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Grid Investment Test - archive

This page contains information about the Grid Investment Test (GIT), a key aspect of the Part F process for the Commission's consideration of grid investment proposals by Transpower. The GIT is a net benefits test, which was developed by the Commission in consultation with industry, based on the GIT objectives set out in Rule 6.3 of section XX of Part F. The GIT itself is found in Schedule F4 of Section III, Part F of the rules.

Under Section III of Part F of the Electricity Governance Rules 2003, the Commission is required to consider and determine the grid investment test (GIT). The GIT is to be applied:

• by the Electricity Commission Board when developing the grid reliability standards (GRS), reviewing and approving reliability and economic investments, and reviewing transmission alternatives; and
• by Transpower, during preparation of the Grid Economic Investment Report (GEIR) to determine proposed economic investments for inclusion in a proposed grid upgrade plan.

The GIT was developed by the Commission in consultation with industry, based on the GIT objectives set out in the Rules for this purpose. The objectives include achieving economic efficiency, looking after the interests of end users, balancing cost of various levels of reliability against expected value of unserved energy, and selecting transmission options which maximise net benefits to producers, distributors and customers.

A draft GIT was prepared by the Commission. The Commission also received reports from its Transmission Advisory Group and the Transmission Pricing Advisory Group. The Commission sought stakeholder submissions on the draft before making its recommendation to the Minister on 17 December 2004. This recommendation was agreed on 20 December 2004 and was formally notified in the Gazette on 13 January 2005.

The grid investment test is essentially a net benefits test. The GIT sets out the methodology for the Statement of Opportunities applying the test, including the costs and benefits to be considered and some key assumptions such as the default discount rate and the value of unserved energy. A proposed reliability investment satisfies the GIT if it is determined to maximise net market benefits (or minimise net costs) relative to alternatives. For proposed economic investments the proposal must not only have greater net benefits than alternative investments, but net market benefits must be positive. In each case the assessments are based on the market development scenarios (and associated probabilities of occurrence) set out in the Statement of Opportunities, unless the Commission agrees that other market development scenarios are more appropriate. The Commission, Transpower, or a proponent of a transmission alternative, can suggest a modified set of market development scenarios, for instance, to recognise certain particulars of the proposed project to which the GIT is being applied.

This page is related to: Transmission.

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