Looking Forward


David Leitch


January 16, 2024

Transmission, supply chain, GPS are not issues. Willingness is the issue

Price signals are unambiguously positive at least in NSW and QLD and even a renewable developer can work out prices in Victoria will rise post the Yallourn closure.

Yet over the past year we’ve all had to stand around and hear a long list of complaints from wind and solar developers. No transmission, supply chain, costs, GPS, uncertainty (God forbid returns are not guaranteed).

The only thing anyone talks about is batteries even though batteries are net consumers of energy.

The groups that have most disappointed me are the big renewable developers Iberadrola, CWP (or whatever its called these days), Tilt and their ilk. These guys don’t have the legitimacy of running coal generators to maximise end of life cash flows, they have large balance sheets and are completely capable of taking on some risk should they choose to do so.

Then of course there are the Gentailers. At least their lack of commitment is normal. I laugh to see 70% of shareholders that voted in favour of the ORG scheme but now have to put up with a company that remains neither fish nor fowl and where uncertainty remains the day. Aussie Super “we’ll save ya” attitude and why don’t you buy some Santos or Woodside comes really as no surprise. For sure they are big and proved size does matter. Poor old EnergyAustralia must wonder how Brookfield can talk to AGL and Origin but EA and its owner CLP are left as wall flowers, continuously passed over, despite showing all the leg they can get away with.

As usual, and I speak as someone who passionately believes in markets, its Government, and in this case the QLD Govt that has stepped into the breach.

Nevertheless the point of this note is to observe that:

  • Transmission will be available in NSW from 2026 and plenty by 2028. It takes that long to build new wind farms so these guys should be committing now.

  • Supply chain issues, at least in terms of wind turbines, are not an issue. If you order a turbine from Vestas you can get it at the same euro price as last year. You can possibly get a Goldwind turbine for less than last year.

  • Price signals remain strong and there is even more financial support.

  • AEMO is, from what I can see, increasingly ready to rock and roll.

I guess its still legitimate to say that Humelink is not certain and the Orana contract has not actually been announced, but as Irving Fisher so poetically observed in the preface to “Theory of Interest”, “coming events cast their shadows before”. If I can see the transmission is coming with my fading eyesight it must be crystal clear to renewable developers.

Two big events left this year

Results from AEMO services tender 2 for renewable energy in NSW are expected to be released in the next couple of weeks. That should cover around 1 GW of projects, a drop in the ocean but still very welcome news. Hopefully at least some new wind.

Energyco (AEMO Services partner in NSW) will also release a year end update Monday 11 December. It would not surprise me to find that the Orana transmission contract is also announced then.

Then, of course, the first draft of the 2024 ISP will also be released in the next couple of weeks. Although ostensibly a transmission planning exercise, the reality is that the 2022 ISP was the document that convinced stakeholders that we all in reality expected a decarbonised NEM and sooner rather than later. Not so much price discovery as belief discovery.

In any event the ISP 2024 will embody State Govt policies such as Victoria’s offshore wind target, misguided as it may be, the Queensland plan, misguided though Borumba may be and changes to the NSW outlook including delays to Snowy 2. Personally I could not give a rats about the delay to Snowy 2 or its cost. For me the world has moved on. Still lets leave ISP 2024 until its released. Speculation is pointless.

Transmission outlook is improving

For years commentators have focussed on transmission as the key enabler of a strong renewable electricity system. The earliest article I wrote about this here at Reneweconomy was on July 5 2017 "Transmission we need to start building now". That was only a year after I left UBS. At that time the then AEMC Chair John Peirce oversaw a rigid approach embodied in the logical and seemingly rational but ultimately utterly misguided view of new transmission embedded in the RIT-T test.

It was clear even then, using the best practice Texas example, it would take seven years to build new transmission, just as it was clear even then that the existing transmission network in the NEM would likely be in the wrong place for wind and solar. However at that time it wasn’t clear just how congested the existing network actually was.

Despite the blackout in South Australia by 2023 the only new transmission actually being built other than some minor augmentations in the QLD-NSW link is the SA-NSW link and that not due for completion until 2026. Indeed building new transmission has taken every bit as long as feared back in 2017.

During this period, stoked by rabble rousers, fear and doubt (FUD) about the ability of Australia to build something as simple as some wires and poles has grown and grown. Transmission and wind farms are now portrayed as ruining the Australian way of life, a source of endless depression and creating environmental destruction.

My view of reality is that renewable energy and the associated transmission will preserve the Australian way of life, bring more prosperity to regional Australia, is the best thing that can be done to preserve the environment and will lead to lower and more certain electricity prices. Color me a hippy.

Today a wide range of “experts” and advisors contend that the lack of access to transmission is the No 1 problem preventing new renewable energy projects from starting.

Personally I not fully convinced that transmission is necessarily holding back projects right now. I think wind and solar developers lack a willingness to commit, perhaps hoping to move the dial in their favour. For instance the 400 MW Uunguala wind farm in Northern NSW could have started construction 12 months ago but Twiggy Forrest seems too busy posturing on the world stage to sign the contract.

$40 bn of transmission under development $12 bn ready by 2028

There is over $40 bn of transmission under development.

Figure 1 Transmission development in the NEM.

But if I focus on NSW as the State with the highest forward prices and the largest consumer of electricity and look at when significant new transmission will be available I see:

A table with numbers and text Description automatically generated

A table with numbers and text Description automatically generated

Figure 2 Transmission development in NSW by 2028. Source: AEMO, TSPs, EnergyCo