AEMO Energy Update December 2015

DECEMBER 2015

AEMO EXTENDS ROLE TO WESTERN AUSTRALIA P3 EXPORT LNG – AGENT OF CHANGE IN AUSTRALIA’S DOMESTIC GAS MARKETS P5

Energy Update December 2015

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UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA It has been a busy and productive end to the year for AEMO, with a number of major reports being released to the industry, together with the exciting news that on 30 November, AEMO officially took responsibility as the wholesale and retail market operator in Western Australia (WA).

AEMO has also now taken responsibility for the WA Gas Bulletin Board and Gas Statement of Opportunities, and during 2016 will take responsibility for power system operations from Western Power, establishing AEMO as the independent system operator for WA.

thank Tom for his contribution to AEMO and his ongoing support, both personally and in his capacity as Chairman. I would also like to congratulate Dr Anthony Marxsen, who has been appointed AEMO Chairman for the next nine months, and welcome Mr John Pittard to the Board.

Following a short, yet highly intensive transition period, our focus now turns to integrating the Perth office into AEMO, and we look forward to sharing WA related news in future editions of Energy Update.

I would also like to share that I feel privileged to be elected as Vice President of the GO15, a voluntary initiative of 18 of the world’s largest power grid operators, representing 75 per cent of the world’s electricity demand. In this position, I look forward to working with grid operators from around the globe to work through opportunities and challenges that are transforming networks worldwide, such as the integration of new technologies and working through how power grids can become more flexible to meet future requirements.

On Thursday 10 December, AEMO released its second annual National Gas Forecasting Report (NGFR), which showed that liquefied natural gas (LNG) export facilities in Queensland are expected to more than double gas consumption in eastern and south-eastern Australia over the next five years. As a result, we also expect to see a short term decline in gas-powered generation. You can read more about this on page five.

On the electricity side, AEMO released its National Transmission Network Development Plan (NTNDP) in midNovember, providing an independent, strategic view of the efficient development of the National Electricity Market (NEM) transmission network over a 20-year planning horizon. It showed that our national transmission network has the capacity to incorporate increasing renewable generation in most areas, however infrastructure is ageing, and investment in asset replacement will be required. Read more about the NTNDP on page 11.

After seven years at the helm, AEMO farewelled Dr Tom Parry, who retired from the AEMO Board in November following the conclusion of his second term as AEMO’s Foundation Chair. I would like to

As we conclude 2015 and look to an exciting year ahead, on behalf of the Board, our Executive Leadership Team, and all AEMO employees, thank you for your ongoing support and I wish you a safe and enjoyable festive season.

I look forward to working with grid operators from around the globe to work through opportunities and challenges that are transforming networks worldwide,” Mr Matt Zema, AEMO Managing Director and CEO.

CONTENTS P2

Update from Managing Director and CEO Matt Zema

P10 December update: 2015 National Electricity

Forecasting Report

P3

AEMO extends role to Western Australia

P4

Changes to AEMO’S Board

P11 Transmission network to play vital role in

Australia’s changing energy future

P5

Export LNG – agent of change in Australia’s domestic gas markets

P12 Update from November’s GO15 Annual Meeting

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Energy Update December 2015

P13 In brief

AEMO EXTENDS ROLE TO WESTERN AUSTRALIA

On 30 November 2015, AEMO officially took over responsibility as the wholesale and retail market operator in Western Australia.

As announced by WA Treasurer and Energy Minister Dr Mike Nahan in September, and included in our October edition of Energy Update, AEMO also takes responsibility for the WA Gas Bulletin Board and Gas Statement of Opportunities, and during 2016 will take responsibility for power system operations from Western Power, establishing AEMO as the independent system operator for WA. While the Wholesale Electricity Market (WEM) and the National Electricity Market (NEM) differ in their market design, they do share some common familiarities and challenges, and ultimately, they share the same objectives.

“This represents a significant step forward to creating a national energy market and to establish the right model that achieves the market objectives of reliability and efficiency in investment and operation,” AEMO Managing Director and CEO, Matt Zema said.

