TransGrid link to connect NSW to South Australia renewables
The electricity interconnector between the two states was only approved after the federal government’s green bank stepped in with a $295m hybrid debt deal that allowed TransGrid and its owners including Spark Infrastructure to sidestep funding hurdles.
Electricity giant TransGrid approved a $2.2 billion power cable to transmit renewables between NSW and South Australia despite flagging concerns over difficulties sealing long-term financing, potentially harming the go-ahead for future transmission projects.
The electricity interconnector was only approved after the federal government’s green bank stepped in with a $295 million hybrid debt deal that allowed TransGrid and its owners including Spark Infrastructure to sidestep funding hurdles.
The 900km transmission link, known as EnergyConnect, is being developed by TransGrid and SA’s ElectraNet with the project to create up to 1500 construction jobs. It is seen as a critical link for NSW when old coal plants in the state retire by allowing cheap renewables to be imported from SA, avoiding big jumps in wholesale electricity prices.
SA expects a multibillion-dollar renewables boom to flow from the decision, while TransGrid pointed to 3000 megawatts of new renewable generation in line to connect to the NSW portion, nearly double the capacity of the soon-to-be-shuttered Liddell coal plant.
TransGrid faced a series of setbacks after a push for a rule change – easing hurdles for investors to secure debt – was rejected by the Australian Energy Market Commission.
Lenders were reluctant to agree a long-term deal after TransGrid failed to convince the rule-maker that it needed to access cashflows sooner to guarantee the project. That meant cash flows during the early part of the development would not support 60 per cent of the project being debt funded and receiving an investment-grade credit rating.
“We went through a number of potential products, all of which failed to achieve the outcomes and the appropriate assessments from the rating agencies,” Spark chief executive Rick Francis said.
TransGrid resolved the issue through a $295 million hybrid debt deal with the government’s Clean Energy Finance Corporation, representing the green bank’s biggest ever deal.
“Without this CEFC assistance, it would have required a far greater amount of equity to finance the product and that just doesn’t work mechanically in the confines of the regulatory system,” Mr Francis said.
Other future projects worth billions of dollars – including the Victorian-NSW interconnector and the Hume Link from Snowy Hydro to southern NSW – will face problems if changes are not made, according to Spark.
“There are fundamental flaws in the regulatory system and it kicks the can down the road,” Mr Francis said.
“There are more projects coming down the track and unless there is some substantial change you will need to address the same challenges. We shouldn’t be relying on the good graces of the government through the CEFC to resolve the issue.”
TransGrid will invest $1.834 billion to deliver the major NSW section of EnergyConnect from Wagga Wagga in the state’s south to the SA border, with ElectraNet expected to sign off on the balance this week.
Annual savings of $180 million for NSW’s three million electricity customers have been promised by TransGrid, reducing the average household bill by up to $64 a year. However, in the short term NSW consumers will see a $11 annual hit in 2022-23 and $22 a year from 2023 to 2028, with SA $6 and $17 annually over the same periods, according to the Australian Energy Regulator.
EnergyConnect will help enable the South West NSW Renewable Energy Zone, enabling connection of 4950 megawatts of generation capacity. Construction will start in western NSW by late 2021, with first power in 2023.
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