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APRIL 2014

WALLUMBILLA SUPPLY HUB TRADING BEGINS P3 STRIKING A POWER BALANCE P4 AEMO EXPLORES NEW APPROACH TO TRANSMISSION INVESTMENT P7

Image: Queensland’s Minister for Energy and Water Supply at the Gas Supply Hub launch Energy Update April 2014

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UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA The ramp-up in liquefied natural gas (LNG) exports, declining electricity consumption, generation plant retirements, and an evolving climate change policy environment are just some of the factors affecting the future of Australia’s electricity and gas markets. These developments create challenges for the industry, as AEMO’s Chief Operating Officer, Mike Cleary, highlighted in a recent CEDA forum presentation focusing on the dilemma faced by policy-makers. Read the full story on page 4. To prepare for and adapt to fundamental changes taking place in the energy sector, AEMO is assessing the effect of policy settings, new technologies, and market participation on energy markets. This will help ensure that power system and network processes remain agile and responsive. AEMO is also looking ahead to mitigate the implications of new commercial scenarios, such as the commencement of LNG exports, which will see total gas demand treble over the next two decades. AEMO has several major projects underway to increase information transparency for the eastern and south-eastern Australian gas markets and support efficient investment in gas markets.

To provide more timely updates to stakeholders, AEMO will publish an update to the Gas Statement of Opportunities in May. This will highlight recent changes in gas infrastructure and demand that could influence natural gas investment on Australia’s east coast. This month, AEMO also commenced work on redeveloping the National Gas Bulletin Board at the request of the Standing Council on Energy and Resources to further increase gas market transparency. This will deliver a range of benefits to gas market participants including improved useability, increased commodity and capacity market liquidity, and more efficient use of infrastructure. The Wallumbilla Gas Supply Hub commenced trading on 20 March 2014 – see over for more details. The hub was designed, developed, and implemented by AEMO and is the culmination of two years of collaboration between AEMO and the gas industry in response to emerging east coast gas market challenges. The new voluntary market is expected to increase transparency and competition in the gas market, and provide a reference point for gas prices in the longer term.

More active consumer engagement in the energy sector is contributing to increased scrutiny of energy policy issues.

AEMO is surveying energy customers about the value they place on their electricity supply. The survey results will be used to develop a Value of Customer Reliability (VCR), an index that helps electricity planners, asset owners, and regulators strike a balance between delivering a secure and reliable electricity supply, and reasonable network costs for consumers. I also participated in GO 15, a meeting of the world’s largest power grid operators last month. Meetings such as these ultimately assist AEMO plan for the future and deliver a more reliable and efficient power grid in the years to come; read more about the meeting outcomes on page 8.

More active consumer engagement in the energy sector is contributing to increased scrutiny of energy policy issues. Consumer response is becoming more sophisticated at the same time new technologies emerge. AEMO, as the independent market operator, is seeking to understand how these developments affect current reliability and economic objectives.

CONTENTS 02 Update from the Managing Director and CEO

06 AEMO releases latest Supply–demand Snapshot

03 Trading begins at Wallumbilla Gas Supply Hub

07 AEMO explores new approach to transmission investment

04 Finding the right power balance

08 In Brief

05 Increasing gas market transparency

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Energy Update April 2014


TRADING BEGINS AT WA L L U M B I L L A G A S S U P P LY H U B A new gas commodity market, the first of its kind in Australia, opened for business on 20 March 2014 to encourage greater competition and transparency of gas trading in eastern and south-eastern Australia.