“We believe there are a number of benefits to be realised by energy market consumers and participants with the potential for common interfaces to be available to participants and investors in the Wholesale WEM and the NEM.

“Equally, we recognise there are unique features of the WA market and we will continue to operate market arrangements and systems tailored to WA needs for the foreseeable future,” Mr Zema said.

AEMO envisages synergies to emerge from leveraging across the energy markets, such as: • Productivity gains from combining best practices, knowledge and experience, planning methodologies, systems for implementation and monitoring.

• Providing a holistic, system-wide, integrated approach, considering implications of national policies. A transparent, and total lower cost approach to IT systems.

• Providing a central point of information for investors and market participants.

• Facilitating investment by providing confidence in the design and operation of the market for investors and consumers.

AEMO will continue to work with the WA energy market reform process for an improved energy market that maintains reliability and security while driving efficiency in investment and operation.

“AEMO looks forward to playing a role in the retail market services, and system and market operation arrangements, supporting the activities of the government’s reform process for the benefit of all stakeholders,” Mr Zema said.

Energy Update December 2015

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CHANGES TO AEMO’S BOARD AEMO has farewelled Dr Tom Parry AM who retired from the AEMO Board in November following the conclusion of his second term as AEMO’s Foundation Chair.

Dr Anthony (Tony) Marxsen

Mr John Pittard

Mr Stephen Orr

AEMO welcomes long standing existing Board member Dr Anthony (Tony) Marxsen as Chairman for the next nine months, effective from the 2015 Annual General Meeting held on Thursday, 5 November 2015.

AEMO is pleased to announce the appointment of Mr John Pittard to the AEMO Board as a non-executive director, from 5 November 2015.

AEMO is also pleased to announce that Mr Stephen Orr has been reappointed as a non-executive director for a further three years.

Mr Pittard is Chairman of RXP Services Limited and non-executive director of Barnardos Australia. He has previously held senior executive roles with some of Australia’s largest corporations, including NewsCorp Australia, Telstra, Pioneer International and Shell Australia, and has been a Director of REA Group and CareerOne Limited.

Dr Marxsen, Mr Pittard and Mr Orr bring vast energy sector experience and business acumen to the Board.

Dr Marxsen has served as a non-executive director on the AEMO Board for the past four years. Dr Marxsen is also director of Marxsen Consulting Pty Ltd and Jancomax Pty Ltd, and a former director of VENCorp and Sustainability Victoria. He has extensive strategic and operational expertise in electricity grids and information technology and senior experience in a range of industries and particularly in strategic, transformational and operational roles in the energy sector including the National Electricity Market and gas markets. Dr Marxsen was made a Computerworld Fellow in 2001.

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Energy Update December 2015

An overview of the appointment process can be viewed here. AEMO followed a rigorous selection process, with candidates interviewed and shortlisted by an independent review body, and then reviewed by the Board, the AEMO Members and the COAG Energy Council.

For further information, please contact AEMO Company Secretary and General Counsel, Brett Hausler.​

EXPORT LNG – AGENT OF CHANGE

I N A U S T R A L I A’ S DOMESTIC GAS MARKETS AEMO’s second annual National Gas Forecasting Report (NGFR), released 10 December, highlights a transformation of eastern and south-eastern Australia’s interconnected gas markets over the next five years to 2020, following the rampup of gas consumption to supply liquefied natural gas (LNG) exports. Annual gas consumption is then projected to remain relatively flat for all sectors over the rest of the outlook period to 2035.

At the forefront is LNG consumption, which is forecast to grow at an average annual rate of 32.5 per cent in the short term (to 2020) to supply LNG exports.

Total annual LNG consumption is forecast to increase from approximately 354 petajoules (PJ) in 2015 to 1,444 PJ by 2020.

“LNG export facilities in Queensland have brought international demand and international pricing to Australian gas markets,” said AEMO Managing Director and CEO, Matt Zema. “This is expected to more than double total gas consumption in eastern and southeastern Australia over the next five years, compared to aggregated consumption in 2014 before the Queensland LNG projects began.”

