AEMO’s new renewables costings blasted as ‘a nonsense’ by top energy expert
The nation’s energy operator has produced cost estimates for renewable transmission that experts say defy economic logic.
EXCLUSIVE: The Australian Energy Market Operator has been accused of “creative accounting” in producing “economically incoherent” valuations of renewables transmission projects.
In a major new report published on Wednesday, AEMO said the capital cost of additional network needed to migrate the electricity grid to wind and solar was only $9 billion in “present value terms”, which spread expenses over project lifespans.
However, the actual cost of new transmission lines listed in the draft Integrated System Plan (ISP) adds to more than $30bn.
The $9bn present value transmission estimate is about half what was forecast just 18 months ago, despite the new ISP acknowledging individual network projects’ budgets had increased by up to 100 per cent.
The estimate declined for reasons including that AEMO slashed its assumed finance rate for developers from seven per cent to three per cent.
Leading energy policy expert Bruce Mountain said that was “just a nonsense”.
“It is economically incoherent,” Professor Mountain, director of Victoria University’s Victoria Energy Policy Centre, said, adding that three per cent was less than the rate that should apply to transmission.
AEMO’s decision showed its “bias”, Prof Mountain said.
The federal Coalition’s energy and emissions reduction spokesman Dan Tehan said AEMO appeared to have used “creative accounting”.
“The part-time Minister for Climate Change and Energy needs to be able to explain why the capital costs have reduced from seven to three per cent,” Mr Tehan said.
“There seems to be creative accounting to hide the fact that power prices are going to continue to increase over the next decade.”
A recent report from the Australian Energy Market Commission said prices would fall over the next five years but rise by more between 2030 and 2035, leading to an overall increase of eight per cent.
Through a spokeswoman, Minister Chris Bowen said the Albanese Labor government’s “focus is on bringing down bills with more reliable, renewable energy in the grid. Dan Tehan and Sussan Ley want to ignore experts and pursue an ideological energy plan that will cost Australians more.”
Mr Bowen cites the ISP as the best estimate of the cost of the energy transition, including generation, storage and transmission.
The new version puts the price at $128bn in today’s dollars, up $3bn since June 2024. Within that updated figure is the $9bn present value cost for “actionable and future” transmission projects to 2050.
The real estimated cost of seven “actionable” projects listed in the ISP is about $18bn. Those described as “likely to be newly actionable” have a further expense of $3bn. And “future ISP projects in the optimal development path” add nearly $10bn more.
On the move from a “weighted average cost of capital” of seven per cent to three per cent, AEMO’s spokesman said its “adjustments to WACC for long-term transmission assets reflect stakeholder feedback and regulatory best practice.”
AEMO had aligned itself with the Australian Energy Regulator, he said, to “ensure that financing assumptions are fair, transparent, and consistent with the risk profile of each investment.”
The transmission cost estimate also declined because AEMO now expects that only 6000km of new lines will be needed, down from about 7500km.
About half of that reduction is due to the Crisafulli Liberal-National government’s decision to cancel a pumped hydro scheme proposed by the previous state Labor government.
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