All roads lead to renewables? New laws support NSW Electricity Infrastructure Roadmap

Articles Written by Samantha Daly (Partner), Lara Douvartzidis (Associate), Angus Hannam (Senior Associate)

On 3 December 2020, the Electricity Infrastructure Investment Bill 2020 (NSW) (Renewables Bill) was assented to, which for many can be viewed as the final brick in the road towards a recalibration of electricity supply in NSW. The Bill (having been declared Urgent by Premier Berejiklian) passed the NSW Parliament Upper House on 25 November 2020, and gives effect to the NSW’s first Electricity Infrastructure Roadmap (Roadmap) which was released on 9 November 2020. In essence, the Roadmap and Bill form a cohesive action plan by the NSW Government to deliver the major infrastructure needed to sustainably remodel NSW’s electricity system and power the economy due to the impending shutdown of four out of five NSW coal-fired power stations in the next 15 years, in order to help achieve grid stability over the coming decades.

Electricity Infrastructure Roadmap

The five “foundational pillars” of the Electricity Infrastructure Roadmap is as follows:

1. Driving investment in regional NSW: supporting our regions as the State’s economic and energy powerhouse.

2. Delivering energy storage infrastructure: supporting stable, long-term energy storage in NSW.

3. Delivering Renewable Energy Zones: coordinating regional transmission and renewable generation in the right places for local communities.

4. Keeping the grid secure and reliable: backing the system with gas, batteries or other reliable sources as needed.

5. Harnessing opportunities for industry: empowering new and revitalised industries with cheap, reliable and low emissions electricity.

The NSW Government has observed that by 2030 the estimated outcomes of the Roadmap will be to:

  • Deliver approximately 12 gigawatts of new transmission capacity through the Central-West Orana, New England and South West Renewable Energy Zones, and even more over time;
  • Support an estimated 3 gigawatts of new firm capacity in the NSW grid;
  • Attract up to $32 billion in private investment in regional energy infrastructure investment;
  • Support over 6,300 construction and 2,800 ongoing jobs, mostly in regional NSW;
  • Decrease electricity costs for households and businesses; and
  • Contribute to the NSW Government’s Net Zero Plan by delivering 90 million tonnes of reduced carbon emissions.

Electricity Infrastructure Investment Act 2020 (NSW)

The Bill was first introduced into NSW Parliament back in early November 2020, with a view to getting it through both houses by end of term. The Bill has received assent and is now the Electricity Infrastructure Investment Act 2020 (NSW) (Act). The objects of the Act are to:

(a) improve the affordability, reliability, security and sustainability of electricity supply

(b) co-ordinate investment in new generation, storage, network and related infrastructure

(c) encourage investment in new generation, storage, network and related infrastructure by reducing risk for investors

(d) foster local community support for investment in new generation, storage, network and related infrastructure

(e) support economic development and manufacturing

(f) create employment, including employment for Aboriginal and Torres Strait Islander people

(g) invest in education and training

(h) promote local industry, manufacturing and jobs

(i) promote export opportunities for generation, storage and network technology.

Part 3 of the Act details the means for NSW to set and monitor energy security targets for the next ten financial years, using the formula energy security target = maximum demand + reserve margain.  Maximum demand is the forecast peak demand for megawatts of electricity used by NSW electricity customers, based on a 10% probability of exceedance (POE) forecast methodology. Reserve margin is the sum of the amount of megawatts of electricity capable of being produced by the two generating units in NSW that are capable of producing the largest amounts of megawatts of electricity according to the Austrailan Energy Market Operator (AEMO) for the financial year or a different amount prescribed by the regulations.

The Minister has the power to appoint a person or body as the energy security target monitor. In calculating these energy security targets and subsequently producing reports, persons in the industry can be asked by the energy security target monitor, by written notice, to provide relevant information to the energy security target monitor (pursuant to s 16 of the Act). Failure to do so without lawful excuse will result in an offence, with a maximum penalty of 2,000 units for a corporation and 100 units for an individual. Each year the Minister must consider what action, if any, he or she may take in response to the energy security target monitor report once it is released.

