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In November 2020, the NSW Government released its Electricity Infrastructure Investment Roadmap and the supporting Electricity Infrastructure Investment Bill 2020. The roadmap and supporting bill signal a significant departure away from the existing national electricity market arrangements, with NSW taking on a transmission infrastructure planning role and providing itself with an avenue to implement a market arrangement that provides revenue certainty.
The Bill was passed on 25 November 2020.
What is NSW doing?
While there are a number of interesting elements to the NSW Electricity Infrastructure Investment Bill 2020, some of the most significant departures include:
Why is this happening?
The stated objectives of the NSW Government in embarking on this program are:
Stated objectives aside, the NSW Government has been positioning an aggressive agenda on renewables investment, with a focus on renewable energy zones.
While there is considerable excitement from investors in the announced zones, to reach financial close, investors need an offtake agreement of some tenure.
There were (until the NSW Government’s announcement) reasonable questions to be asked about where these offtake agreements would come from. There are three to four main buyers in the market, with balanced portfolio and may not require additional supply before their coal assets retire. This would put pressure to find offtake agreements in the corporate Power Purchase Agreement (PPA) market in NSW, which is growing but is yet to mature. This posed a significant risk to the development of the zones, which has been addressed through the reform package.
Let the battle of the states begin…
NSW is already a hot market for renewable energy investment, with many investors privately noting that it is their priority market. There are a couple of key reasons for this:
Combined, these factors make NSW an attractive market for investment. The NSW reforms don’t fundamentally change this, but they may mean that (at least in the short run) we see little investment outside of the mechanisms proposed and AGL has already commented on this.
The NSW reforms may also have significant impacts in Queensland and Victoria, with the NSW Government essentially providing investors an avenue for investment certainty and a relatively easier route to connection. Given that these states have aggressive renewable energy targets, we consider that it’s feasible that they will respond with their own, similar reforms.
Around Australia and the globe, public and private organisations are coming to terms with the costs and benefits of decarbonising their energy inputs. Deloitte’s energy transition team helps our clients to shape and define their response to this energy transition.