The Australian Energy Regulator has signalled its approval for an upgrade which will increase energy flows between South Australia and Victoria.

AER has given the nod to SA company ElectraNet to build a third transformer for the Heywood substation, reconfiguring the south-east network at the same time.

The project aims to increase the capacity of the transmission line from 460 megawatts to 650 megawatts.

The proposition will cost around $47 million, and now having obtained final regulatory approval, ElectraNet says it would like to have the upgrade completed by 2016.

The AER says the project will provide cheaper power via the interconnector on days of peak demand, but the average transmission tariff will go up by about 1 per cent.

The regulator says it’s a good move for either side of the border, increasing the interstate trade of energy.