Prioritisation of the proposed Marinus Link electricity interconnector is a major step towards unlocking Tasmania's renewable energy potential, Hydro Tasmania says.
The project's prioritisation in the Australian Energy Market Operator's 2020 Integrated System Plan (ISP) - released on Thursday - showed national support for projects that could underpin a resilient future electricity market and provide more certainty to the industry as it looked to make investment decisions, Hydro chief executive Steve Davy said.
"Alongside the Tasmanian government and TasNetworks, we've long been advocating for progressing the solutions the electricity market will need to support its transition to a very different future energy mix," Mr Davy said.
"Together, Battery of the Nation and Marinus Link can play a critical role in that transition."
Battery of the Nation involves Tasmania increasing its energy exports to the mainland, including through increased hydro generation and development of pumped hydro generation and storage.
Marinus would allow for extra exports, including from new renewable energy projects such as wind farms.
"The first 750 megawatt cable of Marinus Link will unlock the latent capacity of our hydro power system," Mr Davy said.
"This represents hundreds of megawatts of existing, available capacity that can be delivered as soon as that cable lands, to support the market transition.
"The second 750 megawatt MW cable creates the opportunity for us to develop our first Tasmanian pumped hydro project so we can provide more of the cost competitive deep storage the future market will need.
"Tasmania can offer access to low cost, reliable firming and storage, which will open up more renewable energy development both here and in Victoria, and that's great for jobs and investment.
"Ensuring Tasmanian dispatchable generation capacity is there when the market needs it will also increase competition.
"This puts downward pressure on wholesale prices and that's great news for customers.
"Hydro Tasmania will continue to work with the state and federal governments and TasNetworks to create this exciting and prosperous future, not just for Tasmania, but for our nation,"
Hydro's Battery of the Nation project director, Chris Gwynne, said Marinus and Battery of the Nation were "hooked together" and it was positive to have some firm dates on Marinus.
The two cables are expected to be ready by 2028-29 and 2030-31.
Hydro would aim to have its first pumped hydro project ready for the second cable.
It is assessing Lake Cethana and Lake Rowallan in the North-West and near the Tribute Power Station on the West Coast and is expected to nominate its preferred site by the end of the year.
Mr Gwynne said all three were good sites, and plans for the two which were not chosen could potentially be "dusted off" in the 2030s or 2040s if the market needed further interconnection beyond Marinus Link.
Tasmanian Labor's Shadow Energy Minister, David O'Byrne, said Marinus Link was a unique opportunity for the state to contribute to the nation's future power needs and create much-needed jobs.
"But before it can proceed, the state government needs to answer some significant questions, chief of which is who will pay for the $3.5 billion Bass Strait cable," Mr O'Byrne said.
"It is not enough for the government to say it will only pay its fair share.
"Without understanding who pays what, it's the equivalent of a blank cheque, with Tasmanian taxpayers footing the bill.
"Government needs to get on with the job of working out the details, otherwise the project is at risk.
"If Marinus Link is to be a part of Tasmania's COVID-19 recovery and create jobs for Tasmanians, we need to have a clear timeframe for work to start."
The Tasmanian Chamber of Commerce and Industry said the announcement Marinus Link had been officially confirmed as proceeding to delivery was exceptionally good news in what chief executive Michael Bailey described as "today's COVID-19 world of doom and gloom".
"The Marinus Link will provide Tasmania with a renewable energy jobs bonanza at the time when we need it most, as well as setting Tasmania up to be the renewable energy battery of the nation," Mr Bailey said.
"Of course we still need to finalise the financial arrangements, but I have every confidence the Tasmanian government will ensure that Tasmania and Tasmanians don't pay a cent more than our fair share for this exciting project."
TasNetworks chief executive Lance Balcombe said: "AEMO's report reinforces our analysis that Marinus Link delivers benefits to customers across the NEM (National Electricity Market), supporting the energy market transition by accessing necessary large-scale and deep storage in Tasmania to increase network reliability, allowing more efficient generation sharing between Tasmania and Victoria, unlocking Tasmania's world-class wind resources and reducing overall generation costs."
"The project will also unlock significant jobs and investment opportunity in Tasmania and Victoria, particularly in regional areas.
"In Tasmania, Marinus Link enables the Battery of the Nation initiative, further development of the state's world-class wind resources and the proposed Tasmanian Renewable Energy Target.
"In Victoria, the project supports significant investment and jobs and enables clean, dispatchable on demand energy to support Victoria's renewable energy transition."
He said the ISP showed Marinus Link was a key part of the future grid.
"The ISP indicates that Marinus Link will deliver low cost, reliable and clean energy and help balance the system as new renewable energy and storage projects come online," he said.
Federal Energy Minister Angus Taylor said the government was already working on some of the ISP's recommendations "to address system challenges currently facing the NEM".
"The government has a clear priority to deliver reliable, secure and affordable power and is backing new generation, transmission and storage projects to ensure system strength now and into the future," he said.
He said projects identified in the ISP which the Morrison Government supported included Marinus Link and the HumeLink transmission project in New South Wales.
Mr Taylor said any investment in the grid must make economic sense.
"It is critical to avoid over investment and gold plating of the network, because it is consumers who have to pay for this as part of their electricity bills," he said.
"As we recover from COVID-19 and Australians are already worried about energy consumption while they spend more time at home, the last thing we want to do is burden them with more unnecessary costs.
"The government will continue working with its state colleagues to progress transmission projects that offer value for money."