Rule Change: Completed
Overview
On 25 September 2025, the Australian Energy Market Commission (AEMC) made a final determination and more preferable final rule that will net off inter-regional settlements residue (IRSR) in transmission loops. This is in response to a rule change request submitted by the Australian Energy Market Operator (AEMO) that sought to accommodate the creation of a loop in the National Electricity Market (NEM) once Project EnergyConnect Stage 2 (PEC) is operational.
Power flows in a transmission loop behave in a fundamentally different way to power flows on existing 'radial' interconnectors (that is, the current regulated interconnectors that link two regions without forming part of an inter-regional transmission loop), due to the physics of electrical circuits. Power flows impact the financial flows around the loop via their impact on the IRSR arising around the loop. Large and unpredictable negative (and positive) IRSR will be an unavoidable outcome of the transmission loop.
If we applied the status quo arrangements for allocating IRSR on radial interconnectors to a loop, consumers would be exposed to risks from large, unpredictable negative IRSR. We consider that a ‘netting off’ approach for allocating IRSR best manages the risks to consumers and keeps costs as low as possible for consumers.
How the final rule will work
Generally speaking, under a netting off approach, positive and negative IRSR assigned to each 'arm' of the loop in a dispatch interval is pooled together. If the resulting (netted) amount of IRSR is positive, it is distributed to settlements residue distribution (SRD) unit holders, and if it is negative, it is recovered from Coordinating Network Service Providers (CNSPs).
Under the final rule:
- if the net loop IRSR is positive, it will be distributed to SRD unit holders based on the net energy transfer ('net trade') between the connected regions, instead of the physical flows on the interconnectors.
- if the net loop IRSR is negative, it will be recovered from the CNSPs in each connected region in proportion to regional demand.
- settlements residue auction (SRA) proceeds and positive IRSR attributed to any unsold units ('unsold IRSR') will be allocated to the importing region's CNSP.
Netting off will commence between 1 October 2026 and 2 November 2026. We have also included a number of additional requirements to promote transparency in the lead-up to, and after the commencement of, loop operation.
The final rule does not change the way in which IRSR is distributed for radial interconnectors, for example, the Queensland-NSW interconnector (QNI).