The Act also creates an electricity infrastructure jobs advocate, appointed by the Minister. Their role is to advise the Minister about strategies and incentives to encourage investment, development, workforce development, employment, education and training in the energy sector in the Hunter and Central Coast, Illawarra, Far West and Central West regions of NSW. They will also advise on the road, rail and port infrastructure required in these regions to promote export opportunities for generation, storage and network technology.

Under s 29 of the Act, the infrastructure planner (discussed below) may serve an order on a relevant operator, prohibiting that relevant operator from allowing a proponent to connect proposed infrastructure to its own network infrastructure, if the proponent does not have development consent under the Environmental Planning and Assessment Act 1979 (NSW).

Renewable Energy Zones

Critically, s 19 of the Act allows the Minister to declare a Renewable Energy Zone (REZ) within NSW – the first five having already been declared under s 23, including Central-West Orana (to be completed by 2022) as well as Illawarra, Hunter-Central Coast, South West and New England. See our previous article on this topic. The REZs are then subject to review by the infrastructure planner, appointed under the Act in order to give recommendations for the most appropriate infrastructure options for each zone.

In order to establish the new REZs, regulatory reform in the form of the Electricity Infrastructure Investment Safeguard is expected (see below), as well as the introduction of the Energy Corporation of NSW – intended to be a government-controlled statutory authority whose ambit is to establish the REZs. An access scheme will also be established to authorise or prohibit access to, and use of, specified network infrastructure in the REZs by network operators and operators of generation and storage infrastructure.  

Electricity Infrastructure Investment Safeguard and Long Term Agreements

The NSW Government has indicated that it will create an Electricity Infrastructure Investment Safeguard, for the purpose of incentivising large-scale renewable energy storage across the region. This will be paired with a Consumer Trustee, to be appointed to safeguard the long-term interests of consumers in the market. The Consumer Trustee (once appointed) will be responsible for awarding Long Term Energy Services Agreements – effectively an options contract, to access a set minimum price for energy services.

Electricity Infrastructure Fund

The Act also creates an electricity infrastructure fund providing the financial backing to support the Roadmap. Funds will be received from a variety of sources, including voluntary and ordered contributions, payments from long-term energy supply agreements, payments from access schemes, as well as separate contributions from network service providers. 

Pumped hydro a focus

The Roadmap places a large emphasis on the reliance of reservoirs in the natural landscape that could be used as storage for pumped hydro energy as part of the NSW Pumped Hydro Roadmap, published back in December 2018. The Report highlights six key areas of opportunity for growth in this space, around the South East, Riverina, Shoalhaven, Central West, Lower North Coast and the North East.

The Pumped Hydro Recoverable Grants Program will allow developers to share the initial project risks with the NSW Government and help absorb sunk costs due to the lack of detailed subterranean information and need for costly feasibility studies. The program has been allocated an initial budget of $50 million to support up to 3 GW of pumped hydro projects, with an estimated 1 GW of undeveloped greenfields land and around 2 GW of previously developed brownfields land projects.

What next?

Industry groups welcome the increased certainty of electricity supply through the hybrid approach of REZs and pumped hydro power. The Safeguards and Long Term Agreements are intended to spur on industry by ebbing the risk to investors in renewable energy projects. While the nuts and bolts of the hybrid approach and the appointment of the Consumer Trustee are still being finalised and yet to be realised, investors should be comforted by the heightened certainty on project deliverables and timeframes moving forward, especially given the proposed Safeguards and Long Term Agreements.

The regulations, which have not yet been introduced, will contain important details on a number of aspects of the Act, including how the energy security target is calculated. If successful and able to satisfy the objectives listed above, the Roadmap will undoubtedly benefit the entire renewables industry and potentially benefit consumers too given the expected drop in household energy costs.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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