Basslink is now regulated but it is puzzling why is it so, and why are Victorians paying 75% of the costs when Tasmania is the main beneficiary. If Basslink benefits are questionable, what does this mean for MarinusLink.
As of 1 July, Basslink is now a regulated interconnector. Before asking whether that is good news, it is worth asking a more fundamental question: what does regulating Basslink actually solve, and what does it leave completely untouched?
The AER's reversal from rejection in December 2024 to approval in June 2025 is the starting point, but the endpoint matters more. If Basslink's regulation is the first step in a longer sequence of MarinusLink, Battery of the Nation, a competitive Tasmanian energy market, then the performance of this first step is a leading indicator as to whether the rest of the sequence makes sense. The data so far is not especially encouraging.
Here's a summary of where we land:
- The AER rejected regulation in December 2024 then reversed in June 2025, after APA's commercial bidding collapsed Basslink flows almost overnight. Monthly exports to VIC fell from 100–245 GWh to 2–22 GWh. That single data point made the case for regulation more convincingly than any modelling.
- The market power concern runs both ways, but asymmetrically. For VIC, a 500 MW flow into VIC is roughly one large gas or coal unit, whereas 500 MW flow into TAS is around 20% of the island grid. The more exposed party was Tasmania, not Victoria, yet Victorian consumers pick up 75% of the regulated cost.
- Regulation fixes the commercial constraint on the cable, but it does not fix the physical one. Maximum northward capacity has dropped from around 590 MW to less than 400 MW since July 2025 except for the last 2-weeks of June 2026, when the north flow reached it's previous flow levels of above 500 MW. With the closure of Liberty Bell Bay it appears the below 400 MW maximum flow was the limit without the extra Frequency Control Special Protection Scheme (FCSPS) provided by the smelter.
- The deeper structural problem is generation concentration in Tasmania, not cable ownership. Hydro Tasmania is the dominant generator on the island, and regulating the cable is a symptom fix whereas attracting competing generation into Tasmania is the cure.
- If Basslink at 500 MW (or 400 MW) struggles to deliver visible consumer benefits in current conditions, the burden of proof on MarinusLink at 1,500 MW is significant.
- For those trading Victorian and South Australia especially, it would be worth having your radar on Tasmanian energy water storages, the BOM ENSO outlooks, and Hydro Tasmania's offer stack from 1 July.
Our thanks to Marc White from Goanna Energy for providing a peer review of this article.
1.0 What AER decided
APA Group applied for Basslink to be converted to a regulated TNSP in May 2023. The AER's draft decision, released December 2024, was a rejection. The reasoning provided was the benefits of regulation were uncertain and scenario dependent, while the costs (and the transfer of risk to consumers) were immediate and certain.
What changed things was not new modelling, but rather events. The commercial agreement between APA and Hydro Tasmania under which APA bid Basslink at $0/MWh and Hydro Tasmania received the inter-regional settlement residues, or IRSRs, expired on 30 June 2025. APA moved to commercial operation. The AER simultaneously issued compulsory information notices to both APA and Hydro Tasmania, compelling disclosure of the commercial arrangements that had previously been opaque to the market.
Monthly exports to VIC fell to a quarter of previous levels of the zero-bid era. Average VIC exports fell from 205 GWh in FY-24/25 to 47 GWh in FY-25/26, and if it wasn't for July 2025, the annual average would have been 42 GWh. Over the same two financial years, total utilisation has fallen from about 97% to 55%. An unregulated Basslink without any obvious contractual arrangement looks very different and puzzling.
The AER approved regulation in June 2025. AER Chair Clare Savage described it as: "The change between draft and final decisions reflects the finely balanced nature of the decision and further analysis of the benefits of conversion against different scenarios."
The final revenue determination of $459.5M nominal smoothed over 2026–30, equivalent to $114.9M per year on average, followed in March 2026.
2.0 Market Outcomes
The spot market outcomes an Basslink flows show a puzzling outcome. Energy arbitrage have remained reasonably consistent over the last two years, yet energy flows across the two years, are diametrically opposed.
2.1 Spot Price Outcomes
The monthly spot price history over the last 2 financial years shows that the Tasmanian premium has been remarkably consistent. In FY-24/25 the differential was $22.42/MWh, and in the year just concluded was $24.96/MWh.
