by Kate Axup, Michelle Bennett, Anushri Goswami, Danielle Jones, Leighton O'Brien, Paige Pittorino, Jacqui Rowell
Connecting renewables: grid integration
The transition to renewable energy and clean technologies urgently requires substantial financial backing, particularly for the development of new transmission infrastructure. This massive undertaking will require the construction of tens of thousands of kilometres of transmission lines to ensure our networks remain fit for purpose, especially as more coal-fired power stations face retirement. The existing electricity grid must evolve quickly to keep pace with this new infrastructure, but several challenges have stymied progress. These hurdles include unclear funding guidelines, drawn-out regulatory processes, difficulty in securing necessary land tenure, contractor insolvency issues, skilled labour shortages and supply chain constraints.
However, a more predictable landscape is emerging for large energy users and investors. The Australian Energy Regulator (AER) is expected to provide greater clarity on how costs for transmission infrastructure will be recovered and how revenue determination for transmission projects will be approached. This has been underscored by their recent publication of a final Framework and Approach paper, detailing key elements of future determinations relating to distribution and transmission services.
Investors can look forward to potential opportunities within the pipeline of Integrated System Plan (ISP) transmission projects and upcoming Renewable Energy Zones (REZs), offering promising avenues for portfolio diversification. On their part, developers must remain informed about any access regimes that could impact their projects presently or in the future. They also need a robust land access strategy and approvals process in place due to significant challenges in these areas. With strategic planning and considerable investment in infrastructure development, Australia's grid can effectively support the country's energy transition.
What's the challenge?
The challenge is enormous. There are significant social license issues to grapple with, such as community opposition to large-scale overhead transmission networks, leading to delays in obtaining land access and tenure and approvals, and in the construction process. Turning this around will require a coordinated effort from both government and the private sector. Dedicated funding and other incentives to fast-track the delivery of projects that will build, augment and upgrade our transmission network infrastructure are crucial, along with clear regulatory reform to address the new challenges arising in response to the changing grid infrastructure and energy sources.
What's happening now?
While more is required, we are seeing a push from both federal and state governments to drive the expansion of transmission infrastructure in their jurisdictions. This includes the implementation of various funding initiatives and regulatory regimes to fast-track critical transmission infrastructure projects and incentivise involvement by the private sector.
We are also seeing increased coordination between federal and state governments in this space, which is a positive step. For example, federal, state and territory energy ministers have come together to establish the National Energy Transition Partnership. This partnership is a framework for national alignment and cooperative activity on priority actions between governments, including the acceleration of nationally significant transmission projects and national regulatory reforms to support the energy transition.
Victorian Transmission Plan
VicGrid (the Victorian Government agency responsible for REZ planning and major transmission infrastructure) is commencing the planning of Victorian REZs and transmission infrastructure projects through its state-wide Victorian Transmission Plan (VTP).
The VTP will include a 15-year outlook determining the appropriate level of generation and transmission development required to deliver affordable and reliable renewable energy. The first step will be to identify REZ Priority Areas, and to assist, VicGrid is conducting an energy-specific strategic land use assessment. Community workshops to obtain feedback from Traditional Owners, local communities and landowners occurred in May and June of 2024, and the Final Transition Plan will be issued mid-2025.
Victorian Access Regime changes
In early June 2024, VicGrid released a 'Victorian Access Regime' (VAR) paper. This paper was issued pursuant to the Victorian Government's Victorian Transmission Investment Framework and is designed to manage the risk of curtailment due to congestion near REZs. The paper's release suggests that the Victorian Government is pushing ahead with its own jurisdictional transmission access reforms ahead of the Australian Energy Market Commission's (AEMC) national electricity market (NEM) transmission access reform.
The VAR paper is high-level and currently not open for stakeholder feedback. Consultation is scheduled for later this year, with VicGrid aiming to introduce legislation by mid-2025. The table below summarises key features and their implications for the existing transmission network.
What the VAR means for:
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Open access |
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Connections inside a REZ |
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New connections outside a REZ |
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AEMO and AusNet |
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Offshore wind transmission in Gippsland, Victoria
In March 2024, VicGrid announced a study area for the new transmission infrastructure required to connect offshore wind projects to the electricity grid in Latrobe Valley. The study area has been decided after consultation from landholders. Although the route is not finalised, it is confirmed that the powerlines will be overhead.
NSW's Electricity Infrastructure Roadmap
EnergyCo continues to progress the rollout of the five REZs currently declared, as well as the Priority Transmission Infrastructure Projects. Since this guide was last published, the following updates have occurred:
- South West REZ: the Access Scheme for the South West REZ was declared in April 2024, with the tender to bid for an access right to this REZ opening in May 2024. Successful proponents are expected to be notified later this year or early next year. Given the South West REZ will largely consist of transmission infrastructure that is already under construction as part of existing augmentations (eg Transgrid's Project Energy Connect) under the National Electricity Rules (as opposed to under the NSW Electricity Industry Roadmap), it is already under construction, with first power expected in 2026.
