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FEBRUARY 2014

WALLUMBILLA GAS SUPPLY HUB GEARS UP P5 AEMO HOSTS GO15 EVENT P6 NEXT STEPS TO VALUE OF CUSTOMER RELIABILITY P7

Energy Update February 2014

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UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA AEMO remains on high alert this summer, closely monitoring electricity supply and consumption levels and bushfire activity around the electricity network. An extreme simultaneous heatwave in Victoria and South Australia combined with high consumption and several plant outages put the National Electricity Market (NEM) power system to the test in mid-January. AEMO worked around the clock to monitor the situation, and keep stakeholders informed. The result was positive: secure supply was maintained at all times, no load shedding was required, and only minor interruptions occurred at the distribution level. This is a testament to our industry’s commitment to delivering reliable, secure, and cost-effective supply to homes and businesses. Looking to the year ahead, I anticipate seeing AEMO’s 2013–14 strategic drivers and value propositions being delivered as we consolidate our vision to remain pivotal to Australia’s energy sector. In 2014 we will broaden the scope of national energy forecasts by providing transmission connection point forecasts, we will support efficient planning by producing national measures for the Value of Customer Reliability, and we will launch the Wallumbilla Gas Supply Hub in March.

…secure supply was maintained at all times, no load shedding was required, and only minor interruptions occurred at the distribution level.

The Wallumbilla Gas Supply Hub is the next significant step in gas market reforms aimed at increasing gas market transparency and competition. It will support the efficient trade and movement of gas between regions, enhance gas trading, and set a reference price for gas so participants can manage portfolio risk. AEMO celebrates a major milestone on 1 July 2014, with our fifth anniversary. This is an opportunity for us to reflect on our successes to date, and to consider the challenges our industry faces into the future. To help us tackle these challenges, I am pleased to welcome AEMO’s new Chief Information Officer, Susan Sly. Recently recognised as Victorian and national iAwards CIO of the Year, Susan brings 13 years’ experience in human resourcing and management across the oil and gas industries, defence, and state government. AEMO also continues to produce regular updates to our major reports, delivering on our ongoing commitment to keep stakeholders up-to-date and enabling industry to make informed decisions based on timely and relevant data.

CONTENTS 02 Update from the CEO 03 NEM stands up in the heat 04 Wallumbilla Gas Supply Hub: A trader’s view 05 Wallumbilla Gas Supply Hub gears up for market start 06 AEMO to host world’s largest power grid operators

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Energy Update February 2014

06 Survey highlights stakeholder views of AEMO service delivery 07 Next steps in establishing a Value of Customer Reliability 07 AEMO releases 2014 South Australian Fuel and Technology Report 08 In brief


N E M S TA N D S U P I N T H E H E AT It’s already been a busy summer for the NEM power system. An extreme heatwave across Victoria and South Australia, combined with high electricity consumption and unplanned plant outages triggered the potential for load shedding in parts of South Australia and Victoria. Despite the tough conditions, the power system proved capable. AEMO closely monitored electricity supply and consumption levels, as well as bushfire activity around the electricity network, successfully securing supply without needing to shed any load. AEMO worked around the clock to manage the situation, liaise with industry and emergency services, and communicate with stakeholders. No NEM demand records were broken even though the heatwave saw the first ever five-day period above 42 °C (13–17 January 2014) in South Australia and the first ever four-day period above 41 °C (14–17 January 2014) in Victoria. Maximum operational demand reached 10,313 MW in Victoria and 3,002 MW in South Australia. This was close to the record 10,494 MW on 29 January 2009 in Victoria and 3,399 MW on 31 January 2011 in South Australia. AEMO’s demand forecasting system performed well, accurately forecasting peak demand on the highest demand days. This gave stakeholders a clear picture of the situation.

“Forecast errors occurred overnight and during the morning ