Legislative Council, Wednesday 29 March 2023

Ms FORREST asked the Deputy Leader of the Government in the Legislative Council, Ms PALMER

With regard to the North West Transmission Line (NWT), Marinus Link (ML) and the Australian Energy Regulator (AER) decision on related recoverable costs and as noted during Government Business Scrutiny in 2022 and stated by the Minister Mr Barnett : “Tasmanian customers pay no more than 15% of the estimated total project costs across Marinus Link (ML) and the North West Transmission (NWT) Developments”:

1. Please confirm if both the NWT and ML will be included in the AER’s determination of allowed recoverable costs; and

a. If this is the case, does this indicate that 15% of $3 billion for ML plus $800 million for NWL, the likely costs for those two components, would mean that $570 million of AER allowed recoverable costs will be recovered from TasNetwork transmission customers; and

b. The estimated increase for the median residential customer in Tasmania.

2. Alternatively, given the NWT Line is to be 100 % owned by TasNetworks as noted during Government Business Scrutiny in 2022;

a. Does this therefore imply 100% of the AER allowed recoverable costs of $800 million will be recovered from TasNetwork Transmission customers;

b. Is a total of 15% of $3 billion ($450m) for ML plus 100% of $800 million for NWT totalling $1250 million to be recovered from TasNetwork transmission customers; and

c. What is the estimated increase for the median residential customer in Tasmania?

3. If neither of the above two scenarios represent the AER recoverable costs for both ML and NWT, please provide a thorough explanation of anticipated costs to be recovered from TasNetworks consumers. 

ANSWER:
Marinus Link and North West Transmission Developments (NWTD) will go through the Australian Energy Regulator’s (AER) regulatory determination process.

Marinus Link as a ‘new’ Transmission Network Service Provider (TNSP), to be owned by the Tasmanian, Australian and Victorian governments, will go through a stand alone Revenue Determination process. The NWTD will be wholly owned by TasNetworks and will be included as part of TasNetworks’ proposed 2024-2029 regulatory determination.

As a Project identified as already needed under the Australian Energy Market Operator’s Integrated System Plan, both project components will need to demonstrate through tendering outcomes that the benefit to cost ratio identified at the Project Assessment Conclusions Report stage is still positive before a revenue allowance will be approved by the AER.

Importantly, Marinus Link and NWTD were the first investments to benefit from the Australian Government’s Rewiring the Nation (RtN) plan which will help keep the costs of the Project to a minimum. RtN, is a $20 billion fund which provides low-cost finance to upgrade, expand and modernise Australia's electricity grid and put downward pressure on energy prices. This arrangement was agreed with the Australian Government in a Letter of Intent signed in October 2022 and the concessional financing tenure will be aligned with the asset life of Project Marinus.

Based on the Letter of Intent, Marinus Link will have a concessional loan from the Clean Energy Finance Corporation (CEFC) for approximately 80 per cent of the project costs of Marinus Link, with the additional 20 per cent to be in the form of equity equally contributed by the Commonwealth, Victoria and Tasmania to get this critical project off the ground. The NWTD will also receive concessional financing from the CEFC to lower its ongoing costs.

A rule change is soon to be proposed by the Commonwealth to ensure the benefits of the concessional finance provided under the Rewiring the Nation fund will be passed through to customers, but the final level of the transmission cost recovery for Project Marinus will ultimately be determined under the independent AER building block approach.

The building block approach provides for an annual revenue allowance that provides a return on capital invested (based on the cost of debt and equity), operating expenditure and replacing the asset over its life (depreciation). As such the calculation is not as straight forward as the question suggests.

However, the concessional financing from the RtN fund will ensure that the annual costs of Project Marinus to electricity customers are reduced by up to half, as compared to a typical AER regulatory determination process, which assumes a higher cost of debt and equity raising.

As noted, these costs will then be shared between Tasmanian and Victorian customers, with Tasmanian transmission customers facing no more than 15 per cent of the costs.

Wholesale price modelling completed by TasNetworks and which is currently being updated, shows that with Marinus in place wholesale electricity prices will be lower than they otherwise would be. This is expected to have an overall offsetting impact against any increase in transmission costs.

A Final Investment Decision for Marinus Link is planned for late 2024 and the final business case for the project will need to ‘stack up’ and be in the interests of Tasmanians for the project to proceed to construction.