Drivers for the Western Victoria Transmission Network Project

What is the purpose of the WVTNP?

Over the past few years, Energy Grid Alliance has been often asked; what is the purpose of the Western Victoria Transmission Network Project (WVTNP) and how does it serve our transition to renewables in the name of climate change?

According to the proponent, Ausnet Services, the WVTNP is a proposed new 190km overhead high-voltage electricity transmission line that will carry renewable energy from Bulgana in western Victoria to Sydenham in Melbourne’s north-west.

AusNet Services website states the project will:

• Reduce urgent congestion on the existing transmission network
• Unlock up to 900MW of renewable energy capacity
• Will power more than 500,000 homes from clean energy
• Will produce greenhouse savings of 0.4M tonnes of carbon annually and
• Will create 300 jobs in construction

The WVTNP will primarily consist of:

• Construction of new 500 kV double circuit transmission line from Sydenham to North Ballarat
• Construction of new North Ballarat Terminal Station
• Construction of new 220 kV double circuit transmission line from North Ballarat to Bulgana

This project was triggered to address the need of Victoria’s Victorian Renewable Energy Target (VRET) of 50 per cent by 2030. The increased target of 50% by 2030 has been legislated in the Renewable Energy (Jobs and Investment) Act 2017 (Vic), building on Victoria's previously legislated renewable energy generation targets of 25% by 2020 and 40% by 2025.

The Victorian Government states that meeting the VRET targets will bring forward significant investment in new renewable energy projects in Victoria, supporting the reliability of Victoria’s electricity supply. This will generate billions of dollars of additional economic activity in Victoria, create thousands of jobs, put downward pressure on electricity prices and reduce emissions from electricity generation, contributing to Victoria’s long-term target of net zero emissions by 2050.

There has been a lot of concern raised by Victorian communities that the motivation for this, and other large scale transmission projects, is around jobs and investment and that any claims about the benefits to the environment and climate are inaccurate and that those involved are simply greenwashing.

Greenwashing is where more time and money is spent on marketing a project as environmentally friendly than on actually minimising its environmental impact.

Is clean energy really the motivation?

Two questions we are also asked; If the WVTNP is to carry renewable energy from Bulgana in western Victoria to Sydenham why is there a need for the 500 kV section and North Ballarat Terminal Station? Why is it not 220 kV the entire length? It’s a great question.

To understand the drivers and motivation, we must conduct a deep dive into the project, reaching back to its inception in 2017 to understand the identified need. This all starts with the Regulatory Investment Test for Transmission (RIT-T).

The RIT-T

The RIT-T process is a regulatory mechanism defined in the National Electricity Rules (NER) that applies an economic cost-benefit test on new transmission electricity infrastructure proposed for the National Electricity Market (NEM). The purpose of a RIT-T is to identify the credible option for meeting an identified need that maximises net economic benefit for all those who produce, consume and transport electricity in the market.

In its role as the transmission network planner for Victoria, the Australian Energy Market Operator (AEMO) completed a RIT-T to assess the technical and economic viability of increasing transmission network capacity to address current limitations in the Western Victoria transmission network, in accordance with the NER.

It is important to note that the RIT-T does not consider socioeconomic, environmental or greenhouse penalties. Section 3.5.1 of the RIT-T Application Guidelines states, a RIT–T proponent must exclude from its analysis, the costs (or negative benefits) of a credible option's harm to the environment. These considerations should be independent of the credible option under consideration.

If the RIT-T does not consider impacts to the environment or greenhouse gas (GHG) emissions, how can there be any certainty that the WVTNP will meet legislated climate change objectives?

This is an important question as any reasonable person would expect the proposed high-voltage electricity transmission line will carry renewable energy from Bulgana in Western Victoria to Sydenham in Melbourne’s north-west as summarised on the proponent’s website. But this may not be the case.

Recent analysis by the Victoria Energy Policy Centre (VEPC) concludes the new transmission line was found to make effectively no difference to production from the new wind and solar farms, whose connection to the grid motivated the new line. AEMO’s analysis actually shows that WVTNP in fact will make almost no difference to renewable generation in Victoria.

How then did the Regulatory Investment Test assess this project?

