At the end of June, the Australian Energy Regulator submitted a rule change request to the Australian Energy Market Operator relating to planning (and approval) requirements for replacement network expenditure.
Currently, network businesses are required to:
- undertake an annual planning review of their network and publish the results of their review in an annual planning report (APR); and
- prior to expanding their network, conduct a public cost benefit assessment, known as the RIT-T in transmission and RIT-D in distribution, to identify the investment option which maximises net public benefits.
The AER reports that at present, network replacement expenditure comprises a larger proportion of total capital expenditure with replacement expenditure exceeding augmentation expenditure. This, combined with stagnant electricity demand growth across the National Electricity Market and advances in energy storage and distributed generation technologies means, in many cases, there is a strong economic case for alternatives to the historical like for like replacement.
The rule change proposal seeks to amend the planning framework to provide a greater focus on network replacement decisions by:
- requiring network businesses to include information in their APR on network asset retirement decisions and the development of credible options to address network limitations arising from a decision to retire a network asset;
- introducing a new guideline on network asset retirement which will set out the classes of network assets which network businesses should report on in the APR for retirement and replacement decisions. This guideline will be developed and published by the AER in accordance with network consultation procedures in the Rules, and
- extending the application of the RIT-T and RIT-D to replacement expenditure.
The process duration for the AEMO to consult on and reach a conclusion on this proposed rule change has not yet been released. Information on the proposed wording changes in Chapter 5 are available on the AER’s website. However, the Electricity Market Review in WA is adopting Chapter 5 of the NER and so will need to take into account the implications of this proposed rule change.