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1 13 FEBRUARY 2019

2 Copyright and Disclaimer Copyright in this material is owned by or licensed to ElectraNet. Permission to publish, modify, commercialise or alter this material must be sought directly from ElectraNet. Reasonable endeavours have been used to ensure that the information contained in this report is accurate at the time of writing. However, ElectraNet gives no warranty and accepts no liability for any loss or damage incurred in reliance on this information. Revision Record Date Version Description Author Checked By Approved By 13 February First Issue William John Gichuhi ElectraNet internal review Rainer Korte Page 2 of 13

3 Contents 1. INTRODUCTION SUMMARY COST ESTIMATES ESTIMATING METHODOLOGY SUBSTATIONS TRANSMISSION LINES INDEPENDENT REVIEW OF TRANSMISSION LINE COSTS BASIS OF ESTIMATE PLANNING BASIS COST BASIS RISK BASIS CLASS 4 ESTIMATE COSTS FROM THIRD PARTIES GENERAL PROJECT DATA GENERAL PRICING ASSUMPTIONS COST ESCALATIONS LAND & EASEMENT COSTS EXCLUSIONS Page 3 of 13

4 Glossary of Terms Term AEMO JPB HVAC HVDC PACR PADR PSCR PV RIT-T SAET SPS SVC TNSP Description Australian Energy Market Operator Jurisdictional Planning Body High-Voltage Alternating Current High-Voltage Direct Current Project Assessment Conclusions Report Project Assessment Draft Report Project Specification Consultation Report Photovoltaic Regulatory Investment Test for Transmission South Australia Energy Transformation Special Protection Scheme Static VAR Compensator Transmission Network Service Provider Page 4 of 13

5 1. Introduction In June 2018, ElectraNet published a draft report on its SA Energy Transformation Regulatory Investment Test for Transmission (RIT-T) investigation of interconnector options between South Australia and the eastern states and alternative non-interconnector options. This Project Assessment Draft Report (PADR) was accompanied by a Basis of (Cost) Estimate report that sets out how the cost estimates of options considered in the economic assessment were derived. This Cost Estimate Report builds on this and sets out the cost estimates of the interconnector options considered in the Project Assessment Conclusions Report (PACR) that this report accompanies 1. In response to stakeholder submissions on the PADR, we commissioned Jacobs to undertake an independent review of the process by which the transmission line costs were derived and to recommend any changes. The outcomes of this review are described in Section 4 of this report. 2. Summary Cost Estimates Table 1 below summarises the cost estimates for the various interconnector options evaluated in the PACR. Table 1 Cost estimates of interconnector options evaluated in PACR SA Energy Transformation Estimates for PACR February 2019 Option Description Cost ($m ) B1 400 kv HVDC from Northern South Australia to Queensland (3 converter stations) 1,980 C3 C3ii C3iii 330 kv DC from Robertstown in Mid North SA to Wagga Wagga in Western NSW, via Buronga, plus Buronga to Red Cliffs 220 kv 330 kv line from Robertstown SA to Wagga Wagga in NSW, via Buronga, Red Cliffs, Kerang and Darlington Point 400 kv HVDC line from Robertstown SA to Darlington Point via Buronga, HVAC line from Darlington Point to Wagga Wagga, plus Buronga to Red Cliffs 220 kv (3 converter stations) 1,530 1,730 1,660 D 275 kv line from central SA to Victoria 1,200 1 Cost estimates of the non-interconnector option considered in the PACR are covered elsewhere and outside of the scope of this report Page 5 of 13

6 Table 2 provides a breakdown of these cost estimates by major cost components and by jurisdiction. Table 2 High level cost breakdown of interconnector options ($m ) Option Item SA QLD NSW VIC TOTAL Transmission lines B 400 kv HVDC from northern SA to Qld Converter substations, including transformers Other costs, including reactive plant, SPS and delivery costs Total Cost 590 1, ,980 Transmission lines C kv line from Robertstown SA to Wagga Wagga in NSW, via Buronga, plus Buronga to Red Cliffs 220 kv Substations, including transformers Other costs, including reactive plant, SPS and delivery cost Total Cost 380 1, ,530 C.3ii 330 kv line from Robertstown SA to Wagga Wagga in NSW, via Buronga, Red Cliffs, Kerang and Darlington Point C.3iii 400 kv HVDC line from Robertstown SA to Darlington Point via Buronga; HVAC line from Darlington Point to Wagga Wagga, plus Buronga to Red Cliffs 220 kv Transmission Lines ,050 Substations, including transformers Other costs, including reactive plant, SPS and delivery costs Total Cost 380 1, ,730 Transmission lines Substations, including transformers Other costs, including reactive plant, SPS and delivery costs Total Cost 470 1, ,640 2 The cost of construction through NSW is included in the QLD cost 3 The cost of construction through Victoria is included in the NSW cost 4 The cost of construction through Victoria is included in the NSW cost 5 The cost of construction through Victoria is included in the NSW cost Page 6 of 13