In a recent Renew Economy article, Bruce Mountain of the VEPC says, “it [The RIT-T] put no price on carbon and so the Test counted as the benefit of this project that it would expand interconnection capacity to NSW, thereby allowing Vic brown coal generation to replace less emission-intensive but more expensive (excluding emissions) NSW and QLD coal and gas.

In fact, AEMO assumed that the Vic, NSW and QLD coal generation that existed in 2033 would be going flat out all the way to 2075. This produced enough “benefit” to have the benefits exceed the costs, and WVTNP was given the nod.

In fact, AEMO’s analysis suggested that WVTNP would make almost no difference to wind and solar generation in Victoria than if WVTNP was not built. Of course, this is nonsense.

It arises because a price has not been put on GHG emissions. Had a proper price been placed on emissions – let’s say $75/Tonne CO2-e – it would have shown that VIC brown generation would reduce as it was replaced by wind and solar from Western Victoria, made possible by WVTNP.

My guess is that such (correct) analysis would suggest that a different project on a different route would be preferred, rather than the one that was recommended – which was predicated on greater interconnection between Vic and NSW.”

Predicated on greater interconnection between Vic and NSW? If clean energy and lower emission is not the goal, what is? To understand this, we need to walk through each stage of the RIT-T process.

Stage 1: The WVTNP PSCR

AEMO completed the first stage of the Western Victoria RIT-T in April 2017 and published for consultation a Project Specification Consultation Report (PSCR) identifying the need for transmission network investment in the area, and potential investment options to address this need.

According to the PSCR, the identified need was to increase the capability of the Western Victoria power system, to reduce constraints on projected new generation in that region.

AEMO projected that over 3,000 megawatts (MW) of new renewable generation may be constructed in Western Victoria as a result of the Victorian Government’s VRET target. New generators connecting to this part of the Victorian electricity network are expected to be heavily constrained by emerging thermal limitations on the 220 kilovolt (kV) transmission system, with up to half of their energy output curtailed (depending on proximity to constraints).

New generators proposing to connect to the 500 kV transmission network would not be constrained by limitations in Western Victoria but may be constrained by other limitations in the Victoria transmission network.

This all seems reasonable and aligns with the project outcomes summarised on proponent’s website.

Stage 2: The WVTNP PADR

The Project Assessment Draft Report (PADR) published in December 2018 stated that the identified need for investment was to increase the thermal capability of the Western Victorian power system, to reduce constraints that would otherwise apply on anticipated new and existing generation.

While the identified need for investment remained the same, new information available after the publication of the PSCR allowed AEMO to refine some aspects of the identified need.

In July 2018, AEMO published its inaugural Integrated System Plan (ISP) for the NEM. The ISP sought to determine a plan for the development of the power system that would meet consumer needs at the lowest possible source cost. As part of that, the ISP identified a number of renewable energy zones (REZs) which would facilitate the efficient connection of new generation sources. Three priority REZs were identified in Victoria.

1. Western Victoria corridor (AKA WVTNP)

The main driver for Horsham to Ballarat augmentation is development of large-scale renewable (mainly wind) generation in the area. Most of the generation is intended to flow from Horsham towards the 500 kV network at Moorabool. The transmission line flows in the Moorabool to Geelong to Keilor 220 kV path also increase due to high generation in the Horsham to Ballarat corridor.

2. Moyne corridor

Augmentation of the Terang to Moorabool line is primarily driven by new wind generation connecting to Terang Terminal Station (both transmission and distribution connections). Generation connecting to the Western Victoria REZ will also increase transmission line flows on the Ballarat to Terang to Moorabool transmission lines. Most of the generation is intended to flow towards Ballarat or towards Moorabool, from Terang.

3. Murray River corridor

There are two key drivers for Murray River augmentation:

• Development of large-scale renewable (mainly solar) generation in this area.
• AEMO’s 2018 ISP identified the need for a new Victoria to New South Wales interconnector by 2035 (called SnowyLink in the ISP) that runs through the Murray River REZ.