Mr Zema said that other than LNG, the most significant change in gas consumption forecasts across the 20-year outlook period was in the gas-powered generation (GPG) sector.

Mr Zema said new technologies and changing consumer behaviour were behind the flat forecasts for residential and commercial gas consumption over the next five years.

“A short term decline is forecast in GPG consumption over the next five years, attributed to several factors – a response to an anticipated rise in wholesale gas prices; coupled with the pending expiration of existing gas supply contracts; the retirement of GPG plant Smithfield Energy Facility in New South Wales in 2018; and, a projected increase in renewable generation incentivised through the current renewable energy target,” said Mr Zema.

“Due to forecast improved energy efficiency of buildings and appliances, and switching from gas to electric appliances, we don’t anticipate much change in this sector in the short term, despite a forecast population growth of approximately 8 per cent,” said Mr Zema.

“Assuming today’s market conditions and policy settings continue, we expect total annual GPG consumption to increase to around 184 PJ by 2035, as industry invests in a range of generation sources to meet forecast electricity demand and replace over 2,000 megawatts of announced coal-fired generation withdrawals from the National Electricity Market,” said Mr Zema.

Mr Zema said the continued restructuring of Australian industry is likely to contribute to roughly a 30 PJ decline in industrial gas consumption over the short term. “The 2015 NGFR identifies pockets of forecast growth in the food and services industries in particular. However this is offset by the forecast decline in total annual industrial gas consumption over the next five years, as industry restructures away from gas-intensive manufacturing,” said Mr Zema. “Total annual consumption for the industrial sector is then forecast to flatten to around 267 PJ by 2035.”

For further information, please contact AEMO Group Manager – Forecasting, Craig Price.

You can find infographics on the following pages which provide an overview of the NGFR’s key findings.

LNG export facilities in Queensland have brought international demand and international pricing to Australian gas markets,” Mr Matt Zema, AEMO Managing Director and CEO.

Energy Update December 2015

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2015 NATIONAL GAS FORECASTING RE

The 2015 National Gas Forecasting Report (NGFR) provides independent forecasts of annual gas maximum gas demand across eastern and south-eastern Australia’s interconnected gas markets o period (to 2034–35). Although the report includes forecasts for low, medium and high gas deman infographic depicts only the short-term outlook (2015–20) and medium gas demand scenario.

THE BIG PICTURE

Total annual gas consumption by sector for 2100PJ

ANNUAL CONSUMPTION The 2015 report highlights a transformation of eastern and south-eastern Australian interconnected gas markets over the next five years to 2020, following the ramp-up of gas consumption to supply liquefied natural gas (LNG) exports.

1960.7PJ

1500PJ

1444.3PJ

1200PJ

PJ

8.6

0 10 900PJ

Annual gas consumption is then forecast to remain relatively flat for all sectors over the rest of the outlook period to 2035.

600PJ

300PJ 1

For 2015 data: residential, commercial and industrial consumption data is estimated on a weather-normalised basis, assuming long-run median weather outcomes; GPG data is calculated using actual meter data until October 2015, estimated thereafter; LNG data is estimated.

0

353.8PJ 294.3PJ 185.5PJ 175PJ

20151

261.9 PJ 185.1PJ 69.3PJ

2020

GAS CONSUMPTION TRENDS IN THE SHORT TERM TO 202 353

.8 PJ

32.5

%

AVERAGE ANNUAL GROWTH

294.3 PJ

PJ

261.9

P6

Energy Update December 2015

2.3%

AVERAGE ANNUAL GROWTH

LNG GAS CONSUMPTION The start-up of Queensland’s export LNG facilities is expected to more than double total gas consumption in eastern and south-eastern Australia, linking domestic wholesale gas prices to international markets and resulting in increased gas prices for domestic gas supplies.

INDUSTRIAL GAS CONSUMPTION In the short term, growth in gas consumption from food, dairy and services, and generally improved business conditions for manufacturing, is likely to be offset by continued restructuring of industry away from gas-intensive manufacturing such as the automotive industry, ahead of an improved outlook over the longer term.