- CWO REZ: planning approval for the Central-West Orana REZ was obtained in June 2024. Financial Close for this REZ is expected to be achieved in the second half of 2024, with construction works expected to commence in late 2024 and initial operation in 2028.
- New England REZ: the New England REZ was declared 'Critical State Significant Instructure' by the NSW Government in July 2024, meaning the project is considered essential to the state for economic, environmental or social reasons. The process for procuring a Network Operator for this REZ is expected to commence later this year.
In addition to the REZs, EnergyCo is progressing its Priority Transmission Infrastructure Projects, with a focus on the Waratah Super Battery (which is expected to achieve commercial operations by early 2025) and the Hunter Transmission Project (which is in the planning and design phase).
EnergyCo is also responsible for leading the Port to REZ road upgrades project to enable the movement of oversized and over-mass loads for renewable energy equipment from the Port of Newcastle to the REZs. Road upgrades are expected to start from late 2024 and should be completed in late 2025.
WA's electricity infrastructure
An unprecedented level of transmission infrastructure development is required in Western Australia to support the energy transition.
Rewiring the Nation
The Federal Government is investing $20 billion in low-cost finance to deliver, with states and territories, key priority transmission projects like the VNI West Link between Victoria and NSW, and the Marinus Link between Tasmania and Victoria.
Australian Energy Market Operator's Integrated System Plan
AEMO recently published its 2024 Integrated System Plan (ISP). The ISP provides a roadmap for the installation of more than 10,000 kilometres of new transmission, comprising:
- five 'committed and anticipated' projects, which are already underway;
- five 'actionable' projects from the 2022 ISP that remain actionable and are advancing;
- seven projects that have now progressed to 'actionable' status, with recognition of additional time and engagement associated with progressing these projects; and
- a further 12 'future' projects identified.
The document attempts to provide a level of certainty as to what the future will look like, and will guide the direction of energy investment and regulation for the future transmission network.
Transmission access reform
The Energy Security Board (ESB), prior to being disbanded in June 2023, proposed a 'hybrid model' solution consisting of a voluntary congestion relief market (CRM) and priority access model to address increasing congestion in the electricity transmission system. The voluntary CRM will incentivise providers of congestion relief (such as batteries or controllables loads) to locate in congested parts of the network and the priority access model will address the issue of 'cannibalisation' in the energy market. The Australian Energy Market Commission published a consultation paper on transmission access reform in April 2024 seeking stakeholder feedback and will revert to the Energy Minister in 2024 with final recommendations.
What's next?
- Electricity customers should expect continued wholesale electricity price volatility and possible threats to supply as the transition progresses.
- These buyers should also consider how to respond to stakeholder pressure to reduce emissions associated with electricity consumption.
- To mitigate these risks, large electricity buyers should consider how they can manage their own demand and costs, eg by:
- reducing their load (eg through energy efficiency measures and demand side participation);
- entering into offtakes with renewable generators to hedge against rising electricity prices and to acquire a supply of large-scale generation certificates (LGCs); or
- building on-site generation and/or storage facilities to reduce reliance on the National Electricity Market.
- Investors should consider available opportunities to deploy capital into key infrastructure assets.
- In particular, as more REZs are progressed, investors may bid for a role in financing (equity and debt), building, operating and/or managing those transmission projects. The tender submission process for the New England REZ is expected to commence in late 2024, so now is the time for investors to reflect on any lessons learned from the previous bid process for the Central West Orana REZ, consider consortium partners and retain advisers in preparation for the next bid.
- Investors are also exploring the creation of new TNSP businesses focused on contestable connections, with a number of energy players exploring this pathway.
- Investors can take comfort in the fact that more certainty is expected from the AER in relation to how transmission infrastructure costs will be recovered and the revenue determination for transmission projects. For example, the AER published a final Framework and Approach paper that sets out its approach to key elements of upcoming determinations relating to distribution and transmission services.
- Investors should consider opportunities in the pipeline of ISP transmission projects and upcoming REZs to diversify their asset portfolio. In doing so, they should consider the following key factors associated with such developments:
- supply chain constraints, such as the rising cost of critical materials and geopolitical tensions;
- engineering, procurement and construction contractor solvency issues and skilled labour shortages;
- regulatory clearance investment barriers, including FIRB and competition clearance;
- tax and capitalisation implications; and
- ESG risks, including developing an approach to ensure meaningful community consultation occurs, and that remediation mechanisms and processes are in place, to address any potential disputes with the community.
- In WA, investors should monitor opportunities for proposed projects being unlocked by newly proposed transmission corridors.
- Developers should consider opportunities to diversify their asset portfolio in the pipeline of ISP transmission projects and upcoming REZs.
- Developers should be aware of, and have a strategy with respect to, any access regime that may (or could in the future) apply to their projects, as well as a robust land access and approvals strategy, given the significant challenges in these areas.