Basslink is the last unregulated interconnector in the national electricity market - what does it mean for energy costs in Victoria and Tasmania if it stays that way? 

The Basslink interconnector runs under Bass Strait between Victoria and Tasmania. As the only electricity connection between Tasmania and Victoria, it is a critical piece of the National Electricity Market (NEM).

Basslink, acquired by APA in 2022, supports energy security in both Victoria and Tasmania.

Potential energy shortfalls can be met by moving electrons in both directions under Bass Strait, to the benefit of both states. In an average year, energy flows from Tasmania to Victoria are about the same as from Victoria to Tasmania. 

Basslink is currently the only ‘unregulated’ interconnector in the NEM.¹ This means the asset generates revenue by trading electricity in the spot market, taking advantage of price differences between regions of the NEM.

This contrasts with regulated interconnectors, which operate as ‘open links’ and generate revenue through prices approved by the Australian Energy Regulator.² Operation as an ‘open link’ means energy flows on Basslink are determined by the most efficient outcome, rather than being determined by the bidding strategy of Basslink.

APA made a commitment during the 2022 acquisition process to seek to convert Basslink to a fully regulated asset under an agreed consultation process with the Tasmanian Government. Agreements entered into at that time also ensured the asset continued operating as an ‘open link’ as we progressed formal regulatory conversion.

This commitment made sense, given a regulated Basslink will provide greater certainty for both customers and APA, and ensure that all stakeholders, including customers, have long term involvement in the future direction of the asset. It also ensured prices remained stable and not subject to daily movements in the electricity spot market while formal regulatory conversion was pursued.

Regulatory conversion proposal

APA’s regulatory conversion proposal was submitted to the AER in September 2023, with the aim of ensuring that both Victoria and Tasmania benefit from full access to affordable, renewable energy ahead of Marinus Link, a second interconnector between Victoria and Tasmania, potentially coming online over the next decade.

The AER’s assessment of APA’s Basslink regulatory proposal highlighted the consumer benefits of regulation were, on average, $1.6 billion compared to the no regulation scenarios considered. Despite these clear customer benefits, in December 2024 the AER made a draft decision to deny the conversion proposal.

In its draft decision, the AER considered that the benefits of conversion are too uncertain, given the proposed development of Marinus Link. The AER has now called for submissions ahead of making a final decision over the coming months.

What does this mean for energy prices?

An unregulated Basslink will result in higher wholesale electricity prices for energy consumers in Tasmania and Victoria. The AER itself has acknowledged this.

This is because, should the AER’s draft decision become final, APA will operate Basslink to ensure it delivers appropriate returns to our investors. Basslink capacity will be traded in the spot market and dispatched to take full advantage of price differences between Victoria and Tasmania.

As an unregulated asset, customers will also have limited input in how Basslink is operated and maintained. And, somewhat paradoxically, not regulating Basslink runs the risk of the asset retiring before the end of its economic life.  This would be a perverse outcome and one that would sign Tasmanian and Victorian consumers up to much higher transmission costs than necessary, given the significant capital costs associated with Marinus Link.

The final cost and commissioning date of Marinus Link remain highly uncertain – the first cable has not yet reached final investment decision and a decision on the second cable is not expected for some time. As we have seen with many other energy projects currently under development, the cost of delivery continues to increase. Since Marinus Link was first announced, the capital costs of the 750 MW Marinus Link cable 1 have already increased from $1.3 billion to $4 billion.

The 500 MW Basslink cable, in contrast, is estimated to have cost less than $800 million, and has an economic life until 2046. This is considerably cheaper than the capital cost of Marinus Link - each MW of Basslink capacity only costs customers $1.5 million compared to an estimated $5.4 million for Marinus Link 1 alone.

Should Marinus Link proceed, given the potential for further delays and cost increases, Marinus Link 1 should not be delivered any earlier than required. This will minimise the financial impact on taxpayers and electricity customers. Consumer interests will then be best served by ensuring both Marinus Link 1 and Basslink are fully utilised ahead of building Marinus Link 2.

Where to from here?

Consistent with our commitment to the Tasmanian Government and aligned with our purpose of securing Australia’s energy future, APA continues to seek full regulation of Basslink through the current conversion proposal.

APA will continue to engage positively with the AER on this process to deliver the best outcome for all stakeholders, including energy consumers.

While we wait for the AER’s final decision, APA is progressing plans to trade Basslink capacity once the existing Hydro Tasmania contract expires on 30 June 2025.

¹ In regulatory speak, Basslink is a Market Network Service Provider, or ‘MNSP’

² Regulated interconnectors, such as Directlink and Murraylink, are referred to as Transmission Network Service Providers, or ‘TNSPs’