Chapter 3Planning and Performance
3.1This chapter examines planning and performance in Australia’s energy market. It first discusses the Integrated System Plan (ISP), including its purpose, modelling and consultation processes. The chapter then explores alternative modelling scenarios and energy sources raised over the course of the inquiry and concludes with case studies of HumeLink and VNI West.
Integrated System Plan
3.2The ISP, according to the Department of Climate Change, Energy, the Environment and Water (the Department), is a policy and information tool for market participants and governments who are planning in an ‘environment of uncertainty’. The Department further outlined that the ISP
…models the amount of demand that is expected and therefore the matching amount of supply. It models the cost of the different options to meet that supply, and … what comes out of it is the way you would connect the demand and the supply together[.]
3.3In its submission, the Australian Energy Market Operator (AEMO) noted that it develops the ISP as part of its functions as the National Transmission Planner, as set out in the National Electricity Law (NEL) and the National Electricity Rules (NER).
3.4Ms Merryn York, AEMO’s Executive General Manager of System Design, told the committee that the first ISP was published in 2018, and that there has been one published every two years since. Ms York further clarified that the ISP originated from the Independent Review into the Future Security of the National Electricity Market (Finkel Review), which recommended that:
… the Australian Energy Market Operator, supported by transmission network service providers and relevant stakeholders, should develop an integrated grid plan to facilitate the efficient development and connection of renewable energy zones across the National Electricity Market.
3.5Ms York explained that the ISP rules were developed through a ministerial process, which were ‘put into’ the NER, resulting in AEMO being charged with the function of developing the ISP.
3.6In its submission, AEMO noted that this legislative framework in which it prepares the ISP is ‘highly prescriptive’ and explained that the legislative provisions set out:
the ISP’s purpose;
the power system needs that the ISP must achieve;
the Australian Energy Regulator (AER) guidelines that AEMO must comply with when it develops the ISP; and
requirements related to stakeholder engagement, communications, and the content of the plan.
3.7AEMO also drew the committee’s attention to the AER forecasting and cost benefit analysis guidelines that AEMO must follow when it consults on and prepares the ISP. According to the AER, these guidelines create flexibility for AEMO in how it identifies optimal investments within the ISP, which the AER explained is important ‘in a changing market environment where there is significant uncertainty and risks do not remain the same from one ISP to the next’.
3.8AEMO advised that developing the ISP is a ‘complex, multi-stage process’, which is illustrated in the figure below.
Figure 3.1The ISP development process
Source: Australian Energy Market Operator, Submission 14, p. 10.
3.9In its submission, the 2026 ISP Consumer Panel outlined that the Department conducted a review of the ISP, which resulted in the Energy and Climate Change Ministerial Council (ECMC) accepting its 15 recommendations. The 2026 ISP Consumer Panel noted that the areas of focus within the Ministerial response were as follows:
Integrating gas into the ISP
Enhancing energy demand forecasting
Better data on C&I [commercial and industrial] forecasting
Optimising for the demand side
Coal fired generation shutdown scenarios
Improving locational information
Enhanced analysis of system security
Jurisdictional policy transparency
Clarifying policy inclusions
Improving the accessibility of the ISP
Incorporating Community sentiment
Additional Planning inputs.
3.10The 2026 ISP Consumer Panel ‘understands that there are ongoing discussions between AEMO and the Commonwealth on how these recommendations will be applied for the 2026 ISP’ and that the 2026 ISP Consumer Panel is discussing many of these recommendations and their application with AEMO.
ISP concerns
3.11Professor Bruce Mountain, Director of the Victoria Energy Policy Centre, raised that within the context of the ISP, ‘central planning is difficult’, and contended that:
…if promises of “optimality” were really pluasible [sic] we might expect it to become the dominant institution across the economy. But it is not. In market economies like Australia’s, governments turn to planners as a last resort not a first resort because the long history of central planning is of failure.
3.12In his submission, Professor Mountain also noted ‘evidence that AEMO has produced biased assessments of transmission expansion. This evidence supports my argument that important mistakes have been made. These included, in his view:
(a)That AEMO and Transmission Network Service Providers (TNSPs) have considerable discretion in how they formulate costs and benefits and how they model the power system. Through this discretion they can easily ensure that their modelling and calculations gives them the answers that they are seeking.
(b)None of the jurisdictions in the National Electricity Market (NEM) have any meaningful advantage in renewable electricity production. Although solar yields are higher inland and to the north, solar panels are now so cheap, the cost of shipping what is slightly cheaper solar from Queensland to Victoria is obviously not viable.
(c)Likewise wind yields in all NEM regions is approximately comparable with the exception of Tasmania which has a state-wide yield advantage of around 5 per cent compared to Victoria. Tasmania however has a cost disadvantage and so its net advantage relative to the mainland is likely to be small and so not able to defray the huge cost of interconnection needed to make that wind generation available to Victoria.
3.13Similarly, Erne Energy criticised AEMO’s role within the energy industry, as well as the ISP, and raised that this could have implications for the timely transition to Australia’s to renewable energy:
AEMO remains one of the least trusted entities in the energy industry and this lack of trust will delay the clean energy transition and is already being leveraged for political purposes around the veracity of the assumptions that underpin the ISP.
3.14The following sections examine how AEMO develops the ISP by considering how it accounts for government policies and targets, its modelling processes and software, its consultation mechanisms, and the processes associated with deeming ISP projects ‘actionable’. Corresponding concerns raised by inquiry participants are considered in each section.
Government policies and targets
3.15AEMO advised that the ISP is a development plan for the National Electricity Market power system to meet reliability and security needs, whilst also supporting the achievement of the National Electricity Objective.
3.16AEMO further explained that the ISP sets out the required generation, firming, and transmission infrastructure to transition the National Electricity Market in a manner that reflects current government policy settings.
3.17Mr Daniel Westerman, Chief Executive Officer of AEMO, elaborated by telling the committee that the ISP requires AEMO to find, within the parameters of the meeting the government’s net zero targets by 2050, ‘the lowest cost pathway for meeting reliability and security of the power system at each point through to 2050’. Mr Westerman emphasised that this is the output of the ISP.
Role of the AEMC
3.18Further, under the NER, AEMO must model the policies in the Australian Energy Market Commission’s (AEMC) Emissions Targets Statement (which the AEMO clarified is the governments’ emissions reductions targets) and may also model additional policy that meets certain criteria.
3.19Ms Anna Collyer, Chair of the AEMC, told the committee that the AEMC’s role is to ‘set the frameworks under which AEMO and the AER do their work, but also to provide…the framework for investment’.