EPORT

ABOUT AEMO This infographic has been developed by the independent Australian Energy Market Operator (AEMO), using information (as at 31 October 2015) from the 2015 National Gas Forecasting Report.

s consumption and over a 20-year outlook nd scenarios, this

AEMO plans, develops, and operates markets that are responsive to energy sector needs and support investment for the long-term benefit of Australian consumers. © 2015. The material in this publication may be used in accordance with the copyright permissions on AEMO’s website.

recast to 2035 Petajoule (PJ) 2084.1PJ 1431.3PJ

267.4PJ

200.9PJ

184.5PJ

MAXIMUM DEMAND

TOTAL LNG

Industrial

Residential and commercial

Gas-power generation

Total maximum daily demand is forecast to rise rapidly over the next five years, as Queensland’s LNG facilities ramp up production.

Seasonality in LNG liquefaction efficiency is expected to move Queensland to a winter peak for the first time. As a result, all eastern and south-eastern states are forecast to experience annual maximum daily demand in winter.

After 2020, maximum demand from the LNG, residential, commercial and industrial sectors is forecast to remain flat, but gaspowered generation (GPG) is forecast to increase as coal-fired generation availability reduces over time.

2035

20

Forecast of gas consumption:

175 PJ

16.9% PJ

3 69.

AVERAGE ANNUAL GROWTH

<0.1%

185

.5 PJ

PJ

185.1

AVERAGE ANNUAL GROWTH

2015 2020

GAS POWER GENERATION GAS CONSUMPTION Gas consumption (and electricity production)

by GPG is expected to reduce in the short term. Beyond five years, GPG gas consumption is forecast to rise to support increasing electricity consumption and to replace over 2,000 megawatts of coal-fired generation withdrawals.

RESIDENTIAL AND COMMERCIAL GAS CONSUMPTION Improved energy efficiency of buildings and appliances, including gas to electrical appliance switching and a growing preference for living in apartments and multi-unit dwellings, is expected to contribute to residential and commercial consumption remaining flat, despite projected population increases.

Energy Update December 2015

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2015 NATIONAL GAS FORECASTING RE

The 2015 National Gas Forecasting Report (NGFR) provides independent forecasts of annual gas maximum gas demand across eastern and south-eastern Australia’s interconnected gas markets o period (to 2034–35). Although the report includes forecasts for low, medium and high gas deman infographic depicts only the short-term outlook (2015–2020) and medium gas demand scenario.

FIVE YEAR REGIONAL OUTLOOK Key insights into regional annual gas consumption

Annual gas consumption in t forecast to decline ahead of due to forecast short-term re power generation (GPG) and

Annual gas consumption in Queensland is forecast to grow until 2019. This is attributed to the ramp-up at the Gladstone LNG, Queensland Curtis LNG, and Australia Pacific LNG projects.

A CLOSER LO

GAS CONSUMPTION ANNUAL GROWTH RATES

Gas consumption by sector over th

(including LNG exports) over the short term (2015-20)

Petajoules (PJ)

Industrial Gas Powered Generation (GPG)

-22.0%

LNG

-0.4% -0.5% -12.6%

QLD

-0.2% -3.7% 32.5% -0.2% -3.7% -22.0%

(incl. LNG)

22.3% QLD

SA

2

Residential & Commercial

(excl. LNG)

-9.2%

-6.4%

-18.9%

-3.1% -1.1% -0.3% -2.6%

NSW

VIC

1.0%

TAS

0.4%

-100.0%

P8

Energy Update December 2015

2

KEY

5.7% 0.2%

0.6% <0.1%

EPORT

ABOUT AEMO This infographic has been developed by the independent Australian Energy Market Operator (AEMO), using information (as at 31 October 2015) from the 2015 National Gas Forecasting Report.

consumption and over a 20-year outlook nd scenarios, this

AEMO plans, develops, and operates markets that are responsive to energy sector needs and support investment for the long-term benefit of Australian consumers. © 2015. The material in this publication may be used in accordance with the copyright permissions on AEMO’s website.

