Offshore wind farms undercuts value of VNI West big build

Offshore wind farms can tap into Gippsland’s existing 500kV transmission lines, undermining the value of building Victoria-NSW West Interconnector.

The Star of the South consortium has begun monitoring wind and waves off the Gippsland coast.

The Australian Energy Market Operator has admitted Gippsland’s offshore wind farm developments will undermine the value of building almost $4 billion of 500kV transmission lines across northwestern Victoria and into NSW.

AEMO is pushing ahead with plans to build a $743m Western Renewables Link 190km from Sydenham to Bulgana, plus $3.28 billion on a 400km Victoria-NSW West Interconnector across hundreds of farms.

But AEMO admits offshore wind developments dramatically reduce the net benefits of its VNI West proposal from $1.842 billion to $1 billion.

“The Victorian Government’s offshore wind policy reduces the expected net benefits from both (VNI West and WRL) projects combined, but significant net benefits are still generated,” AEMO reported in its February options paper.

The Star of the South consortium, which is building 2000MW of new offshore generation capacity in Gippsland waters, first raised concerns about VNI West last year.

In a submission to AEMO, the consortium called on the government agency to “consider the role of offshore wind as a credible option, which impacts on the timing of the need for VNI West”.

The Star of the South consortium, which consists of Australian founders and Copenhagen Infrastructure Partners, say their offshore project not only “delivers 18 per cent of the state’s electricity, but taps into the existing 500kV Latrobe Valley grid”.

“Our modelling shows the Star of the South has the capacity to almost wholly, and reliably, cover the generation shortfall of a Yallourn (coal-fired power plant) exit and it would do so, bereft of any short-term transmission upgrade to VNI West.”

In contrast, Victorian consumers will have to repay the $4 billion cost of building the WRL and VNI West transmission lines, not the developers building the wind and solar farms in western Victoria.

Victoria Energy Policy Centre director Bruce Mountain has already lodged a submission to AEMO that warns both projects “will increase the regulated asset value of transmission assets in Victoria by about 75 per cent, and so is likely to proportionally increase the average transmission charges in Victoria”.

Consumers have already seen massive hikes in the supply charges on their power bills, which deliver a regulated return to AusNet, which is the monopoly owner of Victoria’s transmission lines.

Professor Mountain said he had major concerns about the need for the western Victorian transmission projects, given the offshore wind developments.

Earlier this month Premier Daniel Andrews announced the first power from offshore wind would be generated by 2028, reaching 4000MW by 2035 and 9000MW by 2040.

In November last year, Victoria pledged approximately $40 million under the Energy Innovation Fund to fund feasibility studies and pre-construction development for three major offshore wind proposals: Star of the South, Macquarie Group and Flotation Energy.

Together, those three projects could generate 4.7 GW of new capacity, power around 3.6 million homes and bring more than $18 billion in new investment to Victoria.