INSIGHT

Further progress for Renewable Energy Zones across the NEM

By Kate Axup, Lauren Rosillo
Energy Renewables

11 min read

Since our last Insight on the establishment and implementation of renewable energy zones in the NEM, there have been several major developments at both a state level and as part of the Energy Security Board's post-2025 market design program.

This Insight examines those developments (including recent regulatory changes and public consultation processes), the latest announcements and new opportunities for stakeholder engagement.

REZs as a path to a net-zero electricity system

Australia's successful transition to a net-zero electricity system depends on generators of renewable energy being able to secure connection to electricity networks on a timely, affordable and reliable basis. Similarly, electricity networks themselves need to change to cater for a different world where intermittent and geographically diverse sources of generation are replacing coal.

An important tool for managing this dual challenge is the development of renewable energy zones (REZs) in the NEM. As REZ development and implementation proceeds, we can see:

  • a growing desire at the state and Energy Security Board (ESB) level for the different REZ schemes to 'talk to each other';
  • the continued role of central procurement bodies in REZ development and rollout, such as VicGrid in Victoria and AEMO (as Consumer Trustee) in NSW; and
  • the next level of detail becoming clearer, with NSW arguably leading the way.

Click on the buttons below for more details and an update on what has happened since March in Victoria, NSW, Queensland and at the ESB level.

Victoria

New South Wales

Queensland

NEM-wide approach

Victoria

1. Feedback received on REZ Development Plan directions paper

The Victorian Government received a robust response from industry and community stakeholders on its REZ Development Plan directions paper released in February this year, which outlined proposals for the structure and functions of VicGrid, potential Stage 1 projects and the broader REZ Development Plan.1

One of the common themes coming through from stakeholder submissions was a strong desire for the development, delivery and operation of Victorian REZs to align with and work together with the NEM-wide arrangements.

2. Announcement of six priority network projects to receive immediate funding

The Projects

The Victorian Government recently announced six major network projects to receive immediate funding, which have been selected from the Stage 1 projects set out in the REZ Development Plan.

The projects broadly fall within two categories:

  • Three system strength projects to improve the ability of transmission networks to maintain a steady operating state when unexpected faults or outages occur. This will work to support the connection of additional generation to the grid, particularly in the Murray River, Western Victoria and South West REZs, where these projects will be undertaken.
  • Three transmission network augmentation projects across the Murray River, South West and Central North REZs to enable greater hosting capacity. The projects include automatic control schemes, wind monitoring dynamic line rating schemes and station upgrades. By relieving existing thermal constraints in the network, these projects will boost the ratings of existing lines and transformers and improve the ability of the grid to convey additional generation.

The Government is also considering two larger network upgrade projects:

  • the Western Victoria Transmission Network Project, which involves uprating the voltage of a transmission line from North Ballarat to Bulgana to add new capacity to the transmission network in the Western Victoria REZ; and
  • increasing system stability by turning in the existing Tarrone to Haunted Gully transmission line at the Mortlake Power Station. This involves upgrading substation equipment to achieve higher ratings, implementing dynamic line rating and adjusting switchgear in the existing substation.

Further information on these larger upgrade projects is expected to be released later this year.

Procurement Process

AEMO has been commissioned to procure the six Stage 1 projects. For the system strength projects, procurement will occur in two stages. AEMO will first put out a call for expressions of interest, and following evaluation, will issue an invitation to tender. The transmission network upgrade projects will be procured by way of non-contestable request for proposal with the incumbent Network Service Provider.

3. Establishment of VicGrid

VicGrid has been established as a Division within the Department of Environment, Land, Water and Planning, to coordinate planning and development activities for the Victorian REZs and to oversee investment decisions in connection with the $540 million REZ Fund.

The Victorian Government continues to consult with stakeholders on the proposed role and structure of VicGrid, and the feedback received on the REZ Development Plan Directions Paper illustrates that there are still a number of issues to be worked through, including in relation to funding and cost recovery, and clearly defining VicGrid's roles and responsibilities (as distinct from those of AEMO) and how these two entities will interact.

