TransGrid will invest $1.8 billion to build Australia’s biggest electricity interconnector, Project EnergyConnect, which is expected to save NSW customers $180 million a year, and create 1,500 new construction jobs in regional NSW.
The TransGrid announcement coincided with the Australian Energy Regulator (AER) handing down its determination on capital expenditure for the project, approving $2.28 billion to deliver the project efficiently, including $457.4 million for ElectraNet to construct the South Australian section of the project.
Project EnergyConnect (PEC), a vital piece of energy infrastructure, will span more than 900km.
TransGrid CEO, Paul Italiano, said the company’s investment would deliver the major NSW section of PEC from Wagga Wagga in the state’s south to the South Australian border.
“PEC is a transformational energy project which will provide net benefits of up to $11.9 billion and save NSW customers $180 million a year, or $64 annually on an average household bill,” Mr Italiano said.
“PEC will be Australia’s biggest electricity interconnector built to date in the National Electricity Market (NEM) and it will help to accelerate Australia’s energy transition by connecting customers with more renewable generation.
“PEC will also help to abate an estimated one million tonnes of carbon emissions each year, contributing significantly to meeting Australia’s climate change targets.
“Regional NSW will benefit from the creation of 1,500 construction jobs and an injection of more than $250 million in direct project expenditure.
“The project will also contribute a further $4 billion in economic activity for NSW.”
Mr Italiano thanked the South Australian Government for its support for the project, the Federal Government for the support it has provided via an underwriting agreement with South Australia and through the Clean Energy Finance Corporation (CEFC), and project delivery partner, ElectraNet, for the essential role it has played to advance the project through the regulatory process.
The ElectraNet Board will review the determination by the AER and consider its final investment decision on the project shortly.
ElectraNet also welcomes the TransGrid Board’s final investment decision to proceed with the NSW section of the project.
ElectraNet Chief Executive, Steve Masters, said, “The AER and TransGrid decisions are a significant milestone for PEC, which is a project of national significance and a priority project for the national electricity grid.”
CEFC’s single largest investment
The TransGrid Board’s investment decision came after it was able to partially resolve financeability issues for PEC, which challenged delivery of major regulated transmission projects in the NEM.
This has been achieved via an agreement between TransGrid and the CEFC on the issue of an innovative $295 million hybrid debt instrument.
“The agreement with the CEFC has been essential to the board’s final investment decision today and we are thankful to the corporation for working with us to progress this important project,” Mr Italiano said.
The CEFC investment, on behalf of the Federal Government, has been made via an innovative subordinated note instrument which has contributed to the crowding in of further private sector debt to this critical project.
CEFC CEO, Ian Learmonth, said, “It is significant that the largest single investment the CEFC has made since we began investing will help deliver more renewable energy to Australian consumers by adding such a substantial piece of infrastructure to our electricity grid.
“We are proud that CEFC finance is supporting this important investment in the grid.”
The CEFC commitment is a significant first step in the delivery of the Australian Energy Market Operator’s (AEMO) 2020 Integrated System Plan (ISP).
The CEFC investment will see TransGrid build the NSW portion of the new 330kV interconnector connecting the energy grids of NSW and SA, with an additional link to North West Victoria. ElectraNet is constructing the SA portion of PEC.
Clean Energy Council Chief Executive, Kane Thornton, said that PEC is a really exciting and necessary project that will help build a 21st-century electricity network.
“A lack of transmission investment is now one of the most critical challenges facing the Australian energy system. This is stifling new generation investment, constraining existing generation and resulting in increased energy security and reliability risks as well as higher power prices,” Mr Thornton said.
“While it’s great to see Project EnergyConnect progress to this stage, the time taken to navigate the regulatory framework and the need for the CEFC to play a crucial role in financing is a stark reminder of the flaws inherent in the current regulatory environment.
“The pace of change in the energy transition warrants a major overhaul of the regulatory process for transmission, particularly in light of the implications and importance to push ahead with the remaining transmission projects identified in the AEMO’s ISP.”
Energy Networks Australia (ENA) CEO, Andrew Dillon echoed Mr Thornton’s concerns regarding the current regulatory framework.
“This commitment from the CEFC of a $295 million hybrid instrument has enabled TransGrid to manage financeability issues that threatened its capacity to proceed,” Mr Dillon said.
“The CEFC support is very welcome, but if the regulatory regime was delivering reasonable returns for major projects like this, it wouldn’t have been necessary.’’
AEMO forecasts that PEC will unlock as much as 1,800MW of renewable energy generation across Renewable Energy Zones, including approximately 800MW in SA, 400MW in NSW and 600MW in Victoria.
Importantly for energy consumers, PEC is expected to deliver estimated annual energy savings of about $100 to SA households and $60 to NSW householders. Businesses can also expect higher savings, proportional to their energy use.
The enhanced grid is expected to drive competition in the wholesale electricity market by connecting more low-cost generation to the grid. Its location near identified renewable energy zones will support grid connection for future renewable energy projects as well as enable SA to increase the export of its renewable energy production into the national market.
By creating a second point of connection between SA and the NEM, the PEC will significantly reduce the risk of the SA grid being “islanded” or disconnected from the NEM.
Victoria’s Alcoa Portland aluminium smelter will also indirectly benefit from PEC, with an alternate interconnector from SA to the rest of the NEM enabling critical maintenance to be performed at the nearby Heywood interconnector.
Work on Project EnergyConnect is expected to commence by the end of 2021.