The Australian Energy Regulator (AER) has released a draft decision to deny APA Group form converting Basslink into a Transmission Network Service Provider (TNSP) from a contracted Market Network Service Provider (MNSP).
The decision follows an application by APA Group in September 2023 to convert Basslink into a regulated asset.
The AER has invited stakeholders to provide submissions on this draft decision, with the consultation period open until 31 January 2025.
The regulator said that its draft decision presents its assessment as to whether conversion is likely to support the achievement of the National Electricity Objective. In doing so the AER said it has considered the potential outcomes of conversion in a range of potential future states and counterfactual scenarios.
The development of additional interconnector capacity across Bass Strait (the Marinus Link project), the timing of delivery of this capacity, and the way Basslink is operated and dispatched should it remain a market network service all have a significant bearing on future outcomes.
According to the AER, while the draft decision is finely balanced, the uncertainty of benefits in different future scenarios compared to the certainty of cost and risk transfer to consumers means that converting Basslink to a prescribed transmission service is unlikely to support the National Electricity Objective at this time.
The AER said that its position has been informed by submissions from stakeholders who offered contrasting views about the benefits of converting Basslink and about what was likely to happen in the future. These stakeholder views informed its analysis but also underlined the uncertainty surrounding the likely benefits.
If the final decision diverges from the draft and supports conversion, the AER would need to consult on the revenue Basslink would be entitled to earn as a regulated transmission service.
APA Group said it made a commitment during the 2022 acquisition process to seek to convert Basslink to a regulated asset under an agreed consultation process with the Tasmanian Government.
The consumer benefits modelling undertaken by ACIL Allen on behalf of the AER as part of the regulatory conversion process found, in ten of the 12 scenarios considered, that regulation of Basslink provided an average economic benefit to consumers of $1.6 billion for the period 2025 to 2050, compared to the counterfactual scenario of trading electricity as a non-contracted MNSP.
If the final decision confirms the draft decision, APA Group said it would progress its plan to trade Basslink as a non-contracted MNSP, with the systems already in place to bid the asset, as required under the current Hydro Tasmania contract.
The revenue contract with Hydro Tasmania will end on 30 June 2025, at which time APA would commence operating as a non-contracted MNSP.
APA Group CEO and Managing Director, Adam Watson, said, “Our application to convert Basslink to a regulated asset was progressed following consultation with key stakeholders during the acquisition process. As part of the sale transaction, we also entered into a network services agreement with Hydro Tasmania to ensure the asset could operate safely and reliably during the AER consultation process.
“The AER’s assessment of our regulatory proposal highlighted consumer benefits of regulation was on average $1.6 billion compared to the counterfactual.
“APA is seeking to regulate Basslink in line with its commitment to the Tasmanian Government.”
Mr Watson said if the draft decision by the AER is confirmed as final, APA Group will seek to maximise the value of the asset, in the best interest of APA Group’s investors, by progressing its plans to trade Basslink capacity in the spot market, in line with market rules, once the Hydro Tasmania contract expires on 30 June 2025.
“We will be able to leverage the existing systems and capabilities in place across APA.” Mr Watson said.
The AER’s draft decision is preliminary with further consultation and submissions to be received from APA Group and other stakeholders. The AER must then consider those submissions before issuing a final decision.
APA Group said it will continue to engage with the AER and will update the market further as required in line with its continuous disclosure obligations.
Background
Basslink is a 500MW undersea transmission cable that links Loy Yang in Victoria to George Town in Tasmania. It was built in 2006 and was subsequently acquired by APA Group in October 2022. Basslink is currently the only electricity interconnector between Victoria and Tasmania.
On 19 May 2023, Basslink submitted an application to the AER to convert its network services from market network services (unregulated) to prescribed transmission services (regulated). This application also sought the determination of a transmission revenue process for Basslink. The AER assessed the application under rule 6A.9 of the National Energy Rules, guided by the National Electricity Objective.
The application has undergone multiple rounds of consultation, including an Issues Paper in November 2023 and a Consultation Paper in August 2024.
