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Interconnector gets green light but investment decision pending

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The Australian Energy Regulator (AER) has given its final approval for the proposed SA-NSW interconnector to be built by ElectraNet and TransGrid but has demanded the infrastructure providers reduce their project costings by $88 million.

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The project was initially costed at $1.5 billion in 2019, but blew out to $2.36 billion when ElectraNet and TransGrid submitted their initial contingent applications in September 2020.

Following its assessment, the AER has allowed $2.275 billion to deliver the project efficiently – $88 million less than forecast last year.

A final investment decision by ElectraNet for its $457.4 million South Australian section of the project is expected in the coming days and is the last major hurdle needing clearance before the long-awaited project can commence.

TransGrid’s board has already made its final investment decision to proceed with the $1.817 billion NSW section of the project.

AER estimates Project EnergyConnect will increase annual bills by $6 for SA households and $11 for NSW households in the financial year 2022–2023, and by $17 for SA households and $22 for NSW households each year during the 2023–2028 period.

However, ElectraNet says an independent analysis shows Project EnergyConnect is expected to deliver net annual savings of around $100 for a typical household in South Australia through more competition in the wholesale electricity market.

The 900km interconnector linking Robertstown in South Australia’s Mid North with Wagga Wagga in central New South Wales is expected to provide grid stability and lower electricity prices in South Australia when completed.

AER Chair Clare Savage said the regulator’s rigorous assessment of the electricity line, with an added connection to North-West Victoria, had helped to ensure consumers pay no more than is needed to build the interconnector.

“It is consumers who ultimately pay for big energy infrastructure projects like this, so the AER’s job is to ensure that the project costs are efficient,” she said.

“We have undertaken a thorough assessment of the proposed costs, including input from technical experts and public consultation, and our decision is that the total cost for Project EnergyConnect is $2.28 billion, a 4 per cent reduction from the $2.36 billion initially proposed by TransGrid and ElectraNet.

AER’s final determination reduced ElectraNet’s costings from an initial $468.6 million to $457.4 million while $TransGrid’s approved costing was scaled back by $76.7 million.

Savage said while consumers would pay for the project, it was expected to provide benefits to customers over the long term by allowing for additional renewables and low-cost generation while improving security and diversity of supply for energy users in SA and NSW.

The project, was initially a 2018 election promise by then State Opposition Leader Steven Marshall as a partial solution to the state-wide blackout that cut SA off from the national grid in September 2016.

ElectraNet Chief Executive Steve Masters welcomed the AER announcement and the final investment decision by TransGrid to proceed with the project.

He said the ElectraNet Board would review the determination by the AER and consider its final investment decision on the project in the coming days.

“The AER and TransGrid decisions are a significant milestone for Project EnergyConnect, which is a project of national significance and a priority project for the national electricity grid,” Masters said.

TransGrid announced yesterday it would build the critical electricity transmission project.

The investment decision came after it was able to partially resolve finance issues through an agreement between TransGrid and the Clean Energy Finance Corporation for a $295 million hybrid debt instrument.

TransGrid CEO Paul Italiano said the project would create 1500 construction jobs in regional NSW.

He said work on EnergyConnect was expected to commence by the end of 2021.

“EnergyConnect will be Australia’s biggest electricity interconnector built to date in the National Electricity Market and it will help to accelerate Australia’s energy transition by connecting customers with more renewable generation,” he said.

“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.”

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