7 Option Item SA QLD NSW VIC TOTAL Transmission lines D 275 kv line from central SA to Victoria Substations, including transformers Other costs, including reactive plant, SPS and delivery costs Network Hardening Costs Total Cost ,150 Table 3 provides a breakdown of the various transmission line route lengths by jurisdiction. Table 3 Breakdown of interconnector option line lengths (km) Option SA QLD NSW VIC TOTAL B 350 1,100 1,450 C C.3ii C.3iii D Interconnector routes shown in Figure 1 are indicative only (straight-line) and have been included for illustrative purposes. The figure shows major transmission lines in the NEM but does not delineate between the capacities of these lines for simplicity. Additional variants of the SA-NSW interconnector option have been assessed, which include an HVDC option as well as a variant that runs via Kerang in Victoria (which was proposed in submissions). All variants of the SA-NSW interconnector now also include an augmentation between Buronga and Red Cliffs in Victoria. Page 7 of 13

8 Figure 1 - Overview of the options (and variants) assessed While a stylised straight-line representation of interconnector routes has been included in the figure above for simplicity, detailed desk-top assessments have been undertaken to identify notional routes for each option. Indicative estimated costs of land and easement acquisition have been factored into the cost estimates for the various interconnector options based on this analysis. 3. Estimating Methodology The cost estimating methodology for the various components of the interconnector options considered is described below. 3.1 Substations Substation costs were estimated by each Jurisdictional Planning Body (JPB) for the substations within its jurisdiction, based on defined technical requirements/ high level specifications. The relevant JPBs are ElectraNet in South Australia, AEMO in Victoria, Powerlink in Queensland and TransGrid in New South Wales. The cost estimates for special purpose equipment were derived as follows: (a) (b) For static var compensators (SVCs); shunt reactors/ shunt capacitors; synchronous condensers and series compensation, each JPB defined the size of equipment required for their networks (where needed) and sought high level estimates from reputable suppliers; For phase shifting transformers, AEMO and TransGrid defined the size required for their networks (Victoria, New South Wales) and sought high level estimates from reputable suppliers. Page 8 of 13

9 (c) (d) (e) For power transformers/ auto-transformers, each JPB defined the size of power transformers/ auto-transformers required for their networks (where needed) and sought high level estimates from reputable suppliers; For the HVDC converter stations Powerlink defined the size of HVDC converter stations required and sought high level estimates from ABB, Siemens and GE. The cost used in the PACR is derived from averaging the prices submitted by the three vendors. It is assumed that the cost estimates are applicable both for Queensland, New South Wales as well South Australia (for the relevant HVDC Option). For the System Protection Schemes, ElectraNet defined the scope and requirements and developed a high level estimate based on inputs from relevant vendors. 3.2 Transmission lines (a) ElectraNet developed a high level specification for potential interconnector transmission lines namely: Double circuit 275 kv AC; Double circuit 330 kv AC; and 400 kv HVDC. (b) (c) (d) (e) (f) (g) (h) The high level specifications were discussed and agreed with the relevant JPBs, in accordance with proposed interconnector links between South Australia and respective eastern states; The various transmission line routes (corridors) were developed by Mipela Geo Solutions. These form the basis for the route lengths used in the cost estimates of the various options. ElectraNet obtained cost estimates for each of the route options from the relevant host TNSPs (AEMO, Powerlink and TransGrid). Cost estimates were also sought from reputable Australian companies (vendors) with proven experience and capabilities in building transmission lines; The high level estimates received from external parties were reviewed by ElectraNet and some additional allowances (to cover the broader project scope, where such may not have been allowed by the vendor) were included in the overall cost estimates. In order to derive an appropriate cost rate that broadly captures the construction market price for the key transmission lines of 400 kv HVDC; 330 kv AC double circuit and the 275 kv AC double circuit lines, stochastic analysis/ simulations (PERT method) were conducted using the JPB and vendor construction data as inputs. The derived 50% probability of exceedance (P50) unit rates form the basis for the overall cost estimate for the relevant transmission lines. Estimates for transmission line components of different voltage levels or configuration (e.g. 220 kv DC and the 330 kv SC transmission line) were provided by the relevant JPB because these components constitute a relatively small portion of the overall transmission line works. Page 9 of 13

10 (i) The PERT simulations approach and use of P50-equivalent estimates was endorsed by the relevant JPBs as a plausible method for deriving statistically relevant average market prices. Table 3 sets out the cost rates/km for the various route options were developed for the purpose of the June 2018 draft report (PADR). Table 4 Transmission line $/km rates used in PADR ($m ) Option Description PERT $m/km NSW options 330 kv DC AC Line Victoria option 275 kv DC AC Line Queensland option 400 kv HVDC Line Independent Review of Transmission Line Costs Following the publication of the PADR, ElectraNet received a number of submissions commenting on the underlying assumptions and approach used in deriving the resultant market cost rates. In response to submissions, ElectraNet engaged Jacobs to undertake an independent review of cost estimates, including: SA-QLD 400 kv HVDC line costs SA-NSW 330 kv HVAC line costs SA-VIC 275 kv HVAC line costs The Jacobs report is published alongside the PACR and this Cost Estimate Report and recommends the following line rates per km for the various transmission line components 6. Table 5 Jacobs recommended transmission line $/km rates ($m ) Line ElectraNet PADR PERT cost $m/km Jacobs adjusted PERT cost $m/km New South Wales 330 kv HVAC option Victoria 275 kv HVAC option Queensland 400 kv HVDC option These line rates recommended by Jacobs have been escalated into $ and used for deriving the transmission line cost estimates in Table 2 used in the PACR. 6 ElectraNet Transmission Line Cost Review, Jacobs, February Page 10 of 13