3.20Ms Collyer elaborated that the wholesale market, for example, is ‘defined extensively’ by AEMC’s rules and commented that it’s ‘not a market that exists outside the rules; it is created by the rules’.
3.21Ms Collyer concluded that the AEMC does not have a role in planning, and that it is ‘limited to setting the frameworks’.
Influence of government policy
3.22Some submitters were critical of the influence of government policy on AEMO. For instance, the University of New South Wales (UNSW) Collaboration on Energy and Environmental Markets submitted that AEMO is ‘increasingly incorporating’ government policy into its processes, ‘despite AEMO being viewed as independent and at arm’s length from government’.
3.23When considering accounting for government policies in the ISP, Professor Stephen Wilson, Visiting Fellow at the Institute of Public Affairs (IPA), similarly raised with the committee that he believes that:
…the question is whether AEMO is truly independent. Is its role independent of government or not? I had understood it was intended to be, but I think that is an open question now.
3.24Relatedly, Coalition for Conservation argued that the ISP’s outputs are too constrained by the government of the day:
The ISP outputs in recent years have been heavily influenced (indeed, largely predetermined) by the arbitrary influence of governments, through politically driven, technology-specific targets. As there is no governance around the review or setting of targets, and targets can in theory be introduced for political (as opposed to planning) purposes, this approach to setting ISP constraints appears to be broken.
3.25The Grattan Institute also contended that AEMO is ‘effectively required to take into account things that individual jurisdictions have decided’, which results in an ‘optimal constrained plan’ that may not be the optimal plan to ‘get us to net zero’.
Accounting for emissions reductions within the National Energy Objectives
3.26These concerns were also raised by the Centre for Independent Studies (CIS) at a public hearing and within its submission, specifically in relation to how the National Energy Objectives (NEOs) are accounted for within the ISP.
3.27For instance, the CIS was critical of the use of government emissions targets as the foundation of the ISP:
What AEMO has done in interpreting the consideration of the government emissions targets to become a binding constrain-all scenario has absolutely abrogated the principle that all of the different parts of the national electricity objectives be considered in conjunction.
3.28The CIS further signalled that while it agrees that emissions reduction should be accounted for in the NEOs, it also raised its ‘deep disagreement’ with the way that emissions reductions have been interpreted in the ISP. CIS emphasised that this has:
…essentially privileged one of the objectives above all the others. It's not unreasonable to say that we include that as an objective, but it must be considered in conjunction, and there should be clear exposure of the trade-offs between the objectives.
ISP interpretation concerns
3.29Some submitters also raised concerns regarding how the ISP is interpreted due to the influence of government policy. For instance, the Australian Energy Council described how the ISP models of how emissions could be reduced are misleading and easily misread as a model of how emissions will be reduced:
Currently, AEMO must take the emissions reductions policies of Government as an input and derive an optimal development path consistent with achieving those policies.The ISP models what would need to happen to achieve the policy goals, but is often mis-interpreted as what will happen in practice.
3.30The Australian Energy Council therefore recommended AEMO offer more context for the benefit of stakeholders:
To bridge this gap, it is critical that AEMO ‘book end’ the scenarios by modelling its best estimate of how the future will turn out.Absent this, stakeholders and particularly consumers and governments do not have access to the best available information, which ultimately impacts the integrity of the ISP.
3.31Expanding on this point, the Grattan Institute described issues such modelling could cause for stakeholders in the market, noting what governments and corporations are interested in:
… what I think governments and, in the case of corporations, boards are interested in isn't: is this forecast accurate? What they're concerned about is: if we support this investment in transmission, which of those assumptions that have been made has caused that result to happen? If those assumptions aren't true, are there plausible situations in which this is a really bad idea?
Modelling
3.32AEMO develops the ISP over two years through a ‘rigorous integrated modelling process and extensive consultation with industry, government, and consumer advocates’.
3.33In its submission, AEMO outlined the preparatory steps that it takes under the rules when developing the ISP. It publishes an ISP Methodology and an Inputs, Assumptions and Scenarios Report (IASR), which it prepares in line with the AER’s Forecasting Best Practice Guidelines.
3.34The IASR accounts for a range of inputs, including:
… consumer investment in their own energy systems, energy efficiency, electrification of transport, heating, cooling, and cooking, hydrogen industry development, costs for new transmission, generation and storage technologies, and inclusion of projects already underway for delivery.
3.35When developing the draft and final ISP, AEMO applies the ISP Methodology in line with the AER’s Forecasting Best Practice Guidelines. AEMO noted that the ISP explores ‘a broad range of future scenarios to determine an Optimal Development Path (ODP) for the NEM’.
3.36AEMO expanded that the ODP represents the ‘optimal mix of generation, storage, and transmission to meet the NEM power system’s reliability and security needs, in alignment with the policies, and at the lowest system cost’. Further, the ODP sets out the optimal ‘size, place, and timing for the NEM’s future assets based on the inputs’.
3.37For instance, the 2024 ISP generates an ODP for the Australian energy market, tested against three different future scenarios leading up to 2050:
Step Change, which fulfils Australia’s emission reduction commitments in a growing economy;
Progressive Change, which reflects slower economic growth and energy investment with economic and international factors placing industrial demands at greater risk and slower decarbonisation action beyond current commitments; and
Green Energy Exports, which sees very strong industrial decarbonisation and low-emission energy exports.
3.38The Department also told the committee that AEMO uses PLEXOS to model the ISP, which is an electricity market modelling tool. The Department further noted that AEMO publishes ‘quite a lot of information’ about the assumptions that it uses when modelling the ISP.
Transparency and accessibility of the ISP modelling
3.39Some submitters held concerns related to the ISP modelling, specifically in relation to PLEXOS and the publication of information. For example, the UNSW Collaboration on Energy and Environmental Markets noted that the ISP modelling data is made publicly available but is published in PLEXOS input and Microsoft Excel formats. It contended that while the PLEXOS file format makes the reuse of ISP inputs ‘very straightforward’ for ISP users, the Excel format ‘employs data practices that make reusing this data with alternative modelling software challenging’.
3.40It further identified that the costs associated with PLEXOS licensing could impose a further barrier to participate in modelling:
Given the costs associated with PLEXOS licensing, the publication of ISP input data in these formats may implicitly impose a barrier to participation in the planning process by limiting which stakeholders can participate in an in-depth review of the ISP, assess the impact of various assumptions and explore alternative scenarios.
3.41Similar concerns were raised by Dr Robert Barr, who was unable to reach the same results as AEMO with his own modelling, and as such advocated for greater clarity from AEMO:
It's impossible to get the model exactly as AEMO have it, because I've got one set of conditions here and they've got their own … They do publish a lot, and I interpret it as best I can. What's lacking is communication, across the table, of how they're actually doing things. That's what I would really welcome with AEMO.
3.42The UNSW Collaboration on Energy and Environmental Markets also described its desire to think about challenges to the energy system, and its frustration that it was unable to use AEMO’s work to do so.
3.43However, AEMO stated that it ‘publishes all the information necessary to reproduce the ISP results’, and that the only prerequisites necessary to execute the modelling are ‘a licenced copy of PLEXOS and a computer with enough memory (currently around 128GB)’.
3.44Beyond the issue of accessibility, the UNSW Collaboration on Energy and Environmental Markets also voiced concern that reliance on such software could hinder AEMO’s analysis, contending that the dominance of a single modelling software and approach could encourage an ‘analytical monoculture’, potentially leading to a planning process that is less robust.
3.45While the committee heard from AEMO that all the inputs into the ISP are made public in the IASR, there was still concern expressed by participants in the inquiry about the modelling technology and the ‘black box’ issue, referring to opacity around the relation between the inputs AEMO receives and the outputs it produces.
3.46The UNSW Collaboration on Energy and Environmental Markets for example, agreed with the suggestion that this ‘black box granularity’ was equivalent to ‘a lack of accountability’.
3.47Professor Bruce Mountain was also critical of the ‘black box’ issue of the ISP, arguing that it is unable to ‘give a clear answer on the first-principle economics’.
3.48The UNSW Collaboration on Energy and Environmental Markets further noted that an increasing adoption of ‘opening modelling practices internationally’ has led to a growing set of ‘high quality open-source and freely available electricity system planning tools’ becoming available. As a result, it raised that if the ISP datasets were published in a more accessible manner (such as machine-readable input data), these tools could be used alongside PLEXOS to ‘better explore methodological improvements and a diverse set of alternative approaches’.
3.49In an answer to a question on notice, the Department provided the following reasoning for using the software:
PLEXOS is used by a wide variety of customers across the globe, including system operators, utilities, regulators, academics, consultants, and developers. Licence costs vary depending on the use case and the customer type, location and size.
For the energy modelling conducted by the Department of Climate Change, Energy, the Environment and Water, PLEXOS licences currently cost an average of $71,000 per user annually.
PLEXOS is also available with lower-cost license categories. For example, we understand that Energy Exemplar offers academic licenses for both student and research use cases.
Investment assessments
3.50The committee received evidence in relation to an increase in capital expenditure (capex) by distribution services, and the implications this will have for energy costs for consumers. The committee also received evidence in relation to whether the ISP adequately accounts for capex in its modelling.
3.51Mrs Clare Savage, Chair, AER, told the committee that:
…we are seeing significant proposed capital expenditure increases in the distribution system. The distribution system is a much larger share of a customer's bill than transmission. There are some very valid reasons for this proposed increase in capex, such as improving cybersecurity or climate resilience and augmenting the system for new sources of demand, such as data centres, digitalisation upgrades and the integration of rooftop solar and batteries. There is also latent capacity sitting in our distribution system, with network utilisation sitting at just 43 per cent. It is vital that before we build more network infrastructure we use more network infrastructure.
3.52Mrs Savage told the committee that the AER is currently assessing a number of project proposals which have proposed increases in capex of between 18 and 100 per cent compared to the proponents’ approved capex over the past five-year period. Mrs Savage concluded, ‘no-one at this point in the current sets of business proposals in front of us is proposing a reduction in capex’.
3.53Mrs Savage explained that the AER is also seeing ‘seeing increased expenditure around the integration of new sources of demand—data centres in particular—and the integration of solar and batteries’.
3.54However, the CIS contended that the ISP does not account for the costs associated with the ‘significant capital expenditure’ that will ‘be required to upgrade distribution networks to ensure grid stability as CER installations grows’. Similarly, the Independent Engineers, Scientists and Professionals (IESP) described the capital costs in the ISP as ‘misleading,’ arguing that the true cost is much higher and that AEMO’s model is ‘by far the most expensive pathway to a future NEM’.
3.55The AER also makes determinations regarding the maximum amount of revenue that energy companies can earn from customers over a five-year period. The Electrical Trades Union of Australia (ETU) was critical of the AER’s revenue determination processes and described them as ‘another exercise that makes sense at the surface level but has consistently driven worse outcomes when put into practice’.
3.56The ETU submitted that while energy companies engage in the lengthy and expensive approvals process, there is nevertheless no obligation for them to perform the work outlined in forecasted budgets. The ETU stated:
Meanwhile the regulator applies ever increasing scrutiny on operational and capital budgets while largely ignoring the burgeoning unproductive overhead costs.
Through applying a narrow framing of short-term economic efficiency, these determinations restrain networks from investing in proactive maintenance, workforce skills, and timely asset upgrades by only allowing razor-thin budgets for the actual meaningful work that is needed on the network – all under the guise of saving costs for consumers, none of which the consumer experiences on their actual power bill.
3.57The ETU concluded:
Privatised network service providers that underinvest in maintenance, upgrades, staffing, and training are routinely held up as examples of best practice management by the AER and used to force a NEM-wide race to the bottom. This approach is not only short-sighted, but also self-defeating.
Consultation process
3.58According to AEMO, extensive consultation is undertaken throughout the development process of the ISP, including on the Draft ISP Methodology, Draft IASR and the Draft ISP itself.
3.59For example, to develop the 2024 ISP, AEMO explained that it regularly engaged stakeholders from July 2022 to June 2024. It noted that over this period, AEMO engaged with over 2100 stakeholders, gave 85 presentations to stakeholders through five consultation stages, and considered 220 written submissions.
3.60AEMO stated that its engagement begun with consulting on inputs, assumptions, and scenarios, and how they are applied within the ISP modelling. Then, AEMO engaged on the findings of the Draft 2024 ISP and its reasoning, considerations and analysis that supported the selection of the ODP.
3.61AEMO drew the committee’s attention to the 2024 ISP Consultation Summary Report, that details how stakeholder feedback was considered and adopted where appropriate.
Consumer representation
3.62AEMO also pointed to several bodies that it consults with to account for consumer views and preferences in the ISP, including its Advisory Council on Social Licence, the Consumer and Community Reference Group, and the ISP Consumer Panel.
3.63AEMO’s Advisory Council on Social Licence (ACSL) was established in 2022 and serves ‘as a strategic advisory body to AEMO on social licence related to business planning, policy, reform and advocacy matters.’
3.64Additionally, AEMO made note of its Consumer and Community Reference Group (CCRG), established in October 2024, which ‘seeks to further bring the views and voices of everyday Australians, businesses, and communities into AEMO’.