Two different regimes applied over the two years, yet the differential result was almost the same. FY-24/25 was impacted by the potential Tasmanian drought in July and August 2024 when Tamar Valley gas turbine began operations for the first time in 5 years.
| Fin Year | TAS ($/MWh) | VIC ($/MWh) | TAS–VIC ($/MWh) |
|---|---|---|---|
| FY-20/21 | $43.69 | $45.93 | -$2.24 |
| FY-21/22 | $84.89 | $91.06 | -$6.16 |
| FY-22/23 | $111.98 | $100.20 | $11.78 |
| FY-23/24 | $69.07 | $63.29 | $5.78 |
| FY-24/25 | $109.26 | $86.84 | $22.42 |
| FY-25/26 | $78.17 | $53.21 | $24.96 |
Looking at the monthly spot price averages over the last financial year, all but two months (Sep-25 and Oct-25), Tasmania was at a premium to Victoria. The median differential was almost $32/MWh.
| Month | TAS ($/MWh) | VIC ($/MWh) | TAS–VIC ($/MWh) |
|---|---|---|---|
| Jul-25 | $117.85 | $82.13 | $35.72 |
| Aug-25 | $125.23 | $93.19 | $32.04 |
| Sep-25 | $28.64 | $55.28 | -$26.65 |
| Oct-25 | $24.54 | $51.36 | -$26.82 |
| Nov-25 | $40.51 | $31.93 | $8.58 |
| Dec-25 | $59.34 | $27.50 | $31.84 |
| Jan-26 | $100.92 | $38.55 | $62.37 |
| Feb-26 | $90.28 | $45.06 | $45.22 |
| Mar-26 | $91.04 | $44.74 | $46.30 |
| Apr-26 | $85.24 | $35.68 | $49.56 |
| May-26 | $96.14 | $64.76 | $31.38 |
| Jun-26 | $76.84 | $66.82 | $10.03 |
Looking at Hydro Tasmania's offer stack, as Basslink northward flows collapsed, HydroTas re-positioned more generation into higher price bands, thereby anchoring the island floor this calendar year at $75 to $100/MWh. The practical effect is that HydroTas earns stronger spot revenue from the same water and eventually TAS consumers will pay more; and will hope that revenue uplift will be returned to consumers through a higher dividend and distributed back by the Tasmanian Government to customers. Wishful thinking?
2.2 Basslink Flows
Basslink utilisation for the last financial year has fallen from 97% in FY-24/25 to 55% in FY-25/26, yet the spot price differential was similar (circa $23/MWh). A link once actively participating is now left idle for almost half the time.
The energy flows into Tasmania have fallen to a shadow of its former selves, falling from 2,458 GWh in FY-24/25, to 565 GWh in FY-25/26. Northbound flows to Victoria have dropped 77% falling from 548 GWh to 215 GWh over the last two financial years.
| Fin Year | TAS→VIC (GWh) | VIC→TAS (GWh) | TAS→VIC Time % | VIC→TAS Time % |
|---|---|---|---|---|
| FY-21/22 | 1,401 | 1,146 | 50% | 44% |
| FY-22/23 | 732 | 1,634 | 32% | 62% |
| FY-23/24 | 866 | 2,067 | 31% | 66% |
| FY-24/25 | 548 | 2,458 | 22% | 76% |
| FY-25/26 | 215 | 565 | 16% | 39% |
Over the months Dec-25 to Apr-26, Tasmania to Victoria flows were less than 7.2 GWh, quite a remarkable and puzzling change. In the opposite direction, over the Jan-25 to May-25 period, southbound flows averaged 233 GWh, whereas 12-months later over the same period, averaged only 51 GWh yet the average price differential between the two States was $47/MWh. Puzzling.
| Month | TAS→VIC (GWh) | VIC→TAS (GWh) |
|---|---|---|
| Jan-25 | 20.0 | 255.9 |
| Feb-25 | 18.5 | 221.2 |
| Mar-25 | 25.0 | 253.6 |
| Apr-25 | 33.9 | 227.6 |
| May-25 | 31.9 | 243.2 |
| Jun-25 | 72.2 | 195.1 |
| Jul-25 | 18.0 | 101.1 |
| Aug-25 | 21.7 | 68.8 |
| Sep-25 | 52.8 | 2.9 |
| Oct-25 | 39.1 | 11.3 |
| Nov-25 | 25.6 | 21.9 |
| Dec-25 | 7.2 | 70.5 |
| Jan-26 | 4.1 | 90.5 |
| Feb-26 | 3.7 | 39.8 |
| Mar-26 | 3.9 | 38.9 |
| Apr-26 | 6.4 | 42.4 |
| May-26 | 13.4 | 44.8 |
| Jun-26 | 19.5 | 31.6 |
3.0 The Market Power problem
The AER's stated concern was market power: a commercially motivated MNSP operator could manipulate Basslink's dispatch to move prices in adjacent regions. That is a real risk, but the framing deserves scrutiny.
