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The SA Green Grid Proposal

This is the Green Grid Report [4.7 MB pdf].

INTRODUCTION

The Green Grid Report (GGR), prepared by the commercial sector, proposes to unlock the Eyre Peninsula Wind Resource and make a large contribution towards meeting Australia's Renewable Energy Target of around 20% of electricity by 2020. The Eyre Peninsula sits at one end of the National Electricity Market; for Wind Power generated there to be usefully integrated requires suitable transmission infrastructure. The GGR is mostly focused on the regulatory and financial arrangements involved in building the transmission infrastructure.

The Report proposes two stages of development, each for 2 GW (nameplate) of Wind Farm installation. The guts of the report is Stage One, with the second stage a more tentative proposal. A project timeline is given in Ch 14 (p 45).

The Stage One transmission infrastructure has two major components: (i) new transmission lines from near Port Augusta into the Eyre Peninsula (300+ km of 500 kV line), and (ii) upgrading the existing 275 kV SA network to include a 500 kV "backbone" from near Port Augusta to the Victorian boarder near Heyward, essentially crossing atop the states population centres and connecting into the NEM at one of the two existing interconnectors. See the figures on pages 31 and 35 of the report.

Under current regulatory circumstances the proposed Eyre Peninsula transmission lines are said to be unlikely. Also, without much stronger integration into the NEM the abundance of wind power generated would devalue itself and hence the financially viability of the wind farms.

The Australian Energy Market Commission (AEMC) have, at the behest of the Ministerial Council on Energy, reviewed the Energy Market Frameworks and proposed an additional regulatory framework called Scale Efficient Network Extensions (SENE). The SENE would create the apparatus needed for multiple generators to pay off the cost of new transmission infrastructure over the life of the project. The Green Grid proposal requires this or an equivalent change in the rules in order to finance the new Eyre Peninsula transmission lines. The upgrade to existing network (the new 'backbone') could satisfy the current regulatory test for it to be financed by consumers.

BACKGROUND

The Green Grid proposal and assessment comes from a consortium:

• Baker & McKenzie are legal consultants with specialty in renewable energy. They were the main legal services and led the assessments constructing the required regulatory changes;
• WorleyParsons are a global engineering service provider. They led the work assessing the technical aspects, flagged transmission limitations and requirements, wind feasibility and technical practicalities as constraints. They also contributed to the commercial assessment through financial modeling of transmission costs and the economic benefits of the resulting generation;
• Macquarie Capital Advisers are established financiers for major infrastructure projects. They contributed to the financial assessments.

And associated consulting partners:

• McLennan Magasanik Associates (MMA) - Strategy consultancy;
• GL Garrad Hassan - Global renewable energy consultancy specialising in wind;
• Evans & Peck - Infrastructure advisory company.

Australia's Renewable Energy Target (RET) is made up of the Large-Scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). The RET is for 45,000 GWh of renewable electricity by 2020 - equivalent to 20 percent of Australia's electricity - with 41,000 GWh from LRET. The first stage of the Green Grid Proposal would contribute 15% of the LRET target.

A Renewable Energy Credit (REC) is a commodity generated by the sale of 1 MWh of renewable energy. Large electricity generators are required by law to buy or create RECs in line with the Renewable Energy Target, and thus spread the cost of the subsidy across the sector. For example, the difference between the price of generation from coal (~$50/MWh), and the price of wind generation ($110/MWh), means that wind farm developers need other sources of income -- i.e. the sale of RECs.

South Australia (SA) currently has around 900 MW (nameplate) of renewable energy operating. This equates to around 18% of overall generation and constitutes more than 40% of Australia's wind generation. While SA has excellent renewable resource potential, the state itself is (i) forecast to experience only marginal growth in electricity demand, (ii) is located at one end of the NEM, and (iii) has a transmission network that is currently constrained in some areas. Hence, exploiting the Eyre Peninsula wind resource requires transmitting and selling the electricity into the NEM.

THE GREEN GRID PROPOSAL - STAGES ONE and TWO

The GGR Assessed Wind Resource (ch 7): Australia's large wind resources exist on the South and West facing coasts. The Eyre Peninsula is one of these areas. Worley Parsons led the GGR assessment and identified four separate areas that are attractive for Wind Farming (including on resource, environmental and social grounds). Stage 1 of the project accessing Western and Central locations (2 GW), and then in a second stage there can be a further 2 GW at Northern and Southern locations. The electricity from stage 1 can feasibly be integrated into the NEM with major network augmentations; stage 2 would require further new transmission infrastructure.

There are three steps to Stage One of the Green Grid proposal.
1) The identification, as above, of 'wind zones' that are attractive in terms of both the wind resource and the social / environmental factors;
2) The Eyre Peninsula transmission infrastructure, linking two Stage One wind sites into the existing network near Port Augusta -- this involves around 300 km of 500 kV transmission lines capable of carrying 2 GW, at an estimated cost of $613 million;
3) The existing 275 kV SA NEM network to be complemented by a new 500 kV "backbone" running from near Port Augusta down across SA to the Victorian border at Heyward.

The upgrades to the existing network (point 3 above) are expected to be paid for by the consumer through the current RIT-T framework [see below]. The new Eyre Peninsula transmission lines (point 2 above) are to be paid for by the Wind Farms through the new SENE regulatory approach (see below).

The order of the transmission development in the Eyre Peninsula is dependant on the perceived value of the wind available. Initially sites West and Central are seen to contain the most value and hence the initial lines are to connect these through to the SA grid (see figure on p31). This increase in wind capacity will at times produce more power than the SA demand, highlighting the required augmentation to the existing network, facilitating the sale of excess electricity through to the NEM.

In Stage Two a further 2 GW (nameplate) of Wind Farms at two sites would be included. This requires further significant network infrastructure linking SA to the NEM. Here it is proposed that a HVDC line link SA at Davenport with NSW at Mt Piper. This second stage is presented as a possible further development for consideration after successful implementation of stage one.

REGULATORY DEVELOPMENT - the SENE

See ch 5, especially the summary (5.6) on page 21

Currently, to build new transmission infrastructure involves either paying for it oneself, or passing a proposal through something called the Regulatory Investment Test for Transmission (RIT-T). This test favors transmission installation near already existing generation or loads, and is not seen as compatible with unlocking the Eyre Peninsula. A new regulatory test called the Scale Efficient Network Extensions (SENE) has been proposed, and is set for draft release by the Australian Energy Market Commission (AEMC) on the 17th Feb 2011. As noted in the GGR: "The SENE proposal represents a hybrid approach to the existing "prescribed services" and "negotiated services" given it contains elements of both existing approaches."

The purpose of the proposed Scale Efficient Network Extensions (SENEs) is to allow the connection of multiple generators to the shared network so as to prevent the inefficient duplication of connection assets that might otherwise occur. (AEMC 2010)

In short, the SENE rules will allow an investment scheme where the upfront cost of transmission infrastructure would be paid by the Network Service Provider (NSP), which is Electranet in SA, with cost recovery through an annual usage fee on the generators that utilise the transmission infrastructure. The financial risk in a SENE is ultimately borne by the consumer. There are other important regulatory aspects (see p 47), including how the costs of line losses (i.e. electricity loss in the lines) are handled.

[skipping the investment and timeline issues for now]

CONCLUSION

The Green Grid Report proposes a specific plan for unlocking the Eyre Peninsula Wind Resource, and otherwise upgrading the SA transmission network and its connection to the NEM. We hope these admittedly imperfect notes will aid you in understanding The Green Grid Report, and we encourage you to use the forum here for you questions and comments.

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as / fc - Sept 2010