VNI West and the Challenges of Transitioning Australia’s Grid

AKA another budget and timeline blowout…….

The Victoria to New South Wales Interconnector West (VNI West) is one of Australia’s most significant energy infrastructure projects. Designed to connect renewable energy zones across Victoria and southern NSW, the project is a critical component of the Australian Energy Market Operator’s (AEMO) Integrated System Plan (ISP). It aimed to support the decarbonisation of the National Electricity Market (NEM) and provide reliable, low-emissions energy to homes and businesses.

Project Scope and Origins

The project:

• VNI West is a proposed 500 kV double-circuit transmission line, approximately 240 km long.
• It will connect the Western Renewables Link in Victoria to Transgrid’s Dinawan substation in southern NSW.
• The initial proposal appeared in AEMO’s ISP in 2018, with formal cost-benefit analysis undertaken via the Regulatory Investment Test for Transmission (RIT-T) process.
• AEMO and Transgrid completed the Project Assessment Conclusions Report (PACR) in May 2023.
• Transmission Company Victoria (TCV), established by AEMO, is the project proponent in Victoria.

Governance, Financing, and Ownership

To understand how VNI West is progressing, it is important to examine how the project is being managed and financed.

• The project is overseen by AEMO and the Australian Energy Regulator (AER).
• Transgrid leads the NSW portion; TCV leads the Victorian portion.
• The project will ultimately be owned by the successful bidder for TCV, likely to be one of the consortia shortlisted by AEMO.
• Financing includes:
  • Estimated project cost: AUD $3.96 billion (2022–23 dollars).
  • Federal government concessional finance via Rewiring the Nation: AUD $750 million.
  • CEFC concessional loan: AUD $140 million.
  • Private equity: nearly AUD $700 million committed by Transgrid security holders.

Budget Overruns and Delays

Despite its promise, VNI West has encountered several challenges, particularly around cost and timing.

• VNI West was initially planned to be operational by 2028.
• Delays have pushed the delivery timeline to late 2030.
• Cost inflation across transmission components (lines, substations, materials) has increased the project’s cost base by up to 55%.
• Regulatory and landholder engagement processes have further delayed the project.

Broader Cost Blowouts

VNI West is not alone in facing overruns. A comparison with other major infrastructure projects reveals a common trend.

Project	Owner/Developer	Original Budget & Timeline	Revised Budget & Timeline
VNI West	TCV / Transgrid	$3.96 bn, due 2028	+55% cost, delivery now 2030
Snowy 2.0	Snowy Hydro	$2 bn (2017), due 2021	$12 bn; full delivery by 2028
HumeLink	Transgrid	$1.35 bn, due ~2028	~$5 bn, timeline under review
EnergyConnect (NSW-SA)	Transgrid / ElectraNet	~$2.3 bn, due 2024-25	Delays ongoing, cost increases noted

Reasons for Overruns

These cost and timeline blowouts are driven by a complex interplay of factors.

• Cost escalation in raw materials, skilled labour shortages.
• Complex geotechnical conditions (e.g., Snowy 2.0 tunnel delays).
• Environmental and cultural heritage assessments extending planning timelines.
• Strong community resistance to transmission lines and land access issues.

Coal Generator Closure Schedule

The timing of new infrastructure like VNI West was meant to be closely tied to the scheduled closure of existing coal-fired generators. These closure dates are approaching, and not surprisingly, governments are looking to do deals to keep them open a bit longer.

Station	State	Capacity (MW)	Owner	Commissioned	Planned Closure
Yallourn	VIC	1,480	EnergyAustralia	1973	2028
Loy Yang A	VIC	2,210	AGL	1985-1994	Mid-2030s
Eraring	NSW	2,640	Origin Energy	1982-1984	2027*
Liddell	NSW	2,000	AGL	1971	2023 (closed)
Hazelwood	VIC	1,600	Engie (formerly)	1971	2017 (closed)

*Note: The NSW government is exploring an extension of Eraring’s operation beyond 2027 due to market supply concerns.

Debate For and Against VNI West

The VNI West project has sparked a significant public and policy debate. Supporters argue the project is essential for integrating renewables and replacing coal. Critics point to high costs, environmental concerns, and community opposition.

In Support:

• Unlocks over 3 GW of renewable generation capacity.
• Reduces electricity prices by lowering congestion and allowing excess renewables to be exported.
• Supports system reliability and coal retirements.

Against:

• High cost and long delivery timeline may not match urgent coal closure dates.
• Strong community opposition from landholders and regional communities.
• Environmental impact and landscape fragmentation.
• Suggestions for alternative routes or underground cabling not adopted.

Conclusion

The VNI West project exemplifies the multifaceted challenges of Australia’s energy transition. While the need for expanded transmission is undeniable in the face of imminent coal closures, the social, engineering, geotechnical, and financial barriers are substantial.

A key issue highlighted by VNI West and other large energy infrastructure projects, is the inadequacy of initial costing and scheduling processes. Project proponents often release cost estimates early in the planning phase. These early-stage costings are showing to be optimistic and do not account for the long lead times and inevitable delays caused by regulatory approvals, stakeholder negotiations, and construction challenges.

By the time projects reach the construction phase—sometimes several years after initial estimates—the cost environment has changed substantially. Materials, labour, land access, and financing costs can escalate well beyond original assumptions, rendering initial budgets obsolete. There is now ample evidence, particularly from projects like Snowy 2.0, HumeLink, and VNI West, that initial estimates are regularly exceeded by billions of dollars.

Planners and regulators need to build greater contingency—or “fat”—into early cost projections. Future-proofing cost estimates with higher allowances for inflation, uncertainty, and delay risk would provide a more honest representation of total project cost. This approach would not only enhance financial transparency but also improve public confidence in the delivery of critical infrastructure.