AER updates RIT-T guidelines to look beyond poles and wires for network upgrades

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AER announced changes to RIT-T making it more robust, efficient and timely, and more aligned wth AEMO’s Integrated System Plan and keeping customer power costs down.

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A key, but contentious test that guides major electricity network investments has been given an overhaul by the Australian Energy Regulator, in line with the rapidly changing face of the National Electricity Market and the wholesale shift to renewables.

The improvements, announced on Friday, apply to the AER’s regulatory investment test (RIT) guidelines – a cost benefit analysis network businesses must perform and consult on before making major investments in their networks.

As David Leitch noted here, the RIT-T – the test for transmission networks – has, in particular been a “bone of contention” in the various reviews of the workings of the National Electricity Market, including the Australian Energy Market Operator’s Integrated System Plan.

One of the key concerns about the rule has been that it is failing in its primary function, which – as the COAG Energy Council put it in its own review of the RIT-T last year – is to protect consumers from paying more than necessary for their supply of electricity.

Rather, many believe it has resulted in the gold-plating of networks – an overbuild of expensive infrastructure built to cater for a handful of peak demand events or unexpected one-offs, the costs of which are passed on to consumers via increasingly exorbitant energy bills.

The COAG review resulted in a number of recommendations on how networks could better do this job by changing the way they account for option value, policy developments and high impact, low probability events, such as the now infamous system-black event in South Australia.

It also recommended updates to provide “the appropriate reflection of renewable energy and climate goals.”

The AER said on Friday that the changes would see the RIT-T become more robust, efficient and timely, as well as more aligned wth the AEMO’s integrated system plan “so network businesses take a more consistent and holistic approach to cost-benefit analysis.”

“The new RIT guidelines also support a system-wide approach to planning in the National Electricity Market.”

This seems to mean looking beyond the traditional more-poles-and-wires approach to bolstering demand hotspots on the network and managing the influx of large-scale renewable energy developments in certain areas, including microgrid, demand response and energy storage solutions.

“When applying our cost benefit analysis, network businesses will evaluate all credible options for meeting the needs of their networks,” a fact sheet says.
“Network businesses will then select the option with the highest net economic benefit, thereby delivering efficient investment outcomes. We see this as contributing to the National Electricity Objective (NEO) to promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity.”
“Our cost benefit analysis also encourages efficient outcomes in the longer term by supporting efficient market development and performance.
“The RITs promote these longer term outcomes by promoting a predictable network development framework around which competitive investments in the market can be made without bearing unnecessary risks arising from inefficient investment.

“Following an AER request for changes to the National Electricity Rules, these transparent cost-benefit assessments now not only apply to network augmentations, but also to large replacement projects,” a statement read.

The AER said work on strengthening the role of the ISP in efficient network planning and investment was also being undertaken by the Australian Energy Market Commission and the Energy Security Board.

“These bodies will soon advise COAG EC on how to better coordinate generation and transmission investment and turn the ISP into action,” it said.

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