Electricity generators are usually located close to fuel sources such as coal mines, natural gas pipelines and hydroelectric water reservoirs but far away from where most people live and work. Transmission networks allow the bulk transport of electricity at high voltages from a range of generators to major demand centres. Distribution networks in turn transport electricity at lower voltages to end-use customers.
Transmission networks consist of towers and the wires that run between them, underground cables, transformers, switching equipment, reactive power devices, and monitoring and telecommunications equipment. These are capital intensive assets where it is cost efficient to have only a single network providing the service in an area. This gives rise to a natural monopoly industry structure, so the transmission businesses are carefully regulated to strive for more efficient outcomes than would arise in the absence of regulation – to manage the risk of monopoly pricing for instance.
There are five state-based transmission networks in the National Electricity Market.
Reliability refers to the extent to which customers have a continuous supply of electricity. Transmission networks are required to meet reliability standards that, in most cases, are set by jurisdictional governments. The level of reliability that transmission networks are required to provide affects the level of investment that network businesses undertake. This feeds through to the electricity prices paid by customers.
The AEMC has proposed a national framework to establish better ways to set reliability standards which take account of the value placed on reliability by customers.
In 2013 the AEMC published the final report of the Transmission Frameworks Review recommending changes to enhance investment efficiency in generation and transmission and to minimise long-term costs of the electricity system.