Enter SnowyLink South

AEMO's 2018 Integrated System Plan (ISP) proposed SnowyLink South (now referred to as VNI West or KerangLink) and SnowyLink North (now HumeLink). SnowyLink South proposed an interconnector to connect the Snowy 2.0 project to Melbourne via a central Victorian path. AEMO also considered that net market benefits would support increased interconnection capacity in the southern sections to Victoria from 2035, or earlier if Yallourn Power Station retires.

The following figure illustrates transmission required to enable the benefits of pumped hydro storage from Snowy 2.0. Note SnowyLink (also known as VNI West or KerangLink) shares the same development path between Ballarat North and Sydenham as the WVTNP.

Before we look further into the drivers and certainty of KerangLink (SnowyLink), we need to look at the final stage of the WVTNP RIT-T.

Stage 3: The WVTNP PACR

The Project Assessment Conclusions Report (PACR)  published in July 2019 was the third and final report in the Western Victoria RIT-T process. Of each of the credible options assessed through the RIT-T process, the option recommended in the PACR was C2 (the current project alignment). This path was selected as it delivers the highest net economic benefits across all scenarios and sensitivities.

Critically, this option is underpinned by AEMO’s Integrated System Plan (ISP), as mentioned above which seeks to optimise interconnection between Victoria and New South Wales.

Identified need

The need for transmission investment, as identified in the PADR, was unchanged yet AEMO’s 2018 ISP identified that transmission augmentation from Sydenham to Ballarat to Kerang to Darlington Point in New South Wales will be required by 2035 (Snowylink / VNI West / KerangLink).

As part of this proposed augmentation is within the study area of the WVTNP RIT-T, Option C2 was the preferred choice as it takes into account the benefits of reducing the future cost of KerangLink, compared to Option B3 (which was a credible option that utilised existing transmission easements).

Other factors that increase the benefit of the preferred option C2 include future increases in land value. While the interconnector (SnowyLink) route is still subject to change, it must provide a connection to the Victorian load centre.

According to AEMO, waiting until 2035 to obtain easements and planning/environmental approvals between Ballarat and Sydenham Terminal Stations may present challenges in future as these areas become more built up and land values increase.

Bringing forward the Ballarat to Sydenham component of the Snowylink interconnector will result in higher capital costs, however this increase is likely to be less than the increase in land values in this corridor if the augmentation is progressed at a later date.

Based on this analysis, it becomes clear to any reasonable person, that the interconnection between Victoria and new South Wales is a substantial driver for the WVTNP. On the surface, this would be reasonable to expect given the shared pathway and benefits of early easement acquisition as stated. It makes good business sense, right?

Justification for the WVNTP

In a recent policy paper authored by the Victoria Energy Policy Centre (VEPC), evidence of rapidly changing economics can be seen in the cost-benefit analysis that AEMO completed in 2019 for the largest transmission augmentation in Victoria over the last two decades, the WVTNP.

According to the VEPC’s paper, the cost/benefit analysis of this line, which followed the rules of the AER’s cost/benefit test, found that the main benefit of the line would be that it would in fact allow more polluting brown coal generation in Victoria to displace less polluting black coal generation and gas in New South Wales and Queensland.

Absurdly therefore, a new transmission line ostensibly motivated by transport of green energy and reduction of emissions was actually justified on the basis of an analysis that it would increase emissions.

By implication the new transmission line was found to make effectively no difference to production from the new wind and solar farms, whose connection to the grid motivated the new line. AEMO’s analysis actually shows that WVTNP in fact will make almost no difference to renewable generation in Victoria: its benefit according to AEMO’s analysis is in replacing more expensive fossil generators with other cheaper fossil generators. But if fossil (coal) generation soon leaves the market (as AEMO now suggests will happen), wherein lies the justification for the transmission augmentation?

Certainty of the Victoria to New South Wales Interconnector

The Victoria to New South Wales Interconnector West (SnowyLink, KerangLink, VNI West) RIT-T Project Consultation Specification Report (PSCR) was published in December 2019. The PSCR details the identified project need and proposes a range of options to address this need, to realise net market benefits in the long-term interest of energy consumers.

A VNI West Progress Update was published on 28 April 2022 to provide information on the RIT-T process and upcoming consultation opportunities.

The report states that VNI West is still in the regulatory investment assessment stage, which means the project is not yet validated under the National Electricity Rules (NER). Its technical and economic feasibility are still being investigated, and no design or route has been identified.

