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.
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.