3.65AEMO further explained that under the NER, it must establish a dedicated ISP Consumer Panel which must consist of at least three AEMO appointed members that are ‘suitably qualified’ to assess the quality of the ISP and have experience representing consumer interests.
3.66Throughout the 2024 ISP development process, the ISP Consumer Panel collaborated with AEMO and made a range of recommendations on the preparation of the ISP, as well as suggested improvements for the 2026 ISP process.
3.67Independently, the 2026 ISP Consumer Panel made a submission to this inquiry, outlining its role in the development of the ISP. The Panel described its purview as encompassing the following three stakeholder groups:
(a)Landowners hosting energy infrastructure, including transmission lines;
(b)Communities and neighbours of properties hosting energy infrastructure; and
(c)The wider Australian public, as both consumers and society.
3.68The Panel was largely positive about its role in developing the ISP, describing the instituted processes of written feedback and regular meetings with AEMO, while still urging a greater role for consumers and greater consideration of consumer energy resources (CER).
Community perceptions of AEMO’s ISP consultation processes
3.69Some submitters expressed frustration with the consultation processes which AEMO uses to develop the ISP. For instance, Gamma Energy Technology described AEMO as ‘a very closed shop, in terms of how their model works’, going on to say they were unable to have meaningful input into the ISP.
3.70Erne Energy similarly argued that AEMO’s consultation processes are ‘poorly advertised’ and that it receives a ‘very small number of submissions’ in which AEMO dismisses ‘views contrary to its own’. Erne Energy went on to suggest that:
When AEMO does engage with stakeholders, they are typically selected by AEMO for working groups rather than welcoming the broadest range of views, particularly from consumers. This means that many of decisions on how the market and technical requirements are designed are made behind closed doors and commit consumers and market participants to funding many hundreds of millions of dollars of investment (e.g. NEM 2025).
3.71Professor Mountain argued the same in stating, ‘this was one of several points we made in a detailed 118 page critique of AEMO’s “Options Assessment” of VNI West. AEMO did not respond to our critique’.
3.72Mr Barrie Hill argued that such issues were related to a structural problem in the ISP, namely, that ‘there is no mandate for the submissions received to be carefully analysed and where appropriate incorporated in the final planning documents’.
3.73However, AEMO defended the transparency and accountability of its consultation processes:
We publish the submissions that we receive. We also provide a consultation summary report—we prepare a document that gives a summary of what feedback we've received through consultation and also what we've done with it. Where we've changed something, we will make public what we've done with it.
3.74The Energy Grid Alliance identified an additional issue in which the outcomes of previous ISP-associated reports, such as the IASR, are ‘considered fixed inputs into the ISP’. Energy Grid Alliance observed that as a result:
This structure prevents stakeholders from questioning or addressing findings from prior reports during the ISP consultation phase. Even if serious concerns regarding errors or omissions in the IASR are raised during the ISP consultation, AEMO can dismiss these issues by citing the closure of the previous consultation process.
3.75Energy Grid Alliance concluded that the ‘lack of interconnectivity between consultations results in legitimate concerns remaining unaddressed, silencing critical feedback’.
Actionable ISP projects
3.76In its submission, AEMO explained that the ISP also serves a ‘specific regulatory purpose in triggering statutory requirements for proposed transmission projects identified in the ODP in the ISP as “actionable ISP projects”’.
3.77The AER explained the relevant processes associated with the ISP and actionable projects:
The ISP now identifies [actionable] projects, which are defined under the NER as those which are required to meet an identified need as part of the optimal development path for the national electricity market. In preparing an ISP, AEMO undertakes a cost-benefit analysis to identify an optimal development path for the power system, chosen from a range of development path options. The optimal development path contains a set of actionable projects that together address power system needs.
3.78The AER then highlighted that options for delivering actionable projects are considered through a two-stage Regulatory Investment Test for Transmission (RIT-T).
3.79Ms York, AEMO, clarified that it is the proponent of the project that runs the RIT-T, and noted that this has:
…a series of consultation steps, again, set out in the rules. If that passes the RIT-T then the proponent of that transmission project would apply to the AER, generally, for a contingent project assessment, and that's where the revenue for that project would be determined.
3.80The AER noted that the RIT-T includes the completion of a Project Assessment Draft Report (PADR) within two years of the final ISP being published, which the proponent must consult on before it completes a Project Assessment Conclusions Report (PACR). Further, according to the AER, the PACR responds to consultation feedback and identifies the preferred option for the project. Then, AEMO checks that the preferred option is aligned with ODP (this step is referred to as the feedback loop).
3.81AEMO also clarified that it is provided the PADR and PACR documents to publish on its website ‘purely for visibility purposes’ and that AEMO does not:
…do any assessment of the proponent's assessment until we get to the feedback loop, and that's obviously at the PACR stage, where we are required to provide confirmation if it's still part of whatever the latest optimal development path in the latest integrated system plan is. These RIT-Ts can take a bit of time to work their way through. The regulatory framework is requiring that feedback loop. It's literally a confirmation of, 'Is that project still part of the optimal development path or not?'
3.82The AER concluded that an ‘actionable ISP project that has completed both stages of the RIT-T and the ISP feedback loop is eligible to commence a contingent project process for that preferred option’.
3.83AEMO explained that identifying the ‘preferred option’ is the primary purpose of the RIT-T:
The main purpose of the RIT-T is to require the TNSP to identify the "preferred option", which the NER defines as the credible option that maximises the present value of net economic benefit for consumers. Following completion of the RIT-T, the TNSP must obtain AEMO's confirmation that the preferred option remains aligned with the ODP in the most recent ISP before applying to the AER for a revenue determination.
3.84The AER also noted that clause 5.16.6 in the NER was removed in April 2020. Under this clause, the AER used to make a determination on ‘whether a preferred option was the option that essentially maximised the net economic benefit under the RIT-T’.
3.85AEMO clarified that investment in other aspects of the ODP are subject to the decisions of market participants and developers.
3.86The above steps associated with actionable projects and RIT-T are illustrated in the figure below:
Figure 3.2ISP and RIT-T processes
Source: AER, Submission 15, p. 13.
Concerns regarding the impact of deeming projects actionable
3.87Some inquiry participants discussed the impact of AEMO deeming projects ‘actionable’ under the ISP. For instance, in Professor Mountain’s view, this power has given AEMO a ‘monopoly on NEM-wide transmission planning’. Professor Mountain further contended that when AEMO determines transmission projects to be actionable, they are:
…authorised for development, and for their costs as approved by the Australian Energy Regulator to be recovered from electricity consumers, and for their social costs to be imposed on the community and individual land holders.
