Transmission regulation, merchant investment, and the experience of SNI and Murraylink in the Australian National Electricity Market

Abstract

Australia has unique experience with merchant and r egulated interconnectors that is relevant to the international debate on transmissio n investment and its regulation. Contrary to a widespread view, and regardless of di fferences of opinion about market power and stranding risks, the proposed regulated i nterconnector would be uneconomic despite having eventually been approved. Australian experience suggests that, for interconnectors, overexpansion by regulated transmi ssion may be a more serious concern than underinvestment by merchant transmission. In t his context, a ‘user pays’ arrangement for transmission investment could be helpful. Argentine experience in this respect may be more satisfactory than sometimes perceived, and merits further investigation.