Reading the story, it looks like this person is allowed to compete because there's no explicit age restriction to the competition - any 50 year old woman could compete - and so the only contentious point here really is that this person is trans.
Should trans women be allowed to compete as women? This is the big question, and I think it's a fair question to ask. There are studies that show that in some realms of competition, trans women have a lasting, perhaps life long, advantage over non trans women.
I have what I think is a simple low-controversy solution: in whatever realm of competition the question is being asked, "should we allow trans women / trans girls to compete with the other females?", it should be done by anonymous vote, and only the current female competitors should have a vote.
Nobody else should be allowed to vote. Not officials, not parents, not spectators, only competitors.
And the vote should be renewed every 5 years or so, in case they change their minds in the mean time.
The reason only competitors should be allowed to vote it's because it's ostensibly only them who have something to lose. If trans people do have an advantage, it's of course only the female competitors who are losing spots to trans athletes. If they decide, as a group, that they're okay losing spots to trans athletes, then why stop them? And if they come to regret that decision because they find that, WHOOPS, now every event is being won by a trans woman, they can reverse that choice in 5 years.
This is, I think, the fairest option for all female competitions to take. Let the people who are going to be affected most by it choose.