Here's a useful sense check. Basslink's northward capacity into Victoria is around 590 MW, however, for most of the last 12 months was constrained to around 400 MW, except during the last two weeks of June when 516 MW was reached. In the Victorian market there are seven individual generating units above 500 MW: four Loy Yang A coal units, two Loy Yang B units and Newport Power Station gas unit; and there are the four Yallourn units which are similar to the common 400 MW limit. And that's before counting Victoria's interconnectors to New South Wales and South Australia via Heywood, which provide further supply alternatives.
Regulating Basslink on market power grounds for Victoria's benefit is questionable and puzzling.
Looking at the other direction, Basslink's 500 MW flowing into Tasmania represents around 20% of the island's total installed generation capacity. Tasmania's grid is dominated by Hydro Tasmania's fleet of around 2,500 MW.
Before APA acquired Basslink, Hydro Tasmania paid Keppel Infrastructure Trust $70–125 million per year for the contractual right to control how the cable was dispatched. The motivation for HydroTas was two fold: supply security and trading value.
Thinking about the trading value, a simple illustration is from Q1 2025 cap prices. The $300/MWh cap premium sold in the TAS market was priced around $4.50/MWh. The same cap sold in the VIC market at around $28.50/MWh, creating a differential of $24/MWh.
Selling 500 MW of VIC caps backed by Basslink flowing northward makes the premium gap worth approximately $26 million over the quarter. However, to capture the value, Hydro Tasmania would need to defend the cap if Victorian spot exceeded $300/MWh. Such a trade would assume the full availability of Basslink which is risky and therefore may not be acceptable. However, the numbers illustrate that controlling the cable carried value on two distinct fronts:
- direct energy arbitrage available through inter-regional flows
- financial trading benefit of writing derivatives against the more liquid and during summers, a higher-priced VIC market
Neither of these value streams show up fully in a facility fee, but together help explain why Hydro Tasmania paid as much as it did for something that looked, on paper, like a simple infrastructure contract.
The AER regulated Basslink to prevent market manipulation. But as shown earlier, this risk pertains more to Tasmania than it does Victoria. Furthermore, Tasmania already has concentrated market power as Tasmania has one dominant generator, one cable, and one island.
A competition framework built around creating more generation competition would make the Tasmanian market more attractive to new entrants: large-scale batteries, wind, pumped hydro. Having more competition against HydroTas is surely a better outcome, as it addresses the root cause. Regulating a potential competitor does not address the fundamentals.
4.0 What VIC consumers get for their money
Under the AER's determination, Victoria carries 75% of the regulated cost, around $86M per year on average. The AER's reasoning is that regulated Basslink flowing freely provides Victorian consumers with access to HydroTas as a reliable supply source, reducing spot prices and hedging against extreme price events. That logic is sound in the right conditions.
The question is whether those conditions exist today, or in the future?
Maximum northward capacity has fallen from around 590 MW in mid-2024 to around 400 MW today. It is unclear whether the 400 MW limit operable for most of the last financial year is a sign of the future, or whether the 516 MW struck in late June was an outlier, or the new norm? Liberty Bell Bay's exit from the Frequency Control Special Protection Scheme would be a concern, but perhaps other alternatives have been found. Currently, Liberty Bell Bay is in administration with a sale process ongoing.
A regulated Basslink operating at full capacity into a market where TAS is cheaper than VIC is a genuine hedge for Victorian consumers. Regulated Basslink constrained to 400 MW, flowing minimally into a market where TAS is more expensive than VIC on the price differential alone, before accounting for the physical capacity constraint and the cable's own transmission losses, is an $86M per year insurance policy that is unlikely to pay out.
Which brings us to the question regarding MarinusLink. If Basslink at 500 MW cannot deliver visible consumer benefits when constrained and facing an adverse spread, what is the investment case for MarinusLink at 1,500 MW? The proponents will no doubt argue that MarinusLink is designed for a different future, one where Tasmania has significantly more generation capacity under the Battery of the Nation program, Basslink's physical constraints are resolved, and Victoria needs reliable renewable firming at scale. That future may arrive, but the gap between the MarinusLink vision and the current Basslink reality is wide enough to demand rigorous scrutiny. Consumers paying for a second regulated cable on top of the first deserve a clearer line between the evidence and the promise.
5.0 Worth Watching
For anyone with a VIC or SA derivatives book, the three items below are not just operational indicators, but belong on the trading radar.
5.1 El Niño and TAS hydro storage
BOM's latest monitoring (week ending 28 June 2026) has the Relative Niño3.4 index at +1.24°C, well above the El Niño threshold of +0.80°C and rising. Atmospheric indicators — trade winds, the Southern Oscillation Index (SOI at -25.2) and cloud patterns — are all consistent with an established El Niño event. Forecasts point to a strong to very strong event through the second half of 2026. Despite the current heavy rains, below-average rainfall is forecast across much of southern and eastern Australia for July to September.
