Legislative Council, Wednesday 22 March 2023
Ms FORREST asked the Leader of the Government in the Legislative Council, Mrs Hiscutt
With regard to proposed reform in the energy sector and matters related to TasNetworks, in an answer to a Question on Notice from Minister Barnett on 10 November 2022, the Minister stated that…“without Marinus the business will have lower growth in regulated and unregulated developments.” I note unregulated connections by new generators to the grid are stated to be the key drivers for future growth.
Question (a):
With regard to the three existing wind farms, who owns the grid connections?
Answer:
The assets between the shared Network (the network) and individual generators (including wind farms) are classified as dedicated connection assets as they are solely for the benefit of a single entity and their establishment is considered as contestable under the National Electricity Rules (NER). Dedicated connection assets can be developed, owned and operated by the generator or another third party (such as TasNetworks as the Tasmanian TNSP).
Costs are paid by, or recovered from, the generating party connected to those assets.
Of the five (5) existing transmission connected wind farms (Bluff Point, Studland Bay, Musselroe, Cattle Hill and Granville Harbour). Three wind farms own the assets between the network substation and the wind farm. For the remaining two wind farm connections, the connecting assets are owned by TasNetworks (these assets are classified as unregulated). The general customer base does not contribute to cost recovery for unregulated assets.
Question(b):
TasNetworks 2022 Annual Report includes (on page 81) revenue of $27m from non-regulated services.
(i) How much of the $27m relates to wind farm connections to the grid;
(ii) what is the value of TasNetwork’s assets which connects existing wind farms to TasNetwork’s grid; and
(iii) are these included with regulated transmission assets under the label ‘transmission network’ (on page 95)?
Answer:
Of the $27m referenced $5.5m of revenue is related to unregulated connection assets.
The written down value (WDV) of the unregulated connection assets as at 30 June 2022 that are included in the total Network assets was $43m.
On page 95 (PPE), “Transmission Assets” includes all assets associated with the transmission network both regulated and unregulated.
Question(c):
(i) If Marinus Link unlocks 3GW of additional wind power generation, what is the estimated cost of both the extra regulated and non-regulated transmission needed; and
(ii) who will fund the non-regulated transmission?
Answer:
The level of augmentation required of the network will be determined by both the location and scale of what committed projects (both load and generation) seek to connect to the network, however the most recent work on quantifying what might be required of the network is captured in TasNetworks most recent (2022) Annual Planning Report (APR) noting that the North West Transmission Developments (NWTD) not only support the connection of the proposed HVDC Marinus link but also serves as a collector network for new renewable energy projects including wind and pumped hydro – see:
As discussed above, non-regulated assets are not funded by the general customer base, rather by those parties requiring those assets. How those private entities might fund those assets would be private commercial arrangements for them, and TasNetworks are not in a position to offer comment.
Question(d):
(i) If TasNetworks contracts with a generator to provide non-regulated transmission services and TasNetworks builds the agreed asset, will TasNetworks seek additional security from the generator; or
(ii) will TasNetworks bear the risk if the generator is unable to pay as agreed?
ANSWER:
In relation to non-regulated transmission connection (which includes both generators and load customers), TasNetwork’s Credit Risk Management Policy states that “payment up front or security is required prior to the commencement of works”.
If TasNetworks agrees to fund the connection assets, its Policy states that “security is required to be held by TasNetworks until the charges for the connection assets have been recovered”.
Question(e):
Is the mooted expansion path for TasNetworks to build more non-regulated transmission assets considered a greater risk than the current model where most revenue is derived from its regulated asset base?
TasNetworks’ plan to capture some of the expanding market for non-regulated transmission services is complementary to its role as a regulated network business and assists with the implementation of the Government’s energy policy and Tasmania’s economic prosperity.
TasNetworks can lever off its core skills and expertise in meeting customer expectations and deliver efficient customer outcomes, including supporting other GBEs. However, TasNetworks is very mindful that the pursuit of non-regulated opportunities cannot be at the expense of our regulated network business.
TasNetworks recognises the fundamental role of its services in securing the social and economic prosperity of Tasmanians, and it remains focused on delivering value to its customers and keeping electricity network prices as low as sustainably possible, without compromising safety, the reliability and security of the network, or its regulatory obligations.
Providing non-regulated connection services to load customers such as hydrogen proponents or supporting Nyrstar Hobart’s new cell room project helps to consolidate and expand Tasmania’s economic capacity and can also benefit all Tasmanians through lower network charges as our revenue cap is recovered from a broader base.
Notwithstanding TasNetwork’s commitment to delivering low electricity network prices, it seeks to provide sustainable returns and maintain a strong financial position. This requires it to operate a sustainable, lean and efficient business, whilst proactively pursuing profitable growth opportunities in both regulated and non-regulated complementary services.
To achieve this, TasNetworks promotes a prudent and measured risk culture within the business. Its risk culture forms the foundation of informed, prudent decision-making across the organisation commensurate with its risk appetite.
TasNetworks actively pursues growth in its core business within Tasmania, in particular with the opportunities that exist around unlocking renewable energy developments and the export of electricity across National Electricity Markets, acknowledging the attendant financial, shareholder or reputational risks that may arise.
Question(f):
(i) Does or will TasNetworks have a higher rate of return on non-regulated assets compared to the rates of return built into regulated prices; and
(ii) if so, what additional return will TasNetworks require for non-regulated assets?
Answer:
(i)TasNetworks rate of return on non-regulated assets is higher than for regulated assets and forms an important part of TasNetworks’ income.
(ii) The rate of return TasNetworks receives on its non-regulated assets is determined by a range of factors and assessed on a case by case basis.
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