEMO jointly proposed an upgrade to the Heywood interconnector, given the project impacts electricity transmission in both regions.
The Regulatory Investment Test for Transmission is an economic cost–benefit analysis to select the investment option that will provide the maximum economic benefits. It is designed to promote good investment outcomes in the national electricity market (NEM) and ensure greater consistency, transparency and predictability in transmission investment decision making. ElectraNet and AEMO assessed the timing, scale, choice, costs and benefits of different investment options meet electricity demand.
Investment in interconnectors and associated parts of the network involves significant costs. On the other hand, an interconnector upgrade can: defer other transmission or generation investment, allow increased competition in generation especially during tight market conditions, reduce exposure to price volatility, and promote greater security of supply.
ElectraNet and AEMO found increasing the Heywood interconnector's transfer capability will deliver net market benefits of $190 million over the long term. A key market benefit is higher use of lower cost generators, such as wind in South Australia and base-load capacity in Victoria. Increases in these sources of generation displace higher fuel cost generation from new and existing generators in South Australia and New South Wales.
The total capital cost of the project is estimated to be $108 million, with $63 million allocated to the South Australia network and $45 million to Victoria. This cost allocation reflects the necessary investment in each region.
Other options considered by ElectraNet and AEMO include the construction of a new Krongart to Heywood interconnector, and the use of 'control schemes' to manage wind generation flows across Heywood.
This determination means ElectraNet can now apply to the AER for an allowance for the cost of the Heywood interconnector upgrade to be included in charges during the 2013–2018 period. The AER would review ElectraNet’s proposal and decide how much it would be allowed to charge to recover the efficient costs attributable to the upgrade.