South Australia's wind farms should be able to export more electricity to Victoria after the Australian Energy Regulator approved a $108 million transmission upgrade between the two states.
The existing Heywood Interconnector had mostly been used to export power to SA until the rapid expansion of wind farms in the state led to an increase in electricity flowing the other way.
The installation of a third transformer at Heywood, in western Victoria, and other upgrades would generate $190 million in net market benefits, the AER said.
"A key market benefit of the proposed interconnector upgrade is higher use of lower-cost generators, such as wind in South Australia and base-load capacity in Victoria," the regulator said. "Increases in these sources of generation displace higher fuel-cost generation from new and existing generators in South Australia and NSW."
The upgrade will increase capacity by 40 per cent to 650 megawatts, and avert a potential constraint on future wind farms in SA, said Rainer Korte, an executive manager at SA's ElectraNet, which will build the South Australian portion of the upgrade.
The AER's approval came despite opposition from some generators, such as NSW's Macquarie Generation, which argued wholesale prices would be lower after the upgrade.
The transmission upgrade would be completed by the second half of 2016, Mr Korte said.