The Australian Energy Regulator (AER) has released a draft decision to reject APA Group’s application to convert Basslink from a Market Network Service Provider (MNSP) into a regulated Transmission Network Service Provider (TNSP).
The AER has invited stakeholders to provide submissions on this draft decision, with the consultation period open until 31 January 2025.
The regulator said that its draft decision presents its assessment as to whether conversion is likely to support the achievement of the National Electricity Objective. In doing so the AER said it has considered the potential outcomes of conversion in a range of potential future states and counterfactual scenarios.
The development of additional interconnector capacity across Bass Strait (the Marinus Link project), the timing of delivery of this capacity, and the way Basslink is operated and dispatched should it remain a market network service all have a significant bearing on future outcomes.
According to the AER, while the draft decision is finely balanced, the uncertainty of benefits in different future scenarios compared to the certainty of cost and risk transfer to consumers means that converting Basslink to a prescribed transmission service is unlikely to support the National Electricity Objective at this time.
The AER said that its position has been informed by submissions from stakeholders who offered contrasting views about the benefits of converting Basslink and about what was likely to happen in the future. These stakeholder views informed its analysis but also underlined the uncertainty surrounding the likely benefits.
If the final decision diverges from the draft and supports conversion, the AER would need to consult on the revenue Basslink would be entitled to earn as a regulated transmission service.
APA Group said that if the final decision confirms the draft decision, the company will progress its plan to trade Basslink as a non-contracted MNSP. APA said it already has the systems in place to bid the asset, as required under the current Hydro Tasmania contract.
APA’s revenue contract with Hydro Tasmania will end on 30 June 2025, at which time APA would commence operating as a non-contracted MNSP.
APA Group CEO and Managing Director, Adam Watson, said, “Our application to convert Basslink to a regulated asset was progressed following consultation with key stakeholders during the acquisition process. As part of the sale transaction, we also entered into a network services agreement with Hydro Tasmania to ensure the asset could operate safely and reliably during the AER consultation process.
“The AER’s assessment of our regulatory proposal highlighted consumer benefits of regulation was on average $1.6 billion compared to the counterfactual.
“APA is seeking to regulate Basslink in line with its commitment to the Tasmanian Government. If today’s draft decision by the AER is confirmed as final, APA will seek to maximise the value of the asset, in the best interest of APA’s investors, by progressing our plans to trade Basslink capacity in the spot market, in line with market rules, once the Hydro Tasmania contract expires on 30 June 2025. We will be able to leverage the existing systems and capabilities in place across APA.”
Background
Basslink is a 500MW undersea transmission cable that links Loy Yang in Victoria to George Town in Tasmania. It was built in 2006 and was subsequently acquired by APA Group in October 2022. Basslink is currently the only electricity interconnector between Victoria and Tasmania.
On 19 May 2023, Basslink submitted an application to the AER to convert its network services from market network services (unregulated) to prescribed transmission services (regulated). This application also sought the determination of a transmission revenue process for Basslink. The AER assessed the application under rule 6A.9 of the National Energy Rules, guided by the National Electricity Objective.
The application has undergone multiple rounds of consultation, including an Issues Paper in November 2023 and a Consultation Paper in August 2024.
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