HydroTas storages are not in crisis territory today (currently 42% full), but the 2024 drought risk showed what it means for VIC and SA prices.
5.2 Hydro Tasmania's offer stack
As noted above, HydroTas has re-positioned generation into higher price bands this calendar year, anchoring TAS spot at $75–$100/MWh while VIC sits at $35–$70/MWh. Under the regulated open link structure from 1 July, flows are determined by price differentials rather than the cable operator's bidding strategy. If that spread narrows — as it should if regulation works as intended — it is worth being clear about who benefits. A narrowing spread means TAS spot prices falling toward VIC levels. That is a direct gain for Tasmanian consumers, not Victorian ones. VIC consumers benefit indirectly, and only when conditions are right for northward flow. That is the mirror image of the cost allocation: Victoria funds 75% of the regulated cost; Tasmania captures the more immediate price benefit if the spread closes.
Watch whether HydroTas repositions its offer stack back toward lower bands from 1 July — that is the first observable signal that the open link dynamic is taking hold.
5.3 SPS Providers
As of June 2026 the Liberty Bell Bay administrator is continuing talks with a preferred buyer consortium, though one member recently withdrew. The Australian Workers Union describes the continuing talks as a welcome reprieve and remains hopeful a sale can be struck, but the outcome is uncertain. Until Liberty Bell Bay restarts under new ownership, or until an equivalent block of load is contracted into the FCSPS, 400 MW might stay as the northward ceiling.
6.0 The bottom line
The arguments for regulation of Basslink are puzzling, and the cost sharing between VIC and TAS is equally puzzling.
The more interesting question for the medium term is whether a regulated Basslink, combined with the right policy settings, can actually attract competing generation into Tasmania. That is the scenario where Basslink regulation and MarinusLink both make clear economic sense: more generation capacity on the island, a competitive market rather than a regulated monopoly, and two cables that can actually flow freely in both directions. Without new generation entering Tasmania, the risk is that we end up regulating the cable, building a second one, and still having the same structural problem of one dominant generator, one island, and consumers in Victoria and Tasmania both paying for a system that was designed for a future that has not yet arrived.
If an owner of an interconnector chooses to not utilise the asset to capture the energy arbitrage value, or financial derivative trading value; then that is a strategic decision for the owner. It is not a problem that consumers need (or have the right), to solve. Regulating an asset to protect another party's investment decision, does not appear good policy.
There is also a question the AER's process never fully answered: whether full regulation was the only instrument available? Good faith bidding rules govern generators, and they do not directly reach an MNSP choosing when and which direction to flow. However, analogous conduct obligations, enforceable flow requirements during high-price events, or a must-offer obligation when inter-regional spread exceeds a threshold could, in theory, have addressed the manipulation risk without converting Basslink into a regulated asset.
Whether that lighter-touch path was viable is unclear and whether the AER had the legislative power to impose such obligations on an MNSP without a full regulatory conversion is a separate question entirely.
If the original case for regulating Basslink was market power, and MarinusLink enters as a regulated TNSP from day one, adding two lots of 750 MW summing to 1,500 MW of competing capacity into the same corridor, does the market power justification for Basslink's regulation still hold? Should Basslink revert to deregulated status, competing on commercial terms? No one is asking that question yet. They probably should be.
Watch the flows, watch the storages, watch the BOM ENSO outlooks, and watch what Hydro Tasmania does with its offer stack from 1 July. Those four data points will tell you more about whether this regulation is working.
References
- AER — Final Revenue Decision for Regulated Basslink (March 2026)
- AER — Final Decision: Basslink Conversion Application (June 2025)
- AER — Draft Decision: Basslink Conversion Application (December 2024)
- WattClarity — AER Approves Basslink Conversion (June 2025)
- WattClarity — Basslink Final Revenue Determination (March 2026)
- WattClarity — Basslink Flows Shift Since End of Agreement (July 2025)
- APA Group — Basslink Interconnector Overview
- APA Group — ASX Release: AER Final Decision on Basslink Conversion
- Clayton Utz — Basslink Remains Unregulated: What Does the Draft Decision Mean? (January 2025)
- RenewEconomy — Regulator Rejects Basslink Bid in Draft Decision
- Utility Magazine — $460M Basslink Decision to Lift Power Bills
- Liberty Bell Bay — Company Background
- BOM — ENSO Outlook June 2026 (Niño3.4 +0.81°C)
- AEMO — NEM Data Dashboard
- Hydro Tasmania — Annual Report 2024
- AEMC — Directlink Conversion to Regulated Status (July 2005)
- AEMC — MurrayLink Conversion to Regulated Status (October 2003)
- AEMO — MarinusLink Project Overview
- ABC News — Liberty Bell Bay administrator continues sale talks (June 2026)
