Victoria seizes power to speed-up network investments, skip RIT-T assessments

The Victorian parliament has passed new legislation that gives the state greater control over new energy infrastructure investment and to side-step certain national energy market rules.

The new powers effectively allow the Victorian energy minister, Lily D’Ambrosio, to exempt certain investments in new transmission infrastructure from the usual assessment tests, including the regulatory investment test for transmission (RIT-T).

“For example, an Order may modify or disapply parts of the national regulatory framework that have the potential to delay timely investment in the transmission network, including the regulatory investment test for transmission (RIT-T) and rules relating to contestable procurement for augmentations,” D’Ambrosio said in her second reading speech.

“The RIT-T can add years to a transmission project, frustrating investment to address Victoria’s urgent reliability needs. If appropriate, an Order may also specify an alternative test in place of the RIT-T.

“While the Bill provides for the modification of parts of the national framework that may frustrate needed transmission upgrades, it is important to ensure that any projects that are the subject of an Order deliver good value for Victorian consumers. The Bill therefore provides for certain safeguards before an Order can be made,” D’Ambrosio added.

Under the new laws, which were first introduced into the Victorian parliament in February, the Victorian energy minister will be required to consult with AEMO as well as the state’s premier and treasurer before making an order to streamline new network investments.

The RIT-T assessment for network infrastructure was introduced to provide a check on the construction of new transmission network infrastructure, to ensure that the right investment was being made, that the costs were justified and that a fair amount was being passed through to consumers through their electricity bills. However, the assessment has attracted criticism for being cumbersome and for preventing timely investment in new infrastructure.

D’Ambrosio said the new legislation had become necessary due to the slow action being taken under the current national laws, and their inability to deal with the growing challenges faced by the energy system, particularly in parts of Victoria where new wind and solar projects have been unable to commence full operation due to network constraints.

“This Bill is being introduced as a result of the inability of the current national regulatory framework to effectively address the pressing and unprecedented challenges affecting Victoria’s electricity system. The Victorian Government will continue to advocate for changes to the national framework to ensure that it is effective and fit for purpose,” D’Ambrosio added.

The National Electricity (Victoria) Amendment Bill 2020 was passed late on Tuesday’s sitting of the Victorian upper house and was passed with the support of a range of progressive cross-bench members.

It is yet another step undertaken by the Victorian government to seize back some control over energy planning in the state, and follows another “derogation” from the National Electricity Rules approved by the AEMC that allows AEMO to enter into longer term contracts for emergency electricity supplies, but only in Victoria.

The passage of the legislation comes just days before a meeting of state and federal energy ministers, which is set to discuss further reforms to the national energy rules to better respond to the challenges faced by the energy market as it undergoes a significant transition.

The Australian Energy Council criticised the legislation, saying that insufficient consultation had been undertaken with energy market participants before the new laws were passed by the parliament.

“The National Electricity Rules currently require a robust assessment of potential investments in new transmission infrastructure. This assessment is run independently and at arm’s length from political considerations. Its focus is on the best interests of customers, who ultimately pick up the tab for grid investments,” Australian Energy Council’s chief executive Sarah McNamara said.

“Investments in Victoria will no longer be subject to that test, which means customers may pay more. This is because every transmission and network investment will unavoidably affect market investments, so careful and individual assessments carried out at arm’s length from politics are critical.

“The Act has been rushed through the Victorian Parliament with no consultation and minimal scrutiny. It makes no effort to replace the regulator’s rigorous investment test with a Victorian equivalent. This can only be a bad outcome for Victorian households and businesses who may be locked into paying for multi-billion dollar investments with no confidence that it is the right call,” McNamara added.