New South Wales

1. Community consultation on Central-West Orana and New England REZs

Central-West Orana REZ

In March 2021, the NSW Government released an issues paper on the Central-West Orana REZ access scheme. The issues paper describes three potential access scheme models for new network infrastructure in the Central-West Orana REZ and seeks stakeholder feedback on which of these models is preferred and should be progressed to implementation, and any other changes that can be made to improve the proposed models.

The proposed models are:

  • Option 1: This option caps the capacity of projects permitted to connect to the REZ Shared Network.
  • Options 2A and 2B: These options establish two tiers of access rights that can be purchased by projects, as well as a mechanism for Tier 2 access right holders to compensate Tier 1 access right holders if Tier 1 capacity is curtailed due to Tier 2 dispatch. Option 2A entitles access right holders to the same quantity of access across all trading intervals, whereas Option 2B contemplates that this entitlement would be determined on a per trading interval basis, and therefore could differ across time periods.

Submissions on the issues paper closed on 30 April 2021, and will inform the design and future declaration of a preferred access scheme for this REZ, as required by the Electricity Infrastructure Investment Act 2020.2

The NSW Government has also sought submissions from proponents of innovative network infrastructure solutions (eg technology solutions), that could optimise the network design and performance of this REZ, by increasing export capacity, providing additional system strength and resilience and reducing the need for network augmentation.3

Submissions closed on 20 August 2021.

New England REZ

In line with the previous process run for the Central-West Orana REZ (which received interest representing nine times the amount of generation required to actually deliver the REZ), the NSW Government ran an open registration of interest from June to July this year for the New England REZ, to gauge interest from proponents of existing and proposed generation, storage and network infrastructure projects in this region.

2. Issues paper released on tranche two regulations to support the Electricity Infrastructure Roadmap

In April 2021, the NSW Government released an issues paper in relation to the tranche two regulations under the Electricity Infrastructure Investment Act 2020 (EII Act). The tranche two regulations support the delivery of the EII Act by dealing with urgent or mechanical policy details, including:

  • provisions regarding the Energy Security Target and Electricity Infrastructure Investment Safeguard; and
  • the classification of REZ network infrastructure projects, which will provide a framework to develop the 'transmission efficiency test' and feed into the economic regulation provisions in Part 5 of the EII Act.

Submissions on the issues paper closed on 21 May 2021 and, based on the feedback given during this consultation process, the Government will recommend regulations in relation to the matters addressed in the issues paper.

The NSW Government will seek preliminary feedback on the tranche three regulations later this year. The tranche three regulations will likely cover:

  • the processes to declare REZs and access schemes (including the fees set under the access schemes);
  • the assessment framework for REZ network infrastructure projects; and
  • long-term energy service agreements (LTESAs), including tendering, operation and risk management.

3. Appointment of AEMO Services Ltd as the NSW Consumer Trustee

AEMO Services Ltd has been appointed as the NSW Consumer Trustee, to assist with the delivery of the NSW Electricity Roadmap by acting as the custodian of the long-term financial interests of NSW consumers.

In this role, AEMO Services Ltd will:

  • oversee the planning of, and investment in, generation, storage and transmission in NSW;
  • authorise electricity network infrastructure projects;
  • administer tenders for generation and storage projects; and
  • assist with the design of LTESAs.

4. Consultation paper released on the design of LTESAs

This month, the NSW Government released a consultation paper in relation to LTESAs, which provide an option for eligible generation, long duration storage and firming projects to access price guarantees by entering into derivative arrangements during low wholesale price periods. The consultation paper outlines proposals for key concepts, legal terms and structural elements of these agreements, as well as the tender framework for the allocation of LTESAs. The Government is seeking feedback on these proposals to inform the final design of the LTESA.

Submissions remain open until 10 September 2021.

The NSW Consumer Trustee will have a key role in relation to LTESAs, including by determining the final structure and terms of the LTESA and administering competitive tenders to recommend projects to be awarded LTESAs.

It is yet to be seen exactly how the allocation and design of LTESAs will interact with the process for allocating access rights and setting access fees under the REZ access schemes in NSW. At this stage, it is anticipated that projects will generally obtain both REZ access rights and LTESAs if building in a REZ, and both will be allocated through a single tender process.4

Queensland

1. Launch of public consultation process on Queensland REZs

This month, the Queensland Government launched a public consultation process to collect feedback from communities, industry and energy stakeholders on Queensland's REZs, to inform the development of the broader REZ framework and to understand how benefits can be delivered to the local communities that will host REZ investment.