3.88Mr Ted Woodley also argued that the ISP process has become ‘far more directive and promotes transmission projects that, once declared actionable, are effectively guaranteed to proceed’.
3.89CIS also critiqued AEMO’s ability to designate projects as actionable, arguing that AEMO has ‘used its judgement to accelerate a number of transmission projects ahead of the timing suggested by its models’, which CIS contended has resulted in ‘unnecessarily early costs and additional pressure on Australia’s supply chains and limited skilled labour in an already inflationary period’. CIS concluded that ‘unsurprisingly, this acceleration is increasingly leading to unnecessary cost blowouts and delays’.
3.90However, Mr Daniel Westerman, AEMO’s Chief Executive Officer, clarified the processes under the ISP by telling the committee that the ISP does not approve projects, ‘it simply identifies them as actionable’. Mr Westerman further commented that:
The Integrated System Plan lays out what's needed to deliver secure, reliable electricity to consumers along the way to meeting those targets at every point in time. What it's not—it's not an authorisation to go ahead. Companies need to make those investment decisions themselves.
3.91This is disputed by Professor Mountain who gave evidence that:
The “Actionable ISP Rule Changes” have given AEMO a monopoly on NEM-wide transmission planning. It means that transmission projects that AEMO determines to be “actionable” are thereby authorised for development, and for their costs as approved by the Australian Energy Regulator to be recovered from electricity consumers, and for their social costs to be imposed on the community and individual land holders.
RIT-T concerns
3.92Professor Mountain was also critical of the use of cost-benefit analysis, arguing that it was not a reasonable methodology to apply to electricity projects as it does not include what Professor Mountain described as ‘social cost’, including ‘impacts on owners of land, on forests’. Instead, Professor Mountainargued that there must be new ‘institutions of government that can respond to this and can arrive at different solutions that properly account for all the wide economywide factors’.
3.93Professor Mountain also emphasised that, in his view, the ‘main point here is that AEMO and TNSPs have considerable discretion in how they formulate costs and benefits and how they model the power system.’ He further argued that through ‘this discretion they can easily ensure that their modelling and calculations gives them the answers that they are seeking’.
3.94Similarly, the Electrical Trades Union (ETU) submitted that ‘it is deeply concerned with the limitations imposed through the RIT-T process to deliver fit for purpose transmission and expansion’. The ETU argued that the current interpretation of ‘a narrow economic test prevents a barrier to every single effort to decarbonise the energy sector in a way that delivers community support, social licence, and broad economic benefits’. It submitted:
Transmission companies cannot get new transmission construction approvals or modify projects to address or avoid social licence issues which may arise. Investment programs are uncoordinated and do not seek to maximise national economic benefits, both in terms of the supply chain as well as in terms of jobs, skills and training.
3.95The ETU concluded that ‘where social licence and other community concerns emerge, the current regulatory process means that the AER cannot consider deviations from the least-cost route to avoid areas of significant concern’.
Alternative modelling scenarios
3.96As outlined earlier in the chapter, all the ISP models produced by AEMO are designed to meet the NEOs. When asked about the possibility of developing alternative ISP models, AEMO reaffirmed that it was only permitted ‘to take those policies as set out in the target statement as an input’, and then produce ‘the lowest cost way to get to net zero by 2050’. Nevertheless, as discussed above, this sparked criticism from some inquiry participants about AEMO’s lack of independence from government.
3.97The inquiry consistently heard that AEMO should model a broader range of scenarios than the three in the current ISP (Step Change, Progressive Change and Green Energy Exports).
3.98The nature of alternatives varied greatly, including different energy sources, and more focus on the interests of consumers within the energy market. The various perspectives and alternatives raised are discussed in the section below.
Energy sources
3.99Over the course of the inquiry, discussions of the ISP and project planning often led to discussions of different energy sources, including some which AEMO is not currently in a position to model or plan for (see discussion of ISP at the beginning of this chapter). These ideas are discussed in the following sections.
Technology neutral
3.100Some participants in the inquiry were critical of what they viewed as an unjustified bias on the part of AEMO towards renewable energy sources. The arguments for a technologically agnostic perspective are canvassed below.
3.101The Australian Energy Council, which described itself as having a ‘technology neutral perspective’, advocated for the ISP to take a similar approach. However, its view was that the decision to include other forms of technology was not with AEMO but with lawmakers:
To the extent the framework is that there's a moratorium on nuclear power, I think some of our CEOs are on the record as saying that if they are actively exploring rolling out nuclear power, they are not focusing on their day job. If policymakers were to change that approach at some point in the future, I think there would be interest in exploring it. Generally speaking, killing off options and taking options off the table in an environment where there's uncertainty over the next 10 or 20 years isn't advisable.
3.102Dr Geoffrey Bongers, Director at Gamma Energy Technology, for example, argued that AEMO should not exclude any technologies from the ISP:
My issue with the ISP is the question that they have asked in the first place and chosen to model. Why have they restricted the technologies to wind, solar, batteries and gas backup? What about carbon capture and storage? What about looking at nuclear? Even though it is currently illegal, they could still do it as a scenario.
3.103However, Dr David Carland from the Australian Resources Pty Ltd stated that some technologies, such as coal, were not formally excluded from the ISP but could not feasibly be included in a model to meet Australia’s NEOs:
Under the ISP, the national electricity objective is to meet emissions targets. In that environment, going ahead and building new coal plants is not within, if you like, the remit of AEMO. Would it be a cheaper outcome? It is something we could go away and test. It will certainly blow the emissions.
3.104AEMO similarly explained to the committee that it was technology agnostic in its approach to modelling but that it had to meet the emissions objectives of each jurisdiction:
It happens that coal-fired generation is one of the highest forms of emissions intensity in the grid. That is what falls out through the modelling. It is not through a predisposition against coal-fired generators.
Nuclear power
3.105There was particular criticism of AEMO’s lack of consideration of nuclear power, as some submitters argued that a plan which incorporated nuclear power would be more reliable than one which relied on variable renewable energy sources, and would also be more likely to meet Australia’s emissions targets.
3.106Nuclear for Climate Australia outlined its own scenario for Australia to move to a system based primarily on nuclear energy; it argued that such a model would be half the cost of the ‘step change’ model of the ISP, and that Australia should therefore repeal the current moratorium on nuclear power.
3.107The IPA also argued that the removal of the legislative ban on nuclear power would in turn ‘relax constraints that need to be relaxed’ and better meet the NEO.
3.108In a similar vein, Dr David Carland, the Executive Director of Australian Resources Pty Ltd, stated that nuclear power offered, in his view, a more ‘realistic’ path to meeting Australia’s emissions targets than renewable energy, while also acknowledging there were issues around the timeframe of creating nuclear power plants.
