A bid to convert the Basslink undersea cable that links Tasmania to Australia’s mainland grid into a regulated transmission asset has been approved, in a move the regulator says will help ensure the “open flow of electricity” across the Bass Strait.
In a final decision announced on Thursday, the Australian Energy Regulator said it has accepted the application from APA Group, Basslink’s owner, to convert it into a fully regulated service, allowing a portion of the costs of the transmission line to be recovered from customers.
Basslink, which allows for up to 500MW of electricity to be transferred between Loy Yang in Victoria and Georgetown in Tasmania, was acquired by gas network giant APA Group for $773 million in 2022, after it ran into financial troubles triggered by a prolonged outage in 2015.
As Renew Economy reported at the time, the interconnector failure cut off a crucial supply of power from the Australian mainland during a period Tasmania’s hydroelectricity storage was significantly depleted by drought, and the state’s only gas generator was also offline.
As a consequence of the outage, Basslink owed utility Hydro Tasmania around $40 million in damages, which led to Basslink’s former owners, Singapore based Keppel Infrastructure Trust, putting it into administration while its future was resolved.
AER said on Thursday that a fully regulated Basslink would ensure that the interconnector operates as an open link, enabling the market and consumers to benefit from generation in both the Tasmanian and mainland regions of the National Electricity Market (NEM).
In a draft decision in December, the AER had rejected APA Group’s bid, on the basis that the troubled interconnector offered too little benefit to the energy market at too high a cost to consumers.
This marks an about face from the AER’s draft decision in December last year, which rejected APA’s application on the basis that a regulated Basslink would offer too little benefit to the energy market at too high a cost to consumers.
AER chair Clare Savage says the change of heart reflects the “finely balanced nature of the decision” and further analysis weighing the benefits of against different scenarios.
“When we released our draft determination, we highlighted the need for the AER to very carefully weigh the benefits from a range of potential outcomes and potential future states against the cost and risks for consumers,” Savage said.
“The final decision to accept the application comes after further consultation and receiving information and evidence that indicated conversion to a regulated service would be in the long-term interests of consumers.
“A converted Basslink will support benefits to consumers by ensuring the open flow of electricity across the Bass Strait,” Savage said.
The next step for the AER is to consult on the revenue Basslink will be entitled to earn as a regulated transmission service.
A paper setting out the proposed process and timeline for a revenue determination has been released for consultation alongside the final decision.
APA said on Thursday that, all going well, it expects Basslink to operate as a regulated asset from July 2026. It also notes, however, that it could opt to trade the asset on the spot market, instead, if the AER’s determination process doesn’t deliver a reasonable return for shareholders.
“While regulation is not right for every asset, we believe this decision will ensure Basslink can operate sustainably for the benefit of Tasmanian and Victorian households and businesses over the long-term,” APA managing director Adam Watson said in a statement.
“A regulated Basslink will also provide greater certainty for consumers, ensuring prices will remain stable and not subject to daily movements in the electricity spot market.”
The decision on Basslink comes as plans progress to install a second undersea cable across the Bass Strait, this time a 750 MW interconnector called MarinusLink, co-funded by the federal and Tasmanian governments.
The AER in December last year published a determination paving the way for Marinus Link to recover the costs for designing and planning the 750MW undersea cable through to a final investment decision.
The determination approved “prudent and efficient capital expenditure” of $196.5 million and finds the proposed scope of works is consistent with the energy market rule maker’s definition of early works.
The cost of delivering Marinus Link – considered crucial to Tasmania’s so-called “Battery of the Nation” project – has been a major point of contention, with analysts and green campaigners questioning the project’s viability and long-term cost to Tasmanians.