As part of this process, the Government released a community consultation paper which outlines key local benefits principles to underpin the REZ development framework, namely genuine and ongoing engagement and benefit sharing with local communities, and the prioritisation of local employment, training and procurement.

Submissions on the consultation paper remain open until 30 September 2021.

This public consultation process will be followed by the release of a technical discussion paper later this year, to seek feedback from stakeholders on the design and access framework for the Queensland REZs, including the preferred approach to planning, connections, funding, economic regulation and access.

2. Announcement of transmission network upgrades in the Northern Queensland REZ

The first stages of major investment in the Northern Queensland REZ were announced in May 2021, with the Queensland Government committing $40 million to upgrade the transmission network between Cairns and Townsville. This investment will unlock up to 500MW of additional renewable energy capacity in the region, with Neoen Australia's 157MW Kaban Green Power Hub wind farm as the foundation project to connect into this REZ.

The Queensland Government has also committed $147 million to connect Genex's 250MW Kidston Pumped Storage Hydro Project in the Northern Queensland REZ, which is expected to be operating by early 2025, via a 186km transmission line to be built by Powerlink.

NEM-wide Approach

On 30 April 2021, the ESB released its post-2025 Market Design Options Paper, seeking input from stakeholders on potential reform pathways.5 You can read about the Options Paper and the four key reform directions here.

In addition to the release of the Options Paper:

  • a new REZ planning rule developed by the ESB was passed into law on 13 May 2021; and
  • on 28 July 2021, the ESB provided its final advice on the redesign of the NEM to the Energy National Cabinet Reform Committee.

We discuss each of these key developments in turn below.

1. New planning rules

On 13 May 2021, the National Electricity Amendment (Renewable energy zone planning) Rule 2021 came into force. The rule aims to improve coordination between the different state-based REZ development frameworks, and to ensure alignment with the Integrated System Plan (ISP) developed by AEMO.6

This objective is achieved by requirements for jurisdictional planning bodies to:

  • to the extent required by AEMO's ISP, prepare a REZ design report for major transmission projects. These reports are subject to a number of parameters including consistency with the achievement of power system needs and the purpose of the ISP; and
  • consult with local councils and communities and other stakeholders in preparing REZ design reports. The report must include a community impact assessment reflecting the outcome of this engagement.

2. ESB's final NEM redesign advice provided to Energy National Cabinet Reform Committee

On 28 July 2021, the ESB provided its final advice on the redesign of the NEM to the Energy National Cabinet Reform Committee. The final advice comprises a package of reforms to manage, and integrate into the existing NEM framework, the current transition towards renewable generation.

In line with the Options Paper, the final advice covers four market design reform pathways:

  1. Preparing for the retirement of aging coal generation by incentivising the right mix of intermittent renewables and firm generation.
  2. Boosting power system security by facilitating the injection of frequency control services into the market.
  3. Unlocking opportunities for consumers to benefit from arrangements in relation to rooftop solar, batteries and smart appliances.
  4. Opening the grid to large-scale renewables by lowering the costs associated with connecting and distributing new, dispersed generation.

The timing for the release of the final advice will be determined by National Cabinet.

Next steps 

As the processes to develop and implement these reforms continue, there will be further opportunities for sector participants to be involved, both in consultation on these reforms and participation in the resulting projects.

Allens is continuing to track the development of these (and other) energy reforms – our analysis of which can be found on our Energy hub.

Footnotes

  1. Submissions to the REZ Development Plan Directions Paper (June 2021).

  2. Central-West Orana REZ Access Scheme Consultation.

  3. NSW Government, Renewable Energy Zones, see 'Central-West Orana REZ Network Infrastructure'.

  4. NSW Department of Planning, Industry and Environment, Long-Term Energy Service Agreement Design – Consultation paper (August 2021), page viii.

  5. Energy Security Board, Post 2025 Market Design Options – A paper for consultation Part A and Part B (April 2021).

  6. Energy Security Board, National planning coordination for renewable energy zones (May 2021).

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