Based on the high level assessment undertaken for this report, a second Bass Strait interconnector may just provide sufficient market benefits under the Neutral scenario to justify the estimated $940 million investment, but the benefits are not robust. Under both the Low Grid Demand and 45% Emissions Reduction scenarios, the projected net market benefits of this investment are negative. Despite greater dispatch efficiency improvements in these two scenarios (driven by assumed accelerated retirement of coal-fired generation), the second Bass Strait interconnector was not projected to deliver net market benefits due to diminished capital deferral value. Due to the sensitivity of this analysis to changes in market conditions, it is recommended that any further analysis on the benefits of Bass Strait interconnection include the following: Multiple reference years and Monte Carlo simulation modelling to better understand how sensitive the market benefits are to variations in renewable generation availability, coincidence of demand between regions, and thermal generation outages. Larger interconnector capacity options between Victoria and New South Wales. Consideration of competition benefits, and potentially wider economic benefits associated with improving resilience to Basslink outages. Tasmania’s Evaluation of economic limitations in Tasmania that may currently constrain renewable generation. Assessment of the transmission upgrades required in Victoria to accommodate high renewable generation penetration driven by the VRET. Additional scenarios to better understand the risks associated with this interconnector investment – potentially looking at more utility-scale battery and less gas-fired generation post 2030, or delayed coal retirements. Under all scenarios, the earlier commissioning of a new interconnector between Victoria and South Australia is projected to improve the long-term market benefits associated with a second Bass Strait interconnector. As well, greater interconnection provided synergies that meant the combined net market benefits were likely to be greater than the sum of the separate effects. In particular, multiple new interconnections were able to exploit geographic diversity in wind availability and solar PV output to reduce the level of intermittency at an aggregate level across the NEM, lowering reliance on high marginal cost generation plant such as GPG to back up renewable generation. This highlights the important of strategic, national, co-ordinated infrastructure planning to facilitate the transformation of the NEM at lowest cost to consumers.
Based on the high level assessment undertaken for this report, a second Bass Strait interconnector may just provide sufficient market benefits under the Neutral scenario to justify the estimated $940 million investment, but the benefits are not robust. Under both the Low Grid Demand and 45% Emissions Reduction scenarios, the projected net market benefits of this investment are negative. Despite greater dispatch efficiency improvements in these two scenarios (driven by assumed accelerated retirement of coal-fired generation), the second Bass Strait interconnector was not projected to deliver net market benefits due to diminished capital deferral value. Due to the sensitivity of this analysis to changes in market conditions, it is recommended that any further analysis on the benefits of Bass Strait interconnection include the following: Multiple reference years and Monte Carlo simulation modelling to better understand how sensitive the market benefits are to variations in renewable generation availability, coincidence of demand between regions, and thermal generation outages. Larger interconnector capacity options between Victoria and New South Wales. Consideration of competition benefits, and potentially wider economic benefits associated with improving Tasmania’s resilience to Basslink outages. Evaluation of economic limitations in Tasmania that may currently constrain renewable generation. Assessment of the transmission upgrades required in Victoria to accommodate high renewable generation penetration driven by the VRET. Additional scenarios to better understand the risks associated with this interconnector investment – potentially looking at more utility-scale battery and less gas-fired generation post 2030, or delayed coal retirements. Under all scenarios, the earlier commissioning of a new interconnector between Victoria and South Australia is projected to improve the long-term market benefits associated with a second Bass Strait interconnector. As well, greater interconnection provided synergies that meant the combined net market benefits were likely to be greater than the sum of the separate effects. In particular, multiple new interconnections were able to exploit geographic diversity in wind availability and solar PV output to reduce the level of intermittency at an aggregate level across the NEM, lowering reliance on high marginal cost generation plant such as GPG to back up renewable generation. This highlights the important of strategic, national, co-ordinated infrastructure planning to facilitate the transformation of the NEM at lowest cost to consumers.