Tasmanian consumption is forecast to remain flat, with modest growth in residential and commercial consumption.

the domestic markets is generally an improved long-term outlook, eductions in consumption by gas d large industrial users.

5.74

OOK

n forecast per state he short term

5.7 0.7 13

108.2

89 .4

25.9 KEY

579.7 1584.1

SA TOTAL

QLD (incl. LNG)

78.6 56.6

2

58.19

121 .5

.8 19

NSW 0.7 .1.0

65

VIC

5.76

205.9 195.3

TAS TOTAL

74

6.6

9.9

TAS TOTAL

6.8

NSW TOTAL

117.9

Industrial

58.3PJ

11.6 Gas-power generation

5.82

.6

.9

137.8

-.

VIC VIC TOTAL TOTAL

9.4

NSW TOTAL

Residential & commercial

58.2 5

1

48.

1

.8 46

SA

2

43

LNG

1 24.

24

4 35

10.8 10.5

SA TOTAL

QLD TOTAL

32.9

.7

1444.3

QLD TOTAL

2015–2020

-

TAS 0.1

0.0

Energy Update December 2015

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D E C E M B E R U P D AT E : 2 0 1 5 N AT I O N A L E L E C T R I C I T Y FORECASTING REPORT Since AEMO’s 2015 National Electricity Forecasting Report (NEFR) was published in June this year, AEMO has continued to track the performance of its electricity consumption and maximum demand forecasts against actuals.

Since the 2015 NEFR was published in June, AEMO notes that new information relevant to the Queensland and Tasmanian forecasts has become available, including: • Updated actual electricity usage by Queensland’s liquefied natural gas (LNG) projects, impacting Queensland annual operational consumption and maximum demand forecasts; and, • Actual maximum demand figures for Tasmania from the 2015 winter season due to the state’s maximum demand occurring in winter (unlike all other National Electricity Market (NEM) regions which are summer peaking).

AEMO has since revised its forecasts to incorporate this new information.

P10

Energy Update December 2015

Q U E E N S L A N D U P D AT E With this updated data, the Queensland medium scenario forecast results in: • A projected increase in operational consumption between 2014–15 and 2015–16 of 5.0% (2,414 gigawatt hours (GWh)), compared to an increase of 7.4% (3,582 GWh) predicted in the June 2015 NEFR. • A lower projected average annual growth rate of 4.4% in operational consumption in the short-term (2014–15 to 2017– 18), compared to 5.6% predicted in the June 2015 NEFR. • The updated forecast for Queensland maximum demand (2014–15) is 9,216 megawatts (MW) compared to 9,465 MW predicted in the June 2015 NEFR.

TA S M A N I A U P D AT E • The updated Tasmanian maximum demand forecasts are flat, consistent with the June 2015 NEFR. The revised forecasts, including updated NEM-side operational consumption, are available on AEMO’s website.

TRANSMISSION NETWORK TO P L AY V I TA L R O L E I N A U S T R A L I A’ S CHANGING ENERGY FUTURE The national transmission network will play a critical role in maintaining secure and reliable electricity supply across the National Electricity Network (NEM) as Australia’s energy sector transforms to support a higher percentage of renewable generation.

AEMO’s 2015 National Transmission Network Development Plan (NTNDP), released in mid-November, reported future investment in network development will focus on asset replacement and maintaining power system security and reliability.

AEMO Group Manager Planning Nicola Falcon said the transmission network will play an important facilitation role in integrating the evolving energy generation supply mix.

“Today’s national transmission network has sufficient capacity to integrate growing levels of renewable generation along some transmission corridors, however it is ageing, and following on from last year’s NTNDP, investment in asset replacement will be required.

“The focus for investment has changed over the past six years, with asset replacement now making up 85% of investment required in 2014-15. In 200809, only 15% of network investment was allocated to asset replacement, with the majority being spent on increasing network capacity,” said Ms Falcon.

Ms Falcon stated the interconnected transmission network’s role will continue to evolve.

Historically it was viewed largely as a transporter of bulk electricity supply from generation to distribution, however in an energy future with a greater mix of renewable generation, the transmission system will provide critical network support services to maintain power system security and reliability.