3.109However, other participants did not view nuclear power as an energy source which needed more consideration in Australia’s energy market. For example, the Institute for Energy Economics and Financial Analysis (IEEFA) described its own modelling, which indicated that, in its view, nuclear power would not be a relevant consideration:
We looked at the cost of nuclear from recent build experience in economies comparable to Australia, and we found that the cost of nuclear is extremely expensive … So we do expect that the most economic pathway forward is renewables with storage, because nuclear is facing these extremely high costs and also, as I'm sure you've heard, there are significant issues with trying to get the nuclear in within the timeframe that we would need it.
Gas
3.110The question of the role of gas in Australia’s future energy mix drew attention over the course of the inquiry.
3.111In the most recent ISP, AEMO describes a continued role for gas to play, describing the makeup of Australia’s future energy market as ‘renewable energy connected with transmission and distribution, firmed with storage, and backed up by gas-powered generation’.
3.112APA advocated for greater consideration of gas in Australia’s future energy supply:
Given around 9.3GW of the existing 11.5GW of GPG [gas-powered generation] capacity already in the system is also expected to retire, we need around 12GW of new GPG to come online to support the massive increase in renewables … However, just 1GW of dispatchable GPG is currently expected to come online over the next 10 years, according to AEMO.
3.113The ECMC made a similar recommendation in its Response to the Review of the Integrated System Plan, stating that gas ‘will need to play a critical firming role alongside electricity storage’, and that AEMO should therefore ‘expand its consideration of gas market conditions in the 2026 ISP’.
Criticisms of the ISP in general
3.114The committee also heard criticism of perceived bias in the ISP towards transmission solutions over non-network ones. In this context, transmission refers to projects which involve a generation site and a transmission network to bring electricity to consumers; non-network solutions refers to CER such as Photovoltaic (PV) solar panels, which do not require any medium between the generation and utilisation of energy, as well as small-scale batteries.
3.115The UNSW Collaboration on Energy and Environmental Markets, for example, stated that the issue lay in the original design of the ISP as a ‘transmission planning document’ and that it is therefore, ‘unsurprising that transmission is the answer that comes out of that’.
3.116Dr Gabrielle Kuiper made a similar point in her evidence before the committee, where she argued that ‘part of the answer’ is that AEMO’s underlying legislation has not changed, as it is currently directed by legislation to be a transmission planner.
3.117In the 2024 ISP, AEMO noted it accounted for ‘candidate development paths’ (CDPs), which are a ‘collection of development paths which share a set of potential actionable projects’. It elaborated that CDPs have ‘been shortlisted for selection as the ODP and are evaluated in detail to determine the ODP, in accordance with the ISP methodology.‘
3.118Professor Mountain agreed with the notion that the CDPs put forward to be tested against the cost-benefit analysis contained only transmission projects, and raised that, in his view:
AEMO, itself—and this is in the very nature of it—is in a bit of cleft stick. It has difficulty putting forward a generational storage solution because it isn't in the contestable element of the market. So even though a storage solution is often the best solution to augment transmission capability, AEMO doesn't really have the mandate or the vires to be putting that forward. I'm not, by any manner or means, arguing that AEMO should be given it. Rather, it points to the fallacy of the system of administration that creates a so-called plan in this fashion.
3.119AEMO told the committee that when it assesses transmission projects, it also undertakes a comparison known as a ‘counterfactual’. Ms Merryn York, AEMO, stated:
That is where we just take the existing system—in particular, the existing transmission system—remove all of the future modelling of the future transmission projects and look at how you would get to those targets without that transmission. What we find in that counterfactual is that there's a lot more distributed generation at transmission scale because the transmission is actually allowing that generation to be used in different locations at different times. That is really the basis of then the cost-benefit analysis to determine what are the net market benefits for transmission for those transmission projects…It is an assessment: does the transmission develop overall benefits for consumers or not?
3.120The ISP Methodology explains that the cost benefit analysis:
…assesses the benefits of ISP projects against a status quo where no ISP projects are built. This requires the development of a CFDP [Counterfactual Development Pathway] to be modelled for each scenario. This counterfactual case considers the development of the system without any actionable or future ISP projects (although ISP development opportunities may be included) and is used to identify the market benefits of the set of ISP projects included in each DP.
3.121The ISP methodology also states:
Consistent with the AER’s CBA Guidelines, the CFDP considers the costs of meeting the needs of consumers within each scenario, without the continued development of transmission infrastructure, having to instead rely on large-scale generation, storage, CER, and small intra-regional augmentation and replacement expenditure projects. This means the CFDP does not include any inter-regional or intra-regional augmentation projects that are not already committed or anticipated. This restricts the ability to expand the transmission system beyond transmission limits that result from existing, committed, and anticipated projects, even if this leads to significant generation curtailment in REZs [Renewable Energy Zone].
3.122Professor Mountain described AEMO employing ‘a biased counter-factual trick’. Namely, because ‘assumptions on what would happen if the transmission project was not built…make the transmission project look better’. Professor Mountain stated:
AEMO has done this for example by assuming that all Victorian brown coal generators would have closed by 2028, so as to generate the “benefit” of keeping them open if their transmission project was developed. But of course all Victorian coal generators will not be closed by 2028!
3.123Professor Bruce Mountain was also critical of what he saw as a bias towards transmission planning under the ISP:
In addition to the inevitable subjectivity of optimisation modelling, another layer of subjectivity (and opportunity for manipulation) arises in the process of establishing the costs and benefits of transmission augmentations. Through our reviews of AEMO’s ISPs and of transmission network services providers’ (TNSPs) regulatory investment tests we documented seven “tricks” that AEMO and network services providers can and do play to get their cost-benefit assessments to deliver the results they want.
3.124Renew Illawarra Network also criticised what it saw as AEMO’s insufficient consideration of CER as opposed to network solutions:
[The] [d]raft 2024 Integrated System Plan by AEMO does capture significant changes in CER,but still treats them as an input to the model rather than an investment choice. And it provides no discussion about how Australian homes and businesses might reorganise their collective demands on the system to make the best use of variable sun and wind[.]
3.125The CIS was also critical of AEMO for what it viewed as unwarranted approval of transmission projects, resulting in ‘unnecessary costs and pressure on supply chains’. The CIS linked such perceived poor decisions to AEMO’s strict adherence in its modelling to the government policy of 82 per cent renewable energy by 2030.
