Release of VicGrid's draft Victorian Transmission Plan Guidelines

On 23 July 2024 VicGrid released its draft Victorian Transmission Plan Guidelines (Guidelines) – see https://engage.vic.gov.au/victransmissionplan.

Once finalised, the Guidelines will govern how VicGrid will prepare the Victorian Transmission Plan (VTP). The VTP will set out:

• the areas within Victoria considered suitable for investigation as the location of future renewable energy zones (REZs);
• how VicGrid will assess the generation and storage capacity of a REZ, and when that capacity is required;
• how VicGrid will assess what additional or upgraded transmission network infrastructure is required to deliver the desired generation and storage capacity; and
• details of the specific transmission network infrastructure projects required over the following 10 years.

The draft Guidelines note that a draft initial VTP will be published by VicGrid “in early 2025”. The National Electricity (Victoria) Act 2005 (Vic) requires that the final initial VTP be published by 31 July 2025.

Once the final initial VTP has been published, VicGrid will commence the detailed design process for the optimal transmission network infrastructure projects identified in the VTP.

The draft Guidelines are open for consultation until 25 August 2024 (with feedback on the accompanying study area map open until 30 September 2024). The final Guidelines will be published by 30 September 2024.

An updated VTP will be published in 2027 and further updates every four years after that. The initial VTP will have a 15 year time horizon and focus on managing the retirement of Victoria’s coal-fired generation, while subsequent versions of the VTP will have a 25 year time horizon.

Guidelines - Identifying the location of future REZs

VicGrid proposes to use energy market modelling to assess and identify the most suitable places to locate future renewable energy projects and network infrastructure projects in Victoria. This assessment will consider factors such as the availability of wind and solar resources, proximity to existing network infrastructure, potential impacts on land, agriculture, water, biodiversity and communities and the cost to consumers.

VicGrid notes that future REZs will not necessarily reflect the Victorian REZs identified in AEMO’s 2024 Integrated System Plan. Subsequent version of the Integrated System Plan will be updated to reflect the VTP.

Following release of the VTP, the REZs proposed by VicGrid may be declared by the Victorian Minister for Energy. Declaration of a REZ requires a formal order made by the Minister following a public consultation period of at least 6 weeks.

An initial study area map has been published by VicGrid. It notes areas in Victoria with various levels of priority for investigation (and areas where wind generation is prohibited).

Source: VicGrid - https://engage.vic.gov.au/project/victransmissionplan/page/study-area

Points to note:

• The purpose of the study area map and investigations process is not entirely clear. The draft Guidelines refer to narrowing down study areas and a prioritisation of areas for “further investigation” but the Guidelines do not set out what further investigation is required before VicGrid can determine that an area is a “candidate” REZ area in the VTP or before the Minister may declare a REZ.
• A REZ is simply a geographic area and there does not appear to be any downside to having a broad REZ area. The draft Guidelines potentially indicate that VicGrid will be seeking to identify very detailed and specific REZs rather than the broad geographic areas we have seen, for example, in NSW. If a REZ will be narrowly scoped, industry will need to consider the consequences for projects that are not located within the REZ but still wish to connect to REZ transmission network infrastructure.
• Industry and communities are likely to be much more interested in the assumptions and decisions being made by VicGrid about future generation and storage capacity, the transmission network infrastructure required and the proposed route of that transmission network infrastructure (see below).
• The draft Guidelines refer to using the study areas to develop “candidate areas” and for “priority candidate areas” to then be presented in the VTP. This seems to indicate that these further investigations and assessments will have been completed by VicGrid prior to the publication of the VTP by 31 July 2025 (and with some level of detail by the time the draft initial VTP is published in early 2025).
• The draft Guidelines also seem to indicate that the VTP will include both REZ candidate areas and details of the additional or upgraded transmission network infrastructure required. For some of the reasons set out below, we believe that the VTP may be too early to include details of proposed transmission network infrastructure, unless it is at a very high level. The planning of potential transmission network infrastructure should occur once candidate generation and storage projects, and all transmission network infrastructure options, have been considered in detail and the optimal option identified.

Guidelines - Assessing the desired generation and storage capacity

VicGrid will assess the levels of potential wind and solar generation within a candidate REZ, what storage capacity will be required and the timing of when that generation and storage capacity is needed.

Points to note:

• The draft Guidelines note that VicGrid will undertake an assessment based largely on energy market modelling and with generator/developer interest assessed based on a survey. It is not clear how this survey will be conducted, or how the energy market modelling will then assess these survey results, including how it will consider the credibility of potential developers and the development status of the potential projects.
• It is also not clear what VicGrid will assume about where the generation and storage projects will be located and their size, for the purposes of developing transmission network infrastructure solutions, or how it will assess the viability and likely timing of generation and storage projects.
• The draft Guidelines otherwise refer to VicGrid “determining” the right mix of generation technologies and storage. It is not clear how this determination will reflect what the market is willing and able to provide, or what will happen when inevitably there is a different mix of generation technologies and storage applying for connection.
• These proposed arrangements appear to differ significantly from the process undertaken by EnergyCo for the Central-West Orana REZ in NSW where credible generation and storage projects were first identified through a formal engagement process. The proposed REZ transmission network infrastructure was then planned and designed to optimise the transmission network infrastructure needed to connect these identified projects, while also factoring in future connections and transmission network expansions and augmentations.
• There will be a strong inter-relationship with the proposed access scheme for the REZ network infrastructure, particularly how different generation profiles will be combined to ensure an efficient utilisation of the proposed transmission network infrastructure. The aggregate generation capacity to be connected to the transmission network infrastructure should exceed the rated capacity of the transmission network infrastructure as generation projects may operate at different times and available capacity may be enhanced by storage projects. Under the NSW access schemes, access rights are allocated, and available network capacity assessed, based on the expected generation profiles of proposed generation and storage projects.
• A 4 year cycle for updated versions of the VTP may be too long given how dynamic the Australian energy markets are at present and the uncertainties regarding electricity demand, the role of gas and the timing of coal-fired generation plant closure. AEMO’s Integrated System Plan (which has a 20 year outlook) is refreshed every two years. There is a risk that a VTP could quickly become outdated if there are major changes to the market such as delays to interconnector projects, earlier than expected coal-fired generation plant closures or changes in Government policy. We note that VicGrid does have the flexibility to update the VTP within the 4 year period.