The VNI West RIT-T timeline

The RIT-T process requires network planners considering significant investment in new transmission infrastructure to conduct extensive market modelling and technical consultation in three phases:

1. Project Specification Consultation Report (PSCR) – the VNI West PSCR was published December 2019.
2. Project Assessment Draft Report (PADR) – the VNI West PADR is to be published by 31 August 2022.
3. Project Assessment Conclusion Report (PACR) – the VNI West PACR is to be published by early 2023.

It is important to note, according to the 2022 Draft ISP, project delays have pushed back the earliest commissioning timing for both VNI West and Marinus Link, and it is foreseeable that HumeLink could face similar delivery risks.

It is also worth noting that decision rules that would result in VNI West being paused or cancelled include:

• Transmission costs, including any third-party contribution, exceeding $2.6 billion, or
• Sufficient new market-based dispatchable capacity being in place in Victoria ahead of the next brown coal closure in Victoria, or
• The Slow Change scenario unfolding, which includes life extensions of existing coal-fired generation.

Assessment of the way that the 'actionable ISP' regime is working is that actionable project determinations by AEMO in the ISP process has replaced Australian Energy Regulator (AER) approvals, as the critical approval stage. In addition, there is no formal relationship between the conclusions of a RIT-T and the information that AEMO uses in its ISP, or the conclusions that AEMO reaches in its own actionable ISP assessment.

VNI West which AEMO endorses as actionable has not concluded a RIT-T and is far from being formally proposed.

The Western Victoria RIT-T (WVTNP) should never have carried future benefits for VNI West given the uncertainty of this project and the very real likelihood it may never proceed. The Victorian Government has recently stated in its Offshore Wind Directions Paper that increasing capacity of interstate transmission lines (interconnectors) requires unprecedented investment and carries substantial risk.

To further illustrate the uncertainty, in a recent article in the Australian Financial Review, Victoria’s energy and climate minister Lily D’Ambrosio said, "there is a question mark over federal government support for KerangLink/VNI West, despite its commitment to Snowy 2.0, which now may be completed before its interconnections are completed."

Justification for Interconnectors

In the recent report, the VEPC state; A national planner does not know the risk appetite of local (i.e. site specific) investors, micrositing advantages or social licence-related constraints, let alone regional planners’ local information. Each State has its own transmission network service provider which is responsible for planning the development of transmission in their States. These State-based entities have detailed information on demand, supply, capacity and operational constraints on their networks– and are also the first entities to be approached by investors with regards to their solar/wind/storage projects (i.e. network access is a key go/no go power project condition precedent). The States have no obligation to report this detailed information to a national entity. Without access to such detailed information, a national planner is several steps removed from information that is vital for effective central co-ordination. Even AEMO’s Integrated System Plan (ISP), the most comprehensive central plan, suffers from all of these information shortfalls and is therefore far from an ‘investment grade’ document, although it provides valuable generic insights nonetheless.

The VEPC further believe that Labor’s rewiring the nation plan is the wrong answer. Centralised control of state-based power grids will create more electricity industry white elephants. Incentivising storage investment is a better option.

Not everyone is in favour of AEMO’s so-called blueprint with the Victorian Government’s recent release of the Victorian Governments Offshore Wind Policy Directions Paper. A significant material change in direction to the much-acclaimed ISP blueprint that has no consideration at all for offshore wind.

The Victorian Offshore Wind Policy Directions Paper outlines our State’s vision for offshore wind – paving the way for our State to host the first offshore wind farms in Australia. The plan includes procuring an initial offshore wind tranche of at least 2 GW, aiming for first power to come online as soon as 2028 following a competitive process, with targets of 4 GW of offshore wind capacity by 2035 and 9 GW by 2040.

Mr Bruce Mountain of the Victoria Energy Policy Centre (VEPC) recently commented that, “this announcement [offshore wind farms] up-ends AEMO’s modelling of the Victorian power system. AEMO had not forecast any offshore wind generation in its “Step Change” (most likely) scenario over the next 30 years.”

