IPART was asked by the NSW Government to recommend reliability standards for electricity transmission in NSW to apply from the next regulatory period which starts on 1 July 2018. Our terms of reference ask us to develop an economic framework to evaluate reliability standards and to use this approach to make a recommendation on what standards should apply.
For the approximately 100 bulk supply points in NSW (or group supply points in several cases cases), we recommended a level of redundancy and an allowance for minutes of annual unserved energy.
- The level of redundancy specifies the number of backup arrangements (either 1, 2, or 3) that must be in place to support continued supply of electricity in the event that part of the transmission network fails. Our recommendations are consistent with the existing standards.
- The unserved energy allowance is a new addition to the standards. It is the expected time that energy will not be supplied per year. We recommended unserved energy allowances ranging from 0.6 minutes per year in Inner Sydney to 115 minutes in one area in NSW’s west.
To identify the reliability that provides the most value to customers, we developed a model that optimises the unserved energy allowance to minimise the combined total of the costs to customers of unserved energy and the costs of the infrastructure to avoid unserved energy. The optimal amount of expected unserved energy calculated by the optimisation model is influenced by the level of redundancy assumed at the bulk supply point, the existing mix of assets serving that point, the cost of replacing those assets and the value of customer reliability (VCR) (which is the cost to customers of an outage) at each bulk supply point, which depends on the mix of customers.
The standards that we set are planning standards rather than performance standards, which mean that the network needs to be planned to meet the standards over the lifecycle of the assets on average, rather than be met in every year. Typically there would be lower unserved energy when the assets are newer, and higher unserved energy when the assets are close to retirement.
The standards provide flexibility to promote most efficient network or non-network solution to meet the unserved energy allowance, which may include the transmission network, distribution network, network support arrangements, backup supply capability, or a combination of these.
IPART will need to determine whether TransGrid will be compliant with the standard from1 July 2018. Early next year we will begin a consultative process on our proposed approach to compliance.
We will review the standards again in time for the following regulatory period which will commence in 2023. Further work is required before this time to review the value of customer reliability, which is a key input into our optimisation model. We support a nationally consistent approach to the value of reliability (VCR). However, if an updated nationally consistent VCRs are not available, we have recommended that the NSW Government ask IPART to determine VCRs for NSW. If this is the case, we expect that we would commence a review in 2019-20.