Huge boost for wind, solar and storage as “transformational” new link approved

The New South Wales transmission company TransGrid says it has committed to spending $1.82 billion on the critical new transmission link to South Australia after the Clean Energy Finance Corp stepped in to solve its financing issues with its biggest ever single financing facility.

The commitment by Transgrid to Project EnergyConnect means that the “transformational” new 900km link – designed to support South Australia’s accelerated transition to 100 per cent renewables, and unlock billions of dollars of new wind, solar and storage projects in three states – will go ahead.

On Monday, the Australian Energy Regulator also said it had approved the costs of the project, which will actually cause a small increase in consumer bills before longer term savings, and South Australia’s ElectraNet is also expected to approve its $457 million share of the $2.28 billion project.

It is one of the most significant transmission investments in the country.

In NSW, it is considered key to help the state manage the rapidly approaching exit of its incumbent coal generators, and will mean that the state will be linked to three different states to both export and import electricity when needed. South Australia will now be connected to two different states.

The approvals were welcomed by South Australia energy minister Dan van Holst Pellekaan, who said it would save households $100 a year over the longer term, and protect them from blackouts.

TransGrid CEO Paul Italiano said PEC, which will stretch from Wagga Wagga to the state border, where  ElectraNet will continue the link to Robertstown, will provide net benefits of up to $11.9 billion and save NSW customers $180 million a year, or $64 a year per household.

“EnergyConnect will be Australia’s biggest electricity interconnector built to date in the National Electricity Market and it will help to accelerate Australia’s energy transition by connecting customers with more renewable generation,” Italiano said in a statement.

Italiano said the new link would help to abate an estimated one million tonnes of carbon emissions each year and create 1,500 construction jobs in regional areas and pave the way for billions of dollars of new wind and solar investment. He said there is 3GW of new wind and solar in the pipeline in NSW alone.

Transgrid had previously asked for a variation of rules that would have allowed it to fast-track returns from customers to help finance the project, but this was rejected.

However, the CEFC stepped in by issuing an “historic” and “innovative” $295 million hybrid debt instrument that amounts to the biggest single investment made by the institution since its creation nearly a decade ago.

“It is significant that the largest single investment the CEFC has made since we began investing will help deliver more renewable energy to Australian consumers by adding such a substantial piece of infrastructure to our electricity grid,” CEFC CEO Ian Learmonth said in a statement.

“We are proud that CEFC finance is supporting this important investment in the grid.”

Transgrid says work on Project EnergyConnect is expected to commence by the end of 2021, with completion in 2023.

It is expected to create a rush of new wind and solar projects in South Australia and NSW, among them an expansion of the massive Goyder South wind-solar-battery hybrid, and a similar hybrid project at Crystal Brook.

There are another dozen or so wind and solar projects that have also joined the queue of projects that will now look for customers and finance. In NSW, it will provide the “backbone” to support another near 5GW of wind and solar capacity in the south-west renewable energy zone.

The two proponents of the project say that the new transmission link will addresses the tight supply-demand balance when NSW coal generation retires by allowing cheap renewables to be imported from South Australia, and so avoid steep increases in wholesale electricity prices.

They say it will create a more resilient network during periods of peak demand, reducing the need for AEMO market intervention.

The new transmission link is one of several new links and upgrades identified by the Australian Energy Market Operator in its Integrated System Plan, a 20-year blueprint that maps out a route to 90 per cent renewables by 2040. An updated ISP is likely to map out a scenario to reach that level of renewables by the mid 2030s.

An AEMO spokesperson said it welcomed the AER’s approval.

“The new interconnector from South Australia to New South Wales can play a major role by boosting competition and market efficiency, while also significantly boosting system security,” the emailed statement said.

“This will ultimately result in lower costs through access to renewable energy and better services for energy consumers in both states.”

The AER said it had shaved $88 million off the total allowable costs of the project, and although customers faced short term bill rises one $6 a year in South Australia, rising to $17 a year, and $11 a year in NSW, rising to $22 a year, these would be more than offset by bigger savings over the longer term.

“The project is expected to provide benefits to consumers over the long term by allowing for additional renewables and low cost generation, while improving security and diversity of supply for energy users in SA and NSW,” AER chair Clare Savage said in a statement.

“We are very pleased,” Italiano told RenewEconomy. “This is the largest transmission project for 30 years in the NEM (National Electricity Market). It’s been under appreciated the transformational impact this project will have.

“This creates a triangle or loop connecting South Australia with NSW. That type of structure really improves systems security, in all three states.

“It makes a huge contribution to grid security and for more renewables to be dispatched. It will unlock a lot of the constraints and curtailments that are occurring in the grid already.”

“It is transformational.”

Italiano said the hybrid financing deal from CEFC would allow Transgrid to manage the upfront costs of the investment, given that regulations require the recoup of revenue from consumers to be spread over time to avoid bill shock.

He said the hybrid facility is a three way deal between the CEFC, Transgrid and its shareholders and would be partly treated as “equity” by Moody’s, the ratings agency.

(Last paragraph updated to clarify an earlier comment from Italiano on the “equity” component of the CEFC deal).