The first month of trade saw 222 terajoules of gas traded through the Wallumbilla Gas Supply Hub. Early trade has focused on the Roma to Brisbane Pipeline node with a combination of day ahead and weekly products being traded. The Standing Council on Energy and Resources (SCER), which is responsible for pursuing priority issues of national significance in the energy and resource sectors, tasked AEMO with developing and implementing the hub. Queensland Minister for Energy and Water Supply, The Hon Mark McArdle MP, joined Senior Advisor Graham Edney, representing Federal Minister for Industry, The Hon Ian Macfarlane, AEMO Board member Jon Hubbard, AEMO Executive General Manager Corporate Development, David Swift, and gas industry representatives in marking this important gas market development at an event in Brisbane on 2 April 2014. Queensland in particular is experiencing substantial developments in liquefied natural gas (LNG) exports, which has increased the need for more flexible and transparent upstream transactions. This greater flexibility in gas trading benefits both domestic and export markets. “The resources sector is a key driver of the four pillar economy the Newman Government is working to grow,” Minister McArdle said. The Minister acknowledged the work done by AEMO and industry in designing, developing, and implementing the hub and encouraged continued collaboration to build on the market success.

L to R: Jon Hubbard, AEMO Board member; Peter Geers, Group Manager Business Strategy, AEMO; The Hon Mark McArdle MP, Queensland Minister for Energy and Water Supply; Graham Edney, Senior Advisor to The Hon Ian Macfarlane MP, Federal Minister for Industry; David Swift, Executive General Manager Corporate Development, AEMO.

L to R: Peter Geers, AEMO; Justin Peel, QGC; Erin Bledsoe, QGC; Donovan Marsh, Energy Australia.

“This is the start of a new horizon in this nation. This is the start of a new sector that I find very exciting… I want to come back in four to five years’ time and talk to you about the outcomes of what we have achieved over that timeline,” he said. “I know Ian (Minister Macfarlane) and I share one simple goal—to develop the gas sector on a domestic basis and international basis as well.

L to R: Patrick Whish-Wilson, AGL; Bill Truscott, Origin Energy.

We can’t ignore one to the detriment of the other. We must understand that one impacts upon on the other, but this hub as far as I’m concerned is a major step forward,” Minister McArdle said. “I congratulate all of you all on the great work you have done and AEMO on what you have done, and can I say to you SCER is committed to making certain we achieve the best outcome for the economy, the individuals in this room, and also corporations as well.”

This is the start of a new sector that I find very exciting… I want to come back in four to five years’ time and talk to you about the outcomes of what we have achieved over that timeline. Queensland Minister for Energy and Water Supply, The Hon Mark McArdle MP

AEMO’s Group Manager Business Strategy, Peter Geers, said AEMO and the industry reference group will work together over the coming year to further develop the market. This will see new quarterly, monthly, and potentially yearly products, over-the-counter products linked to the hub, and the potential for a second hub at Moomba in South Australia. “The reference group will establish priorities and shape what is needed to increase liquidity and trade,” Mr Geers said. For more information see AEMO’s website.

L to R: Mandy Jericevich, QGC; Frank An QGC; Paul Frisch, Stanwell; Brandon Vowell, QGC; Peter Tolhurst, Stanwell; Vikki Lutz, Stanwell.

Energy Update April 2014

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FINDING THE RIGHT POWER BALANCE

In addition to reliable power, consumers also want low-cost energy, and increasingly they want clean energy. AEMO Chief Operating Officer, Mike Cleary

Balancing the need for efficient energy prices, power reliability, and reduced carbon emissions was the key focus of a panel discussion led by AEMO’s Chief Operating Officer, Mike Cleary, at a Committee of Economic Development of Australia forum in March.

In a presentation to industry stakeholders in Melbourne, which also featured a keynote speech from Federal Environment Minister the Hon. Greg Hunt MP, Mr Cleary focused on the challenges that energy policy-makers face in balancing these three factors. “There is much debate about what constitutes the right balance, and the complexities underpinning this debate are being considered by policy-makers,” Mr Cleary told forum attendees. “In addition to reliable power, consumers also want low-cost energy, and increasingly they want clean energy,” he said. “Obviously investors must make a return on their investments, and community views about where electricity assets are located must also be considered. Combine all these issues, and the decision-making process becomes quite complex.” The panel discussion also covered topics relating to renewable energy integration, and setting appropriate long-term policies to underpin efficient energy market development.