11 5. Basis of Estimate This basis of estimate serves to clearly define the planning basis, cost basis, risk basis, assumptions informing the capital cost estimates together with exclusions to the capital cost estimates. 5.1 Planning Basis Contracting strategies for engineering, design, procurement, construction, resourcing and project execution plans, project schedule and key milestone dates are, at the time of writing, not fully established. However, ElectraNet has developed a project plan and a high level schedule, including preliminary planning as part of the PACR preparation. 5.2 Cost Basis The source of all pricing used in the estimate is from a range of cost intelligence resources including our own corporate cost database, industry vendors, industry subject matter experts in infrastructure and utilities sector, cost modelling, and our own capital infrastructure pricing experience. Prices are based on costs for labour, materials and equipment and no allowance for future price changes is included in the price estimate. 5.3 Risk Basis No allowance has been made for any risk related cost elements or contingency amounts. 5.4 Class 4 Estimate In line with AACE International Recommended Practice and Estimate Classification, this estimate is classified as Class 4, as it is preliminary in nature. Class 4 estimates are generally prepared based on limited information and subsequently have fairly wide accuracy ranges. They are typically used for concept studies, project screening; determination of feasibility; concept; evaluation; and preliminary budget approval. Typically, engineering design is from 1% to 15% complete. Capacities are preliminary. Plant location is approximate. Soils/hydrology/ground condition data not developed or assessed. Project plans are preliminary. Project schedule is preliminary. Work Breakdown Structure is preliminary or not existing. However, contracting strategy is stated such as separate design and construct contracts, turnkey design and construct contracts. The degree of Project scope definition is 1% to 15% of full project definition. End Usage: Class 4 estimates are prepared for a number of purposes, such as: concept studies; strategic planning; project screening; alternative scheme analysis; undertaking of economic and/or technical feasibility analysis; and preliminary budget approval. Page 11 of 13

12 Estimating Method: Class 4 estimates generally use stochastic estimating methods such as equipment factors (building blocks and schedules of rates), and other parametric and modelling techniques. We have engaged with industry partners for budget costing and verification or our estimates. Expected Accuracy Range: Typical accuracy ranges for Class 4 estimates are -15% to -30% on the low side, and +20% to +50% on the high side, depending on the complexity of the project, level of uncertainty of e.g. ground conditions, exchange rates, equipment/contractor availability and appropriate reference information. Accuracy ranges could exceed those indicated in unusual circumstances. 5.5 Costs from third parties Costs included from third parties, in particular the TNSP Jurisdictional Planning Bodies (JPBs) costs are included in good faith. 5.6 General Project Data Level of project definition is estimated at 15% Capacity of facility preliminary Plant location approximate Line routes - preliminary Soil & hydrology assumed Project Plan preliminary Project schedule preliminary Preliminary single line diagram and layout used Contracting Strategy - assumed 5.7 General Pricing Assumptions All costs are based on 2018/19 prices for labour, materials and equipment hire The following approvals and/or agreements are envisaged to be in place at project commencement: 1. necessary State and Commonwealth environmental approval for the project 2. necessary land access or easement agreements are in place with landholders or other third parties 3. necessary heritage agreements with traditional owners for access are in place and no Native Title issues Medium footings Reasonable ground conditions exact site locations TBA No access problems exact site locations TBA Page 12 of 13

13 Competitive tender process Reasonable market conditions Reasonably level sites Selected sites are close to roads say not more than 200 m distant 5.8 Cost escalations The Jurisdictional Planning Bodies agreed that requisite cost escalations, shall be based upon the Consumer Price Index (CPI) 5.9 Land & Easement costs ElectraNet engaged a consultant (Public Private Property) to provide indicative costs for land & easement acquisition for each of the proposed route options Exclusions The following are excluded from the cost estimates and could impact on the final project cost outcomes: GST Future cost escalation beyond Q Deep network augmentation Unexpected poor ground conditions (no geotechnical tests/analysis has been conducted) Cost of decommissioning and site rehabilitation at end of life Civil works / trenching through rock Staging costs (assumed each project option carried out in one continuous effort) Control schemes (unless otherwise stated) Generation support (unless otherwise stated) System/critical spares (unless otherwise stated) Risk contingency allowance to cater for design and construction risks Maintenance costs (i.e. costs presented are CAPEX only) Page 13 of 13