Today’s national transmission network has sufficient capacity to integrate growing levels of renewable generation along some transmission corridors, however it is ageing, and following on from last year’s NTNDP, investment in asset replacement will be required,” Ms Nicola Falcon, AEMO Group Manager Planning.

“Transmission networks are now required to transfer generation from both ends of the supply chain due to rooftop PV, which is expected to make up the largest form of electricity generation across the NEM. This adds weight to the need for investment in support services to manage power system security and reliability”, said Ms Falcon.

The NTNDP also highlighted the need for decision makers to be mindful of where it includes new generation.

“There is a potential risk of congestion if a large amount of new generation is built and connected to the transmission network within a small area, resulting in local network limitations. All investment decisions should be considered in the long term interests of Australian consumers,” said Ms Falcon.

AEMO will continue to work closely with industry and policy-makers to further explore network development requirements and opportunities for the future.

For more information, contact AEMO Group Manager Planning Nicola Falcon.

Energy Update December 2015

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U P D AT E FROM NOVEMBER’S G O15 A N N U A L MEETING The November Annual Meeting of GO15 was hosted by GO15 member GCC Interconnection Authority (GCCIA) in Dubai.

GO15 is a voluntary initiative of 18 of the world’s largest power grid operators, representing 75 per cent of the world’s electricity demand. The two-day event was attended by over 150 high profile delegates, including international energy experts, grid operators, governments, regulatory bodies, and major suppliers.

This year’s forum explored the theme, “Power grids of the future and the challenges of climate change” via two expert panels.

Panel 1: The reliable integration of distributed resources in power grids This panel discussed the future of power grids, focusing on the technical, operational and economic aspects of massive integration of distributed energy sources in the power grids. Topics included: • Renewable generation; • Distributed storage; • Electrical vehicles; and, • Demand Side Management and Demand Response.

Panel 2: Flexibility of Power Grids This panel addressed the technologies and solutions that will enable future power grids to support the transition to the new energy mix, and accommodate the intermittency and distributed nature of embedded generation and changing consumption patterns. Topics included: • Distributed resources coordination and control; • Microgrids; • Grid resources for flexibility; and, • Dynamic Line Rating (DLR).

Congratulations to AEMO’s Managing Director and CEO Mr Matt Zema who was elected Vice President of GO15.

For more information, please email media@aemo.com.au.

A B O U T G O15 GO15 is a voluntary initiative of the world’s 18 largest Power Grid Operators representing more than 70% of the world’s electricity demand, providing electricity to 3.4 billion consumers on six continents, and is collectively responsible for integration of over 2,500 GW of generation capacity into the grid, of which more than 20% is from renewable energy sources. www.go15.org

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Energy Update December 2015

IN BRIEF CONFERENCE WRAP UP

CEDA:WESTERN A U S T R A L I A’ S ENERGY MARKET T R A N S F O R M AT I O N

N AT I O N A L WORKPLACE H E A LT H CONFERENCE

On 1 December, AEMO Managing Director and CEO, Matt Zema, joined CEDA to share insights into the current and future state of Western Australia’s energy market and global trends that will shape the future.

Liz Walton, AEMO WHSE Manager, presented at the National Workplace Health Conference in late October. Ms Walton spoke on a panel focusing on stories from companies that are ‘doing health well’.

Mr Zema presented on the role of the market operator in the context of WA’s ongoing Electricity Market Reform process, and new technologies influencing global trends.

The conference was attended by employers from both office and manufacturing environments, health and wellbeing providers, and experts in the wellness space. The conference explored case studies from employers about what’s happening in their workplaces, what’s working, upcoming workplace health trends, and what challenges they are facing.

AEMO TRAINING Course

Location

Date

Overview of the National Electricity Market (NEM)

Canberra

25 February 2016

Overview of the National Electricity Market (NEM)

Sydney

24 March 2016

For more details on all courses, and on how to register, visit AEMO’s Learning Centre or call the Information and Support Hub on 1300 236 600.

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Energy Update December 2015

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