'Reckless' Vic renewables targets requires $370m grid upgrade

Angela Macdonald-SmithSenior resources writer

Jul 19, 2019 – 12.01am

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A proposed $370 million expansion of the electricity grid in western Victoria, which would unlock up to 6000 megawatts of new wind and solar farms, has taken a decisive step forward but has also unleashed a fresh attack from federal Energy Minister Angus Taylor on the state's renewables targets.

An analysis by the energy market operator found the project would deliver net benefits of $300 million, setting it on a path toward construction.

But Mr Taylor took the opportunity to criticise the state Labor government for its "reckless" targets that are now requiring hundreds of millions of dollars of additional investments to "patch up the Victorian government's poorly planned market interventions". The Andrews government raised its renewable energy target to 50 per cent by 2030 last November.

New wind and solar farms in north-west Victoria can't get all their output into the grid. Fairfax

"We remain concerned that reckless Victorian State Government actions are hurting Victorian, Tasmanian and South Australian energy consumers," Mr Taylor said, while voicing support for the cost-benefit testing process for such investments.

"The Victorian Government has thrown taxpayer dollars at renewable developments in Western Victoria, with no thought as to how these will properly connect into their grid."

The economic analysis by the Australian Energy Market Operator is a critical part of the complex process of the testing of new transmission investments to ensure that consumers will benefit.

“Under this proposal, for every dollar invested in the Western Victorian transmission network, the project is expected to deliver almost double that in benefits," said AEMO chief Audrey Zibelman.

Renewable project developers have been lining up to tap the rich wind and solar resources in the western part of Victoria but bottlenecks in the grid point to increasing constraints that would limit the transfer of power to customers, driving up costs over the long term. Already AEMO has downgraded the expected power flow from some new wind and solar farms in north-west Victoria due to a squeeze on the system.

AEMO has regularly been advising that the state's exponential growth in renewables, combined with the closure of some coal power capacity in the Latrobe Valley, was putting parts of Victoria's transmission system under pressure.

The AEMO analysis released on Friday recommends a combination of minor upgrades to existing infrastructure as well as major works phased over several years. The final part of the major works, which include a new terminal station north of Ballarat and long-distance, high-voltage transmission lines between Bulgana and Sydenham, would be running by 2025.

The final design of the project has yet to be set. AEMO is running a competitive process to appoint a party to build, own and run the new infrastructure, and flagged it would give an update on progress late this year. The successful bidder will have to secure planning and environmental approvals.

AEMO found that the investment would yield a total return of $670 million, resulting in a net benefit of $300 million through reductions in the cost of supplying power into the grid and enhancing the interconnector transfer limit.

Other transmission projects are going through the so-called Regulatory Investment Test for Transmission process, including the proposed $1.5 billion electricity interconnector between South Australia and NSW. A positive outcome is needed for the asset to be classified as regulated, which would allow its owner to receive a set return.

Angela Macdonald-Smith writes on the resources industry with a focus on energy, including gas, oil, electricity and renewables. Connect with Angela on Twitter. Email Angela at amacdonald-smith@afr.com