Guidelines - Assessing the transmission network infrastructure required

VicGrid will determine what new transmission network infrastructure is required to support the proposed new generation and storage capacity within a REZ. It will do this by first identifying candidate transmission pathways.

VicGrid will then use further energy market modelling to assess each candidate transmission pathway together with the modelled generation and storage capacity. VicGrid will then select an optimal pathway. The process undertaken by VicGrid for the transmission network infrastructure required for the initial Gippsland offshore wind projects (see https://engage.vic.gov.au/offshore-wind-transmission) may provide an indication of how VicGrid will evaluate different candidate transmission pathways.

Points to note:

• Determining major transmission network infrastructure projects solely on the basis of energy market modelling is likely to be problematic. Further detail will be required about how VicGrid will identify potential generation and storage projects and assess their credibility and timing.
• VicGrid appears to be proposing a “build it and they will come” approach rather than basing its assessment on credible generation development projects within the identified REZ. This could be being unfair to VicGrid, but it is not clear from the draft Guidelines.
• REZs that involve near term transmission network infrastructure development will require greater certainty that credible generation and storage projects are there to be developed if the transmission network infrastructure is provided. However, less certainty is required at this stage for medium and longer term transmission network infrastructure projects. The Guidelines should describe how this certainty will be obtained prior to committing to a transmission network infrastructure.
• The Guidelines do not specify what minimum level of commitment, if any, VicGrid will require from developers of generation and storage projects before it will commit to procuring the required transmission network infrastructure.
• The Guidelines do not specify the intended scope of the proposed transmission network infrastructure. A key question will be whether VicGrid will plan and procure transmission network infrastructure only to identified “hubs”, leaving generators to develop the connection assets required from their projects to these hubs, or whether the REZ network infrastructure will include network assets to the project gate (or some way to the project gate). The treatment of these assets has proven complex under the NSW REZ model and some clarity of VicGrid’s intended approach here would be helpful.
• The intended scope of the transmission network infrastructure will impact issues such as whether, and to what extent, generators will be required to contribute to the costs of the transmission network infrastructure, the form of those contributions (eg. as access fees), the classification of network and connection assets (and the services associated with them) under the National Electricity Rules and whether the classification of network assets as connection assets might limit future expansion and augmentation of transmission network infrastructure by VicGrid.
• The Guidelines do not specify whether and when generators might need to contribute to the costs of that transmission network infrastructure (and any security required from generators for future contributions).
• The Guidelines do not specify how transmission network infrastructure projects might be staged and how staging should be used to manage the risks of over-investment in the transmission network. The Guidelines should set out how VicGrid will assess the option value of building transmission network capacity up front for future expansions and augmentations, and the potential scale efficiency benefits of procuring that capacity at the same time as the initial transmission network infrastructure.
• The Guidelines do not set out details of how VicGrid intends to procure the required transmission network infrastructure, the assumptions that will be used for modelling the cost of transmission network infrastructure, and whether the proposed procurement approach and risk allocation are appropriately recognised under Chapter 6A of the National Electricity Rules.
• The role of distribution networks is not clear. It is possible that considerable generation and storage capacity could also be connected at the distribution network level. VicGrid should consider potential distribution network infrastructure and distribution network-connected generation and storage projects in its modelling of required network infrastructure.

Transmission for offshore wind

The draft Guidelines note that the VTP will also address the (onshore) transmission network infrastructure required to accommodate offshore wind projects, although the level of detail to be included in the initial VTP is unclear. VicGrid has separately published a discussion paper regarding connection of the initial 2GW of proposed Gippsland offshore wind farm projects – see https://engage.vic.gov.au/offshore-wind-transmission. This describes an initial study area and preferred corridor for the connection of these initial offshore wind projects (from near Giffard to the Loy Yang Power Station).

Summary

In some respects the draft Guidelines might be considered as “a plan to develop a plan” (ie. the initial VTP). However, the VTP will be a key reference point for how transmission network infrastructure will be developed in Victoria and the Guidelines will determine the basis on which VicGrid must prepare the VTP. As a result, the Draft Guidelines are important.

The draft Guidelines raise some material issues and questions and it is recommended that stakeholders constructively engage with VicGrid regarding them.

We applaud VicGrid in undertaking the complex task of developing Victorian transmission network infrastructure and its clear focus on communication to stakeholders