Submissions to the AEMC’s options paper for our review of coordination of generation and transmission investment are now available on the AEMC’s website. This review is considering how generators can join the power system and use the transmission network at the lowest possible cost to consumers.

There was strong interest in the options paper, with 39 submissions from a wide range of stakeholders providing a diverse set of views. Consumer representatives, large users, generators, networks, industry associations, storage proponents, market bodies, state governments, universities and large investors have provided feedback in their submissions on five key areas.

1. Making the Integrated System Plan “actionable”

The COAG Energy Council has asked the Chair of the Energy Security Board to take the lead on a work program to “convert the ISP into an actionable strategic plan” and report back to the Council’s December 2018 meeting. This AEMC review is an input into the Energy Security Board’s advice.

Our options paper, published in September 2018, set out various ways to make the ISP actionable by linking AEMO’s role of national transmission planner more strongly to the individual investments made by network businesses. The spectrum of options moves from an enhanced status quo, where transmission network businesses keep responsibility for the majority of steps in the transmission planning and investment process, to an option where AEMO would take on the responsibility for all of the steps as part of the ISP.

Stakeholders expressed preferences for options across the full spectrum, as well as some variations on the options that could be considered. 

Despite the range of views expressed, nearly all stakeholders agreed the following principles are essential for achieving the best outcomes for consumers when implementing the ISP:

• Robust cost benefit analysis: stakeholders strongly supported robust cost-benefit analysis of proposed new transmission assets, regardless of whether the need for more transmission is identified in the ISP, or by a transmission business. 
• Effective and meaningful consultation: stakeholders broadly agreed there needs to be confidence in the planning process if the ISP is to be made actionable. This requires rigorous and transparent consultation throughout the preparation of the ISP. 
• Managing risk to consumers: Under the current framework, there are processes to mitigate the risk of paying for inefficient transmission. In considering any changes to the framework, stakeholders agreed that the allocation of risk in any model adopted to implement the ISP should not increase risks for consumers. 

2. Applying the Regulatory Investment Test for Transmission (RIT-T)

Transmission assets can be very expensive, running into billions of dollars. Once they are built, consumers pay for them for decades. The RIT-T process is used by transmission businesses and the Australian Energy Regulator to weigh up the costs and benefits of proposed investment in the transmission network. It is designed to protect consumers from paying for transmission that is inefficient.

Views from stakeholders on the current RIT-T process were split. Some stakeholders were in favour of maintaining the existing RIT-T arrangements. These stakeholders typically referenced the recent COAG Energy Council review of the RIT-T which concluded the RIT-T remains the appropriate mechanism to ensure that new transmission infrastructure in the NEM is built in the long-term interests of consumers.

Other stakeholders considered that the existing RIT-T arrangements were not suited to the energy transformation that is occurring. They suggested the current RIT-T arrangements are better suited for incremental augmentations, not the transformation that is required. Others reasons were that the current RIT-T is not appropriate for strategic investments and does not get around the ‘chicken and egg’ problem of coordinating generation and transmission investment.

Stakeholders also commented on the timing of the RIT-T process, with most saying the length of the process is appropriate. Several submissions noted there are factors unrelated to the RIT-T process, such as planning and environmental approvals, that can impact on timing.

3. Supporting the development of Renewable Energy Zones 

The options paper considered how the transmission network could be developed to support new renewable energy zones (REZs), such as those identified in the ISP. Some stakeholders suggested this would largely depend on the approach taken to strengthening links between the ISP and decisions on transmission investment.

Stakeholders agreed with the AEMC that there are a number of ways that REZs could be facilitated under the current regulatory framework. However, this has not occurred to date largely due to factors outside the framework. 

Many stakeholders expressed interest in further exploring ENGIE’s model to create a mechanism for ‘transmission bonds’ to be issued to initially fund transmission investment, as a potential model to accommodate REZs under the current framework without changing access arrangements.

Other stakeholders suggested changing access arrangements to facilitate REZs. This could involve changing generators’ current rights to access and use the network. However, it was not clear how these changes would only apply to a REZ, and not the broader framework. 

4. Managing future congestion 

Of the stakeholders that commented on congestion and access arrangements, consumer representatives typically supported some change to existing arrangements immediately so that some of the risks associated with transmission investment can be placed with generators themselves. 

Conversely, existing generators did not favour any change to the status quo. Renewable generators typically thought that the current access arrangements were not sustainable, but did not want to take on increased risks associated with changing the current access arrangements. 

Stakeholders from network businesses agreed that congestion is an issue in the NEM, but that determining how to implement the ISP should be the first priority.

5. Treatment of large-scale storage

There was strong stakeholder support for the development of a new NEM registration category for large-scale battery and pumped hydro storage.

Whether under current arrangements or a new NEM registration category, stakeholders predominantly supported the view that large-scale utility storage should not pay transmission use of system charges. 

However, several stakeholders expressed the view that a cost reflective charging arrangement would lead to efficient storage location decisions, and that it was appropriate for storage solutions to pay for use of the transmission system when they act as a load on the system and do not export electricity to the grid.

Next steps

The AEMC will publish a final report in December 2018. Our work on this review will be an input into the Chair of the Energy Security Board’s implementation plan for the ISP which will also be provided to the COAG Energy Council in December 2018. 

This work is also part of the AEMC's System security and reliability program.

Media: Prudence Anderson, Communication Director, 0404 821 935 or DL (02) 8296 7817