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Rule change to facilitate renewable project connections to designated parts of electricity transmission networks
Owners, developers and users of dedicated connection assets, such as renewable electricity generation hubs, may be impacted by a new rule proposed by the Australian Electricity Market Commission that will change how these assets are regulated under the National Electricity Rules.
The Australian Electricity Market Commission (AEMC) has published a draft rule determination in response to a request by the Australian Energy Market Operator (AEMO) to clarify how key requirements under the National Electricity Rules (NER) apply where multiple parties such as renewable generators, connect into a transmission network using the same large dedicated connection asset.
What does the AEMC's draft rule mean for transmission network operators and users?
The draft rule change will require any new connection asset that is added to the transmission system which is 30km or longer (ie. currently defined under the NER as a large dedicated connection asset) to be operated and maintained by the Primary Transmission Network Service Provider (Primary TNSP) although the asset may still be designed, constructed and owned by parties other than the Primary TNSP. These assets will be known as designated network assets (DNA) which will replace their current classification under the NER as large dedicated connection assets. DNAs will not be fully contestable and this is a key difference to the existing rules which apply in relation to large dedicated connection assets.
Where there are multiple proponents in an identified user group who connect to a transmission network using a DNA, each user group member will have its own individual transmission network connection point. In addition, there will be an overall "boundary point" where the DNA connects to the identified user shared assets at the substation.
Similar to the current third party access regime which applies to large dedicated connection assets, the DNAs will be subject to a special access regime that is designed to facilitate third party access to the DNA, such as new renewable generators who seek to connect to the transmission network via the DNA. The Primary TNSP is required to develop an access policy for the DNAs that is to be approved by the Australian Energy Regulator (AER).
The final rule and final determination will be published by the AEMC on 8 July 2021. The framework for DNAs under the AEMC's proposed rule change does not apply in Victoria. This is similar to the connection arrangements introduced in 2017 by the AEMC's Transmission Connection and Planning Arrangements Rule (TCPA Rule) which also do not apply in Victoria.
What is a "dedicated connection asset"?
A dedicated connection asset (DCA) is a transmission asset that may be privately owned and operated and connects a party to the shared electricity transmission network. Typically, DCAs are the transmission lines (power lines) and transformers that connect a large electricity consumer or generator to the rest of the network and if required are capable of being isolated from the primary network.
Under the current NER, DCAs are classified as "large" (where transmission lines are 30km or longer) or "small" (shorter than 30km). This classification is important, because a service provider of a large DCA must have a policy in place to allow access to third parties to access the services of the DCA. There is no requirement for DCA service providers to offer third party access to small DCAs.
Why has the AEMC proposed this rule change?
In its rule change request of 3 January 2020, AEMO explained that in its view the DCA framework is inappropriate where there are multiple connecting parties on the same DCA. This is because many NER obligations and processes (such as metering, performance standards and loss factors) cannot be applied effectively where one connection point to the transmission network serves multiple parties further down the line.
The AEMC acknowledged in its draft determination that an increased number of DCAs are under development, and that these are likely to be more substantial in connected generation capacity and length than seen before. In other words, there is an increased uptake in the number of multiple renewable generation projects through privately funded DCAs.
It also identified that the current framework is likely to represent a barrier to the sharing of DCAs, and that DCAs of this type will represent "material additions" to the transmission system that will be "increasingly important" from a power security perspective and as a consequence should be operated by the Primary TNSP.
What are the key features of the AEMC's draft rule change?
The AEMC addressed the issues raised by AEMO in its draft rule by replacing the current regime for large DCAs with new provisions for "designated network assets".
Key features of the draft rule are:
Primary TNSP to operate designated network assets
As designated network assets will form part of the transmission network, they will be operated and maintained by the Primary TNSP.
Designated network assets are not fully "contestable"
DNAs can be designed, constructed and owned by parties other than the TNSP, similar to the existing contestability arrangements under the NER for contestable identified user shared assets.
Current NEM arrangements apply at individual connection points
The point where an individual facility (such as a renewable generator) connects to a DNA will be a transmission network connection point. Existing NER arrangements for settlement, metering, calculation of loss factors and TUOS charges, system strength and performance standards will apply with only minor modifications. The point where the DNA connects to the primary network via the identified user shared asset (ie. substation) will be known as the "boundary point".
A special access regime will apply to the DNA
DNAs will be limited to radial configurations and an access regime will apply to the DNA with the aim to facilitate third party access while ensuring that it does not occur to the detriment of existing users of the DNA or the Primary TNSP.
Access will be underpinned by a set of principles which have been based on the existing principles applying to large dedicated connection assets, however, the new principles contain additional requirements such as the requirement for a new DNA connecting party to pay reasonable compensation to existing DNA connecting parties where the new connecting party causes an impact on the power transfer capability of the existing connecting parties. For example, this may occur in circumstances where a new intermittent renewable generator is installed and at certain times there may be a resulting limit on transfer capability across all DNA connections.
The Primary TNSP will be responsible for developing a standard access policy to apply to all DNAs in its network.
Small DCAs
Small DCAs will lose their "small" title and be known as dedicated connection assets with the ability to opt in to the DNA framework.
Who will the new rule apply to?
New connections
The new rule will apply to connection enquiries made to a Primary TNSP, in respect of a small DCA, prior to the commencement date. These connections will be assessed under the framework established by this rule (that is, the NER as it will be in force on and from the commencement date).
No existing DCA arrangements required to be grandfathered
As no large DCAs currently exist, there are no transitional arrangements required to be made under the draft rule. The AEMC has expressed in the draft determination that if any large DCAs come into effect before a final determination is made, it will consider saving and transitional arrangements for those assets.
There are also no grandfathering arrangements required for small DCAs. This is because the main obligation on small DCAs under the NER as it currently exists is for the owner, operator or controller to register as a DCA Service Provider, classify its DCA as a small DCA with AEMO and to comply with the obligations in rule 5.2.7. The draft rule reclassifies small DCAs as DCAs and removes the service provider registration obligation.
Connection assets in place before 1 July 2018
The new rule will not transition those assets that would have qualified as DCA's but were grandfathered in their current form (typically classified as non-regulated assets) under the AEMC's 2017 TCAPA Rule change. The proposed transitional provisions have been designed to preserve arrangements existing before 1 July 2018 so that they are not affected by the new scheme.
What do you need to do to prepare for the proposed rule change?
Connecting parties (which will include new connection applicants, such as renewable energy proponents seeking to connect into a DNA) will need to familiarise themselves with the new arrangements introduced by the AEMC's proposed rule change.
Primary TNSPs will need to:
- review and update their internal systems, procedures and/or standard documentation to reflect the new arrangements;
- revisit and amend their standard network operating agreements (NOAs) to account for the new arrangements for network assets owned by a party other than the Primary TNSP (or create separate standard NOAs for DNAs and IUSAs); and
- develop an access policy that could apply to any DNA that forms part of their network.
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.