3.126However, the Department clarified that transmission planning was a function within the ISP, rather than the entirety of it:
What the ISP contributes to, through defining what an actionable project is, is the next step in a regulatory process that recognises that, specifically for transmission, there is a market power element there that requires, then, a regulatory approach to how you then provide the revenue base for that market power. So, in a sense, the ISP, with respect specifically to transmission, needs to get to the point of identifying what an actionable project is for testing by the proponent under the RIT-T, which I think of as being categorically different to potentially the role the ISP plays in identifying the total generation capacity choices that you face under different technology outlooks.
3.127Moreover, AEMO stated that consideration of non-network solutions was a formal step within the RIT-T, in which it noted that there is a ‘call for non-network alternatives’. AEMO further underlined that:
There's every opportunity for alternatives to the project that was in the ISP to be assessed as better overall outcomes to address the need that's been identified, whether that's a non-network alternative or a different alternative to the project that was in the ISP. That's exactly what the RIT-T process does.
3.128The AER also explained that non-network solutions were still given consideration in the planning process, citing a specific example in New South Wales:
…Transgrid did a RIT-T for the system in Broken Hill. The preferred option was a non-network solution. It's compressed air storage, from memory. There are examples of it. Probably you are less likely to see the non-network solutions get up in very big infrastructure projects.
Reliability of power supplies
3.129The committee heard concerns regarding the adequacy of the ISP in ensuring the reliability of energy supplies in Australia. For example, the IESP submitted:
The ISP is deficient in many regards. It does not appear to be the result of rigorous high reliability systems engineering design, which requires it to be based on worst-case conditions with an added dispatchable reserve margin (DRM) to cover instances where some facilities are not available due to planned maintenance and required repairs.
3.130ISEP further stated that the ISP ‘fails to meet all parts of the NEO under the NEL in that it does not provide a grid design capable of delivering reliable power…’.
3.131However, Energy Networks Australia highlighted the AER’s Network Performance Report 2023 which found that ‘measured outages for both electricity and gas have been less frequent, and reliability performance is at an all-time high’.
Case studies - HumeLink and VNI West
3.132Inquiry participants raised a range of concerns regarding HumeLink and VNI West, with some submitters viewing various planning and performance aspects of these projects as problematic. These issues are canvassed below.
Consultation concerns
3.133Energy Grid Alliance (EGA) submitted that AEMO consultation for VNI West exemplified a ‘failure in community engagement’. It stated that community consultation ‘was so poorly handled – with cancelled meetings, and AEMO representatives walking out of town hall meetings due to safety concerns’ – that AEMO shifted its approach to an “inform” model, rather than facilitating meaningful engagement.’ According to EGA, ‘this superficial engagement’ resulted in ‘significant backlash from the community’ who had ‘perceived that their concerns were being ignored’.
3.134These concerns were echoed by the Wallaloo and Gre Gre District Alliance (WAGGDA), which represents farmers and those involved in the agricultural community, argued that AEMO has ‘not adequately considered stakeholders views and the public interest’ on VNI West. WAGGDA further observed that in its view, at no stage can it see that AEMO, Transmission Company Victoria, or VicGrid ‘have implemented any public feedback at any stage throughout this process’.
3.135WAGGDA also contended that ‘affected communities, including farmers whose land is slated for the transmission lines’ have not been ‘considered stakeholders by AEMO, Transmission Company Victoria or Vic Grid’.
3.136Similar critiques were made by HumeLink Alliance Incorporated in regard to consultation with communities on the HumeLink project. It noted that advice from the AER, which states that ‘effective engagement is fundamental to gaining the social licence needed to expand the transmission grid’. However, HumeLink Alliance Incorporated argued that:
Resolving the problem of social licence with consultation is very much a second-best solution. It relies on communities having the time, capacity and significant resources to engage. It also relies on the proponent honestly and openly engaging with communities. Currently proponents appear to have a Decide - Announce – Defend model of engagement. That is, they:
(1)decide on the project option (overhead transmission lines);
(2)announce the decision; and
(3)defend the decision (by misrepresenting the costs of other options like undergrounding and misrepresenting the environmental benefits of undergrounding by, for instance, falsely claiming an underground option will sterilise large swathes of farm land).
3.137AEMO addressed consultation concerns in an answer to a question on notice and emphasised that the NER establish a rigorous framework ‘which requires transparency and extensive stakeholder consultation’. Further, AEMO noted that the NER ISP framework is itself an outcome of rigorous consultation and review.
3.138Further, as CIS noted, NER 5.22.15 mandates that AEMO must consult on new information and its impact on the ODP, as set out in Appendix B of the Forecasting Best Practice Guidelines (FBPG). This consultation was not undertaken for the HumeLink and VNI West projects:
Finally as has been noted above, the FBPG at section 2.5, applying NER 5.22.15 mandates that AEMO must consult on new information and its impact on the ODP as set out in Appendix B.
Competition and costs to energy consumers
3.139In his submission, Professor Mountain outlined the costs associated with HumeLink (originally known as SnowyLink North):
AEMO included SnowyLink North (as it was then known) in its inaugural 2018 ISP. It costed it then at about $0.9bn. In its Draft 2020 ISP, the estimated cost of what was then renamed HumeLink increased to $0.95bn - $1.76bn, and then to $1.47bn - $2.73bn in the final 2020 ISP. The estimated cost increased again in the 2022 ISP to $3.32bn and most recently to $4.98bn in the 2024 ISP. In addition, over the period of these assessments, AEMO has reduced the estimated capacity of HumeLink from 2,570 MW to 2,200 MW. TransGrid has estimated a further $1.55bn will need to be spent on Sydney Ring South, and AEMO’s latest ISP classifies this an actionable project. Therefore the latest estimated total cost of transmission needed to make Snowy 2.0 useful to the NSW power system is about $6.5bn.
3.140According to Professor Mountain, these costs are ‘over 6 times TransGrid (and AEMO’s) initial claim’ of the costs associated with SnowyLink North.
3.141These costs concerns are also echoed across other submissions such as the submission from Ted Woodley and from the CIS which stated that costs will continue to rise due to the completion date continually being postponed. For example, Mr Ted Woodley commented:
Four years ago TransGrid estimated the cost of HumeLink to be $1.35bn (equivalent to about $1bn with the current design of double-circuit rather than single-circuit lines), with completion in 2024 (2020 Project Application Draft Report). A year later the cost blew out to $3.3bn (2021 Project Application Conclusions Report), prompting a warning from AEMO that “the rising project costs...cannot materially increase from the current estimate of $3.3bn. Further work to drive down costs should be undertaken urgently.”
The latest forecast is $5bn with completion in 2026, which I and others consider to still be unachievable.