“AEMO’s ISP team will need to go back to the drawing boards and the finalisation of the 2022 ISP will have to be delayed.  Perhaps completely new analytical constructs are needed: is not an “optimal development path” a delusion in the context of such rapid technology and policy change?”

“Perhaps this announcement also tolls the bell for the aspiration of a “nation building” network of gargantuan interconnectors costing tens of billions of dollars. This dream (nightmare to my way of thinking) has smashed against the wall of political and economic reality.”

MarinusLink

The VEPC have provided more recent commentary regarding a committed ISP project, MarinusLink. “So, are Basslink and Marinus Link evidence of an “indictment” in transmission planning? Yes. It is surely a “damning indictment” that, even with the experience of Basslink, the powers-that-be want to triple the interconnection with a new cable that is twice as expensive per MW than the existing interconnector, considering that the existing interconnector has been such an abject failure.”

Further to this, the VEPC's submission to AEMO's 2022 Draft ISP concludes that the benefits of Marinus Link are unlikely to exceed its costs, while AEMO concludes the opposite (in fact, that Marinus Link is purported to have the largest net benefits of all transmission projects considered).

HumeLink

HumeLink, another committed ISP project, has received equal criticism by the VEPC, with Snowy 2.0, a companion project, has been labelled as a '$10 billion white elephant'. The underground power station and tunnels alone will cost more than $6 billion, and Snowy Hydro avoids mentioning the transmission connections to Sydney – $4 billion-plus for HumeLink and the Sydney ring – and to Victoria.

Regarding HumeLink, the VEPC has stated, “This means that AEMO’s analysis cannot conclude that HumeLink is an economically sensible transmission expansion, it can only conclude that having ignored the costs of Snowy 2.0, its model finds that HumeLink is necessary in order to not waste the storage potential of Snowy 2.0.”

According to the VEPC, there are many lessons from the HumeLink debacle.

“The overall take-out is that transmission projects need far more scrutiny, far earlier in the development process. It is clear that a rigorous process would have identified HumeLink (and Snowy 2.0) and Marinus Link to be uneconomic as proposed, saving $billions for taxpayers and electricity consumers.”

In its Draft ISP submission, the VEPC conclude “that the “actionable ISP” regime has made AEMO responsible for undertaking cost/benefit analyses to decide whether major transmission augmentations should proceed, and that the existing RIT-T regulatory test is now little more than a self-assessment. We have concluded that in this new context the analysis that AEMO has done to approve actionable transmission projects is not adequate. We also find that AEMO has made errors in its approval of the two largest actionable projects and, when corrected, these projects should not be “actionable”.”

What then is the purpose of the WVTNP?

We now come back to the original question. What is the purpose of the WVTNP given the reliance upon and uncertainly of its related interconnector? Here’s some final point to consider.

AusNet Services website states the project will:

• Reduce urgent congestion on the existing transmission network
• Unlock up to 900MW of renewable energy capacity
• Will power more than 500,000 homes from clean energy
• Will produce greenhouse savings of 0.4M tonnes of carbon annually

Analysis by the VEPC found:

• AEMO’s analysis shows that WVTNP will make almost no difference to renewable generation in Victoria. So, where is the justification for 900MW of renewable energy
• The WVTNP benefit according to AEMO’s analysis is in replacing more expensive fossil generators with other cheaper fossil generators. Not clean energy transport
• The driver for the WVTNP is interconnection between Vic and NSW, not renewable energy from Bulgana to Sydenham
• Greenhouse gas emissions have not been considered in the RIT-T. So, how can a 0.4M tonne annual carbon saving be justified?

This analysis suggests that VNI West (KerangLink, SnowyLink) whatever you choose to call it, is the motivation and driver for the WVNTP, its predetermined transmission path and associated 500 kV terminal station.

This analysis further suggests that before the WVTNP can proceed, VNI West requires further scrutiny through completion of the RIT-T Project Assessment Conclusion Report. Given the driver for the WVTNP is interconnection between Vic and NSW, until the technical and economic viability of VNI West has been tested and proven, it raises significant concern and reasonable doubt about the value and economic viability of the WVTNP. Without VNI West, the WVTNP has no to little value and is very unlikely to deliver the outcomes AEMO, AusNet Services and the Victorian Government claim and hope that it will.