Regulator rejects Basslink bid in draft decision on troubled undersea cable

A bid to convert the Basslink undersea cable that links Tasmania to the mainland grid into a regulated transmission asset looks likely to be kiboshed by the regulator on the basis that it offers too little benefit to the energy market at too high a cost to consumers.

Basslink, which allows for up to 500MW of electricity to be transferred between Tasmania and Victoria, was acquired by APA Group in 2022 after it ran into financial troubles triggered by a prolonged outage that was caused by a failure of its undersea cable 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.

APA Group acquired the rights to Basslink’s outstanding debts at a discount from the receivers, with ambitions of completing an outright acquisition and converting the troubled undersea link into a regulated asset.

But the Australia Energy Regulator said on Tuesday that its draft decision is to reject APA Group’s September 2023 application to convert Basslink from a market network service into a regulated Transmission Network Service Provider (TNSP).

In a statement from APA Group on Tuesday,

“While the draft decision is finely balanced, the uncertainty of benefits in different future scenarios compared to the certainty of cost and risk transfer to consumers means that converting Basslink to a prescribed transmission service is unlikely to support the [National Energy Objectives] at this time,” the AER says.

A statement from APA Group on Tuesday notes that the independent modelling commissioned by the AER found that in 10 of the 12 scenarios considered, regulation of Basslink provided an average economic benefit to consumers of $1.6 billion between 2025 and 2050.

That estimated benefit is in comparison to it continuing to trade electricity as a non-contracted network service provider.

“APA is seeking to regulate Basslink in line with its commitment to the Tasmanian government,” APA Group CEO and managing director Adam Watson says in the statement.

“If today’s draft decision by the AER is confirmed as final, APA will seek to maximise the value of the asset, in the best interest of APA’s investors, by progressing our plans to trade Basslink capacity in the spot market … once the Hydro Tasmania contract expires on 30 June 2025,” Watson says.

APA also notes that the draft decision is preliminary, with further consultation and submissions to be received from APA and other stakeholders.

“The AER must then consider those submissions before issuing a final decision,” it says. “APA will continue to engage with the AER and will update the market further as required in line with its continuous disclosure obligations.

The draft decision comes as plans progress to install a second undersea cable alongside 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 approves “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.