The Australian Energy Market Commission has found no barrier to financing large-scale transmission projects under current energy rules – and proposes to keep existing rules in place to protect consumers from higher up front costs. 

Today’s draft determinations respond to requests from transmission network businesses TransGrid and ElectraNet, who want planned large-scale transmission projects such as Project EnergyConnect, the Victorian New South Wales Interconnector (VNI) minor and HumeLink to be treated differently under the rules. 

The two businesses want to make two changes to the way they recover revenue for these large capital investments so they can access cashflows from customers sooner.

They say if they can’t access these customer payments earlier, their credit rating will deteriorate and this will make it difficult for them to attract finance for the projects.

The Commission has found the current rules do not prevent these projects attracting finance.
It also found the changes suggested by TransGrid and ElectraNet would have significant downsides for consumers.

“Our draft determinations find nothing in the rules to prevent large transmission projects like those identified in the market operator’s integrated system plan from attracting finance,” said AEMC Chief Executive Benn Barr.

“These TransGrid and ElectraNet proposals would cost consumers money and expose them to greater risks.

“Effectively it wants consumers to pay for energy assets as they are being built – like asking motorists to pay tolls on roads before they can be built and used.

“Consumer groups have told us that they are opposed to this, particularly with many families and businesses already stretched by the cost impacts of the COVID pandemic.”

The Commission has found that in the short- to medium-term, the TransGrid and ElectraNet proposal would at a minimum increase the network charge component on household consumer bills by $6 a year in NSW, and $4 a year in SA, just for Project EnergyConnect. 

Importantly, significant reductions in wholesale electricity prices as a result of Project EnergyConnect are not expected to occur until after 2030. This means that consumers now will be paying more for Project EnergyConnect than consumers in the future, despite consumers not receiving the benefits now. 

Applying the TransGrid and ElectraNet proposal to other ISP projects such as Humelink and VNI minor would increase costs even further. And while the intention is for costs to decrease in later years, this would not apply until 2040.

“Based on the evidence we have gathered, the Commission does not believe there is a need to change the rules,” Mr Barr said.

“The regulatory framework does not require networks to achieve benchmark returns set by the AER every year or dictate their capital structure. Market evidence shows that average gearing levels for regulated network businesses are less than the 60% benchmark used by the Australian Energy Regulator, and there is strong investment demand for regulated assets with investors accepting lower gearing levels.

“The TransGrid and ElectraNet proposal to change the rules makes some broad assumptions and relies on too narrow a test for whether a project can be financed.”

The Commission’s draft determinations also say the requests would make the regulatory framework more complex, increasing the costs of regulation and reducing incentives for networks to build projects on time.

The proposal to change the rules would apply to all of TransGrid and ElectraNet’s projects under the Integrated System Plan. The ISP, which is prepared by the Australian Energy Market Operator (AEMO), outlines a suite of major projects, including large-scale transmission infrastructure, and is a guide for governments, industry and consumers on investments needed for an affordable, secure and reliable energy future.

Submissions to the draft determination are due on 18 March 2021.

Participant derogation – Financeability of ISP projects (TransGrid) ERC0320

Participant derogation – Financeability of ISP projects (Electranet) ERC0322

The Commission will make a final determination in early-April 2021.

Media: Prudence Anderson, Communications Director M: 0404 821 935 

About the AEMC

The Australian Energy Market Commission makes the rules for the National Electricity Market, elements of the natural gas market and related retail markets. We provide strategic and operational advice to governments on energy and protect consumers with the right trade-off between cost, reliability and security