Project EnergyConnect: what the NEM’s first transmission loop means for energy users

Project EnergyConnect is the new interconnector between South Australia and New South Wales. On 1 October, AEMO added it to the NEM dispatch engine, the first step in bringing it into service. Together with the existing links to Victoria, it forms the first transmission loop in the National Electricity Market.

Capacity will be released in stages, with AEMO expecting full commissioning by the end of 2027. For businesses with sites in NSW, Victoria or South Australia, that means the price relationship between those three regions will change gradually over the next year or more.

How could EnergyConnect change prices in each region?

More interconnection tends to narrow price gaps between regions, and that works in both directions.

• South Australian sites may see some relief from the price spikes the state has historically been exposed to.
• Surplus wind and solar that would previously have been curtailed or sold at very low prices can now flow east, which can lift South Australian prices in those hours.
• NSW and Victorian sites gain another pathway to South Australian renewable output.

What changes for hedging and electricity contracts?

The commercial arrangements are adjusting too. From 2 November, a new method for netting settlement residues around the loop takes effect. This changes how the instruments used to hedge between regions pay out.

When it made the rule, the AEMC acknowledged that market participants would need time and resources to understand what loop operation means for their hedging strategies.

Electricity contracts priced over the next 12 to 18 months will reflect a market still adjusting to a structure it hasn’t operated under before.

Should businesses fix their full requirement now?

For larger energy users with sites across NSW, Victoria or South Australia, the transition is a reason to consider spreading purchasing decisions across it, instead of fixing the full requirement at a single point in time.

Eutility’s SmartTrading service uses progressive purchasing, buying in tranches over time rather than all at once. We can help assess whether that approach suits your load profile and risk appetite while EnergyConnect’s capacity is released.