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Energy Update April 2014


INCREASING GAS MARKET T R A N S PA R E N C Y With total gas demand expected to treble over the next two decades, several major initiatives are underway to increase information transparency for the eastern and south-eastern Australian gas markets.

Recent gas market reviews, including a joint Department of Industry (DOI), Bureau of Resources and Energy Economics (BREE), and Victorian Government Gas Market Taskforce report, conclude that information gaps exist in the east coast gas market, and that greater transparency is required. Gas supply and demand projections The reviews recommend that AEMO’s Gas Statement of Opportunities (GSOO) includes a comprehensive forecast of gas market data, and that it more specifically targets potential investors. The 2013 GSOO has started to address these recommendations by publishing more detailed reserve and demand data, and reporting on a broader range of investment scenarios and solutions. In 2014, AEMO is also publishing GSOO updates to expedite the availability of information about gas industry developments. The first issue will be published in May 2014. The inaugural National Gas Forecasting Report (NGFR), to be published by 31 December 2014, will support efficient investment in the gas market by providing greater transparency of gas demand assumptions, and more detailed gas consumption data analysis. AEMO is currently consulting with industry on the report.

Photo courtesy of QGC

In March 2014, the Australian Energy Market Commission (AEMC) approved national gas rule changes that will see both the GSOO and the Victorian Gas Planning Report (VGPR) published on 31 March from 2015. This will improve consistency between the reports, remove duplication, and see the most recent winter demand trends included. Gas Bulletin Board In March 2014, the Standing Council on Energy and Resources (SCER) asked AEMO to improve the accessibility, coverage, and quality of data and information on the web-based National Gas Market Bulletin Board (GBB). The GBB delivers a range of short-term gas market information to increase market transparency. AEMO is redeveloping the GBB in consultation with industry, and will deliver a scoping document to the SCER by mid-June 2014. Wallumbilla Gas Supply Hub As featured on page three, the Wallumbilla Gas Supply Hub, the first gas commodity market of its type in Australia, commenced on 20 March 2014. The new voluntary market is expected to increase transparency and competition in the gas market, and provide a reference point for gas prices in the longer term. AEMO welcomes stakeholder feedback on these initiatives by email: planning@aemo.com.au.

Energy Update April 2014

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A E M O R E L E A S E S L AT E S T S U P P LY – D E M A N D SNAPSHOT AEMO’s February 2014 Supply–demand Snapshot published in early March, assesses the adequacy of existing and committed electricity supply to meet consumption from the grid and maintain National Electricity Market (NEM) reliability standards. The Snapshot finds a delay in Queensland’s reserve deficit is driven by changes in electricity consumption, which trended 1.5% lower than forecast from October 2013 to January 2014.

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Energy Update April 2014

The Supply–demand Snapshot, published quarterly, provides a regular update on changes to electricity consumption, information about energy supply and demand, and new generation developments. “Despite consumption being above forecast in January 2014 due to hot weather across all states, electricity usage over the reporting period trended lower than projected,” said Manager Supply Forecasting, Nathan White. “The downward trend in consumption evident over the last five years has continued throughout 2013–14,” said Mr White. The snapshot identifies that if the current demand variance persists, Queensland may experience reserve deficits from 2020–21, not 2019–20 as reported in the 2013 Electricity Statement of Opportunities (ESOO). Reserve deficits in all other regions, while also affected, are already beyond the ESOO’s 10-year outlook period.

The snapshot also provides an update on changes to the electricity generation fleet, including recent announcements of several wind and solar generation projects and power station withdrawals. The February 2014 Supply–demand Snapshot is available on AEMO’s website. For more information, contact Manager Supply Forecasting, Nathan White at nathan.white@aemo.com.au.