3.142Further, CIS commented that:
Transmission is currently a relatively small part of the bill stack. It's only a little under 10 per cent. It's something like eight to 10 per cent. In states, it can vary a little bit, too. A single project such as HumeLink is modelled to add a good $25 or so to everyone's power bill. But that's just getting started. We're looking at Central-West Orana. It's been costed at more than HumeLink. That's $5.4 billion. Then there will be a six gigawatt link out to the New England REZ that's coming up. There's no cost publicly available for that yet. They've just identified the route. But that will probably be more again. We haven't got the HumeLink figures. That's another billion or two. I think it's still in early estimates at this stage for the last leg of HumeLink into Sydney. The number of different projects, when you stack them up, could easily reach $100 in the transmission area, noting that one year we think it will cost $2 billion, and then a year or two later it's $3 billion or $4 billion or $5 billion. The escalation we've seen is pretty frightening.
3.143Professor Mountain agreed with the notion that competition within the energy sector could increase the likelihood of such cost blowouts being avoided. He told the committee that the ‘nature and extent of the cost blowouts would be much lower’ but that:
Part of the reason for the cost blowout is the regulatory approval process, which encourages the proponents and AEMO to put in a low number to start and slowly increase the temperature in the hope that the frog doesn't notice. That is the nature of the regulatory process.
A private investor, accountable to private equity providers, to bond holders and to wind and solar farms that might want to use its produce have much tougher accountabilities for cost blowouts. I think they will be far more effective in the procurement and the management of the asset builders anyway.
TOOT analysis
3.144CIS submitted that AEMO’s ‘Take One Out at a Time’ (TOOT) analysis ‘overvalues HumeLink by double-counting the benefits of its connection with VNI West’. AEMO explained that for each actionable ISP project in an ODP, it performs a TOOT analysis which provides a guide as to the project’s sensitivity to transmission cost variations. AEMO also noted that:
The TOOT approach removes the actionable ISP project from the ODP, along with any augmentations along the project route, for example, augmentations in the capacity available in REZs along the project route.
3.145CIS contended that the TOOT analysis ‘ignores the interconnected nature of network investments, which should be assessed as part of an integrated system rather than in isolation’.
3.146Further, in CIS’ view, ‘projects like HumeLink lose much of their justification because they rely on complementary counterparts to deliver their full value’. CIS commented that AEMO acknowledged the interdependence between HumeLink and VNI West and that a ‘combined analysis could be performed’. However, CIS also observed that ‘AEMO decided against a combined analysis for HumeLink and VNI West, simply on the basis that it was not performed in the previous 2022 ISP’.
3.147CIS concluded that ‘by not conducting a combined analysis, AEMO effectively inflates the benefits of HumeLink, ignoring the need for complementary infrastructure to support its business case’.
3.148In an answer to a question on notice, AEMO clarified that it conducts the TOOT analysis to provide transparency on the value of individual projects and noted that the TOOT analysis is not used ‘to determine which projects should be actionable’. AEMO further explained that:
…the sum of the benefits from the individual TOOT analyses is greater than the total benefits in the ISP’s Optimal Development Path (ODP). Given the way these analyses are conducted, this is to be expected, but it is not relevant given the TOOT analysis is not part of the analysis to select the ODP in the ISP.
3.149As such, AEMO concluded all projects are considered together in the core analysis when determining the ODP and emphasised that ‘in this way there can be no double-counting of benefits when selecting the ODP’.
3.150However, CIS held broader concerns related to HumeLink. It told the committee that:
We've given a very considerable submission on the topic of HumeLink. This is a project which, in our opinion, there is absolutely no justification for being advanced at the current schedule. If the 82 per cent renewable energy target were not a binding constraint on all scenarios, it would not be advanced today.
Cost-benefit analysis – VNI West
3.151Professor Bruce Mountain submitted that there were several flaws in the cost-benefit analysis used to justify VNI West.
3.152For example, in the initial cost-benefit analysis of the Western Renewables Link (WRL), a component of VNI West, AEMO claimed that the main benefit for the C3 option of WRL which was intended to be the first leg of the VNI West interconnector, was the fuel cost savings which would result from increasing brown coal generation in Victoria and therefore conserving expenditure on increasing wind generation.
3.153As Professor Mountain noted, one problem with the analysis is that it assumed that Victoria's brown coal generation would persist until 2074. This contradicted and was inconsistent with the Victorian Government policy and ‘the objective of rapidly decarbonising electricity supply and expanding wind generation in Victoria.’
Contradictory justifications
3.154Additional evidence from Professor Mountain charges that AEMO has relied on various and often contradictory justifications for VNI West. The most significant claim originates from the ‘VNI-West Consultation Report – Options Assessment’ (2022) which justified the construction of VNI West on the basis that Victoria would otherwise have to build a comparatively more exorbitant amount of pumped-hydro storage.
3.155As Professor Mountain notes, this was puzzling as if the premise of building VNI West was to substitute cheaper batteries in NSW for pumped hydro in Victoria, then what was the barrier to building batteries in Victoria to begin with - all other factors being equal as batteries can be built for the same price in both states?
3.156Professor Mountain subsequently pushed back against additional justifications by AEMO that VNI West was required so that Victoria could export energy generated by rooftop solar to NSW. On the contrary as Professor Mountain noted, this was a mere fantasy as the state would in fact become a net importer of energy.
3.157Professor Mountain further noted what he considered to be ‘tricks’ that AEMO and network services providers use, which are in his view:
1. Biased counter-factual trick: by making assumptions on what would happen if the transmission project was not built it is possible to make the transmission project look better. AEMO has done this for example by assuming that all Victorian brown coal generators would have closed by 2028, so as to generate the “benefit” of keeping them open if their transmission project was developed. But of course all Victorian coal generators will not be closed by 2028!
2. The ”Roman arch” or “Divide and rule” trick: Count the full benefits of building the bridge but only count one half of the cost of the bridge. Then later repeat the exercise for the second half. This has done for VNI-West (for its two elements) and also for HumeLink and last leg “Sydney Ring South”.
3. The “sunk cost” trick: treat various costs that will arise in future as if they have already been spent or committed. As discussed earlier, this has been a big part of AEMO’s analysis of MarinusLink (ignoring the costs of wind farms in Tasmania in their calculation of the benefits of MarinusLink) and AEMO (and TransGrid’s) analysis of HumeLink (ignoring the cost of Snowy 2.0 but counting the “benefit” of connection to Sydney)
4. The “under-quoting attracts buyers” trick: This involves starting with unrealistically low cost estimate in order to get a benefit/cost outcome that is sought, then progressively increase cost estimates later (of course always claiming that benefits still exceed costs). This is endemic to all projects assessed by network providers and AEMO. We are not aware of any projects that have not now estimated to cost at least double what AEMO/TNSPs initially said they would (in the case of HumeLink it is more than six times their initial claim).