Victoria’s transmission rules shake-up is just the beginning

By Simon Corbell 
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The announcement by the Victorian Government to remove the application of certain parts of the National Electricity Law (NEL) from the state’s electricity network is the latest sign that Australia’s existing regulatory framework is being challenged by the pace of the clean energy transformation. 

The new legislation was introduced into the Victorian state parliament last week. If passed, it will allow the state’s Energy Minister to bypass the application process of determining the cost-effectiveness of transmission projects via the Regulatory Investment Test for Transmission (RiT-T).

​Instead, the Energy Minister may opt for an alternative (and presumably quicker) process to determine the cost-benefit assessment for the transmission project. This process may potentially be via the independent Victorian Essential Services Commission or through an internal process conducted by the Victorian Department of Treasury and Finance. The provisions of the bill also consider a situation in which the Energy Minister may determine that no assessment is required. Under these circumstances, a project would be unable to recover its costs through the current regulated revenues pathway approved by the Australian Energy Regulator (AER). This would not be a concern, however, for non-regulated, revenue focused projects.

This move signals the state government’s frustration with the delay in assessing transmission augmentation projects, which are necessary to unlock grid congestion in the North-West of the state. Several gigawatts of proposed wind and solar generation projects in this region are currently unable to connect to the grid and local and global investors have incurred losses and impairments totalling hundreds of millions. 

The bill is also a damning indictment of the failure of the Australian Energy Market Commission (AEMC) to properly anticipate and amend the regulatory environment in a timely way to facilitate the the transition of the energy system from its fossil fuelled past to a zero emissions future. If the AEMC wants confirmation that its' proposed CoGaTI (Coordination of Generation and Transmission Infrastructure) reform package needs a fundamental reboot, then this is surely it.

Victoria is not alone in exploring the approach of removing the NEL from certain priority areas to support the transition of the electricity sector. The NSW Government has also foreshadowed its willingness to remove the application of the RiT-T for the development of its priority Central West Renewable Energy Zone (REZ), as it works to accelerate the development of up to 3GW of clean energy generation. 

"If the AEMC wants confirmation that its' proposed CoGaTI (Coordination of Generation and Transmission Infrastructure) reform package needs a fundamental reboot, then this is surely it."
- Simon Corbell 
Chief Advisor, Energy Estate

It remains to be seen whether NSW will adopt a similar approach to the Victorian opt-out or if it will develop a more focused and region-specific mechanism. What is clear is that if NSW wants to see the timely development of the Central West REZ, and other REZs across the state, it will need to consider some sort of mechanism to accelerate the development of transmission infrastructure.

Across the renewables sector we should expect to see further interventions by state and territory governments as existing market institutions struggle to keep up with the pace of the energy transition. This will be heightened by the growing consequences of the absence of national government leadership in mapping a path to a zero-emissions electricity sector.