The Australian Energy Regulator has been told to get on with the job of approving a crucial new network interconnection between New South Wales and South Australia, after the market operator insisted the project still stacks up economically despite accelerating developments in the energy market.
The $2.4 billion link is emerging as a key flashpoint in the accelerating change to a renewables dominated grid, with the incumbent coal lobby seeking avenues to question and delay, and key state governments growing increasingly frustrated by the delays of the industry regulator.
TransGrid and ElectraNet have sought regulatory approval to construct Project EnergyConnect, a new 330kV interconnector between Robertstown in mid-north South Australia and Wagga Wagga in New South Wales with a capacity of 800MW.
The project would allow for excess renewable electricity to be exported from South Australia while also providing an additional measure of supply security for both states and would include an additional link to the North-West region of Victoria.
The Australian Energy Regulator (AER) is currently considering regulatory approvals for the project, which have faced delays as the AER considers the impacts of rapidly changing market and policy conditions within the energy market.
The project has the enthusiastic backing of both the South Australian and New South Wales state governments, which are seeking to prioritise the project, but it has been opposed by NSW coal generators who fear the interconnector could accelerate their closure.
In a letter sent by the Australian Energy Market Operator (AEMO) to the AER, AEMO effectively told the AER that the $2.4 billion project stacks up and that the project should proceed.
Significantly, AEMO told the AER that it now believes that the National Electricity Market is following a trajectory in line with the “fast change” scenario modelled in the 2020 Integrated System Plan, suggesting that uptake of renewable energy is outpacing initial expectations, and coal power stations could exit the market earlier than first thought.
Despite the rapid pace of change in the energy market, AEMO said that it believes the Project EnergyConnect would still deliver net benefits to consumers, particularly if generators in New South Wales are ultimately retired earlier than expected.
“Even with the AER’s preliminary assessment that the prudent and efficient capital cost for [Project EnergyConnect] is $2.15 billion, and assuming no additional capital deferral benefits associated with early coal closures, the project would still deliver net market benefits in the Fast Change scenario and Step Change scenario, although the benefits would be small,” AEMO’s letter says.
“The upside is that the investment would deliver greater benefits to consumers in the event that coal fired generation in New South Wales retired earlier than expected.”
AEMO told the AER that the energy system would be more reliant on gas generators in a scenario where the EnergyConnect project does not go ahead, increasing overall energy costs.
“By comparing differences in market benefits between scenarios, it is clear that accelerated development of renewable generation in New South Wales reduces the fuel cost savings delivered by Project EnergyConnect, up to a limit,” AEMO’s letter says.
“Gas powered generation continues to play an important role during peak demand periods, when VRE output is low, or when needed to maintain system security, irrespective of the level of VRE developed, and is relied upon to play this role more frequently without Project EnergyConnect.”
AEMO’s advice follows moves from a number of operators of coal-fired generators, including AGL Energy and Delta Electricity, requesting changes to the national electricity rules that would see regulators re-visit investment tests for major network infrastructure following changes to policy or market conditions.
South Australian energy minister Dan van Holst Pellekaan welcomed the advice from AEMO that Project EnergyConnect still stacked up given the rapid changes occurring in the electricity market and said that regulators should get on with the job of approving the interconnector project.
“This report shows that under all circumstances, Project EnergyConnect will deliver significant benefits for consumers,” van Holst Pellekaan said.
“This has been the most analysed project in the history of energy in Australia and no matter how many times the modelling is re-run it still shows significant benefits to consumers – it’s time now to draw a line on this constant reassessment, get on with it and stop withholding the savings to consumers.”
“As the SA and NSW Governments step up action on climate change, this report shows that EnergyConnect will keep delivering benefits to consumers by delivering a more orderly transition with lower electricity bills,” van Holst Pellekaan added.