AEMO EXPLORES NEW APPROACH TO TRANSMISSION INVESTMENT At the request of the Standing Council on Energy and Resources (SCER), AEMO and the Australian Energy Market Commission (AEMC) are collaborating on a project to investigate a proposed framework to improve how electricity transmission networks are built, operated, and used. The AEMC’s 2013 Transmission Frameworks Review outlined the Optional Firm Access (OFA) framework as a way to improve National Electricity Market (NEM) efficiency by better coordinating generator and transmission investment. AEMO will focus on developing the access settlements component of the proposed OFA framework and investigate how the framework might best be implemented. “The proposal is to allow generators to pay for network augmentations in exchange for transmission network access rights,” explained AEMO Specialist Market Development, Ben Skinner.

The proposal is to allow generators to pay for network augmentations in exchange for transmission network access rights

“Currently, energy consumers fund the shared transmission network. By allowing generators to obtain a defined level of access, they are in a better position to predict what share of access they will receive when congestion occurs, resulting in more efficient market operation,” said Mr Skinner.

While the AEMC and AEMO each have separate terms of reference for the joint project, they are working closely to deliver an integrated result. “We will also work together to involve stakeholders on the proposal,” said Mr Skinner. “AEMO will engage with an Advisory Panel and Industry Working Groups set up by the AEMC as primary interfaces for stakeholder discussions.” A coordinated project plan was published in early April, outlining the project timetable. A final recommendation, including detailed a design and plan for implementation, will be delivered in mid-2015. More information is available on AEMO’s website.

While the dispatch process itself would remain unchanged, when network congestion occurs, the new framework would see AEMO adjust generator settlements to reflect their contracted access rights. A generator who had purchased rights would receive the regional price, and a generator who did not have rights would receive their local price, which can be lower during periods of congestion. At the start of the scheme some level of access would be granted to existing generators for a period of time as a transition mechanism.

Energy Update April 2014

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IN BRIEF WORLD’S POWER GRID O P E R AT O R S M E E T T O PROGRESS COMMON CHALLENGES AEMO hosted the “GO 15 - Reliable and Sustainable Power Grids” Governing Board meeting in March, which saw leaders of the world’s 16 largest electricity grid operators meet in Sydney to progress work on issues facing large electricity grids.

The GO 15 is the peak body for international power operators, and was established in 2004 following several major blackouts around the world. The group investigates issues of common interest, shares experiences, and undertakes collaborative work to identify solutions. Its members manage power systems that supply more than 70% of the world’s electricity demand, providing electricity to 3.4 billion consumers in six continents. “While each nation faces its own particular issues, it was encouraging to hear about the common challenges such as changing consumption, changes in the economy and energy policy, and integrating renewable energy into the generation mix,” said AEMO Executive General Manager Corporate Development, David Swift. “Sharing experiences and insights on these issues brings real value, and ultimately assists AEMO in delivering more reliable and efficient power grids,” said Mr Swift. The group reviewed its priorities for the coming year and beyond, identifying

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Course

Location

Date

Understanding MSATS

Sydney

1-2 May

NEM Overview

Brisbane

9 May

Network and FCAS Constraints in the NEM

Sydney

15-16 May

Overview of the Short Term Trading Market

Sydney

23 May

NEM Overview

Sydney

27 June

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Energy Update April 2014

AEMO presented on Australia’s National Electricity Market (NEM) and explained how NEM operation is tightly integrated with operation of the physical grid. Mr Swift said NEM design always stimulates much discussion at international forums as it differs to market designs common in Europe, the United States, and the United Kingdom. “There’s usually a lot of interest, and some envy, at the breadth of AEMO’s role,” said Mr Swift. “In addition to being NEM operator, our roles in gas markets and in planning mean we are well positioned to manage some of the future challenges being identified. Australia has a high level of industry transparency and is noted internationally as a leader in providing market information.” For more information visit the GO 15 website.

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AEMO Energy Update April 2014