VNI West: The Devil in the Details

There are urgent calls to 'get on with the delivery’ of VNI West, one of five actionable projects identified in the 2022 Integrated System Plan (ISP). But beyond the glossy brochure that is the VNI West Project Assessment Draft Report (VNI West PADR), do the economics really stack up?

It appears they may not, and this begs the question, how can VNI West be justified?

The Victoria to New South Wales Interconnector West (VNI West) is a proposed new high capacity 500 kilovolt (kV) double-circuit overhead transmission line between Victoria and New South Wales. Developed by the Australian Energy Market Operator Victorian Planning (AVP) and Transgrid, the project would connect the Western Renewables Link (WRL), from a new terminal station north of Ballarat, Victoria with EnergyConnect at a new Dinawan substation, between Jerilderie and Coleambally, NSW.

Professor Simon Bartlett AM, an expert with forty years’ experience in the power industry in electricity transmission, power systems and generation in Australia, Europe and Canada, believes there is a devil in the details of the VNI West PADR that needs to be addressed.

Professor Bartlett recently reported the discovery of apparent non-compliances and major errors in the WRL’s Project Assessment Conclusions Report (PACR). According to Professor Bartlett, the PACR should have concluded neither of the two most credible options would deliver a positive net benefit and that neither should have been selected as the preferred option. However, the WRL was approved to progress.

So, what does the WRL have to do with VNI West?

Given the close integration of the WRL with VNI West, Professor Bartlett felt it was prudent to thoroughly investigate the VNI West PADR and its associated worksheets only to discover 15 apparent non-compliances and major errors with the VNI West PADR, the proposed approach to the PACR and other potential non-compliances with the Regulatory Investment Test for Transmission (RIT-T), National Electricity Rules (NER) Chapter 5.15 and 5.16 and the Cost Benefit Analysis Guidelines to make the Integrated System Plan Actionable (Guidelines).

According to Professor Bartlett, the estimated overstated net market benefits of VNI West could total $1,715m Net Present Value (NPV), resulting in a net cost of $830m NPV for the Step Change scenario and around $700m NPV for the scenario weighted net cost.

These findings could be contrary to the National Electricity Objective (NEO) and could significantly increase the electricity costs for both NSW and Victorian electricity consumers.

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Professor Bartlett’s VNI West report can be found here:

APPARENT NON-COMPLIANCES OF VNI WEST PADR

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This isn’t the first time VNI West’s cost-benefit test and modelling has been brought into question. Reading VNI West PADR submissions by the VEPC, EUAA, Ted Woodley, MCHPA and EGA will suggest there may be even more matters to consider to what Professor Bartlett has discovered.

These significant findings do raise the question, how can VNI West be justified if it results in a net cost to consumers, a slowing of the transition to renewables, a greater use of coal, and higher CO₂ emissions for the next decade? Aren’t such outcomes the very antithesis of government policy?

In meeting the NEO, the RIT-T must promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to price, quality, safety and reliability and security of supply of electricity, the reliability, safety and security of the national electricity system.

The RIT-T is a public economic cost benefit test administered by the Australian Energy Regulator, the purpose which, as set out at clause 5.16 of the NER, is to identify the credible option that maximises the present value of net economic benefit to all those who produce, consume and transport electricity in the market.

Many of these findings were first raised with the VNI West RIT-T proponents in September 2022. Due to the nature and extent of issues raised, PADR submitters recommended to the AVP and Transgrid that VNI West return to the PADR stage so that all matters can be adequately addressed. AVP and Transgrid have recently indicated this is not going to occur and instead, a supplementary report will be issued for further consultation.

To complicate matters further, on 20 February 2023, the Andrews Labor Government announced it has issued a Ministerial Order (Order) to bring forward VNI West. The Order has been issued under the National Electricity (Victoria) Act 2005 (NEVA) that enables AEMO to immediately carry out preparatory and planning works. The Order removes the need under the NER to re-apply the VNI West RIT-T or WRL RIT-T due to a relevant material change in circumstance. On face value this also removes by decree the public right to proper process for projects that have been subject to the National Electricity Law (NEL) and the NER since 2017.

The Order proclaims that the RIT-T process and contestable augmentation process under the NEL/NER no longer apply to the WRL, nor to the Victorian portion of VNI West. Yet the VNI West RIT-T process is jointly conducted by AVP (Vic) and Transgrid (NSW). The Order hasn’t clarified how half the VNI West RIT-T process can be no longer subject to the RIT-T Process in the NEL/NER.

Given the extraordinary nature of the Order and significant modification of the NEL and NER, it will be interesting to see if AVP and Transgrid make any effort to address the apparent non-compliances, major errors and additional stakeholder concerns raised during the VNI West PADR consultation process.

The expectation of all stakeholders, and indeed the Australian public, is that all matters raised will be adequately addressed in the VNI West Supplementary Report that is scheduled for release during February 2023. Submissions to this Supplementary Report and their interrogation of such matters will prove to be interesting reading.

When considering the apparent non-compliances and errors identified in Professor Bartlett’s reports results in a negative economic benefit, there is a real risk that if the WRL and VNI West are built as proposed, electricity consumers will pay significantly more on their bills to cover all costs over the 50-year life of these privately owned transmission assets.

Proceeding with regulated transmission projects that have a significant negative net benefit could be contrary to the NEO and is certainly contrary to the Victorian Government’s vision that projects like VNI West are the key to delivering cheaper and more reliable renewable and storage capacity.

Author of VNI West and WRL Reports

Abbreviations found in WRL and VNI West Reports

WRL: Western Renewables Link
WRL PACR: Western Victoria RIT-T Project Assessment Conclusions Report
VNI West: Victoria to New South Wales Interconnector West
VNI West PADR: Victoria to New South Wales Interconnector West Project Assessment Draft Report
WRL Cost Benefit Assessment: Western Renewables Link project - analysis conducted under the National Electricity Rules
RIT-T: Regulatory Investment Test for Transmission (August 2020)
NER: National Electricity Rules
NEL: National Electricity Law
Guidelines: Application Guidelines Regulatory Investment Test for Transmission (2020) and Cost Benefit Analysis Guidelines to make the Integrated System Plan Actionable (2020)
ISP: 2022 Integrated System Plan (ISP)
O&M: Operation and Maintenance
NPV: Net Present Value
C2: Preferred credible option identified in the WRL PACR
B3: Second most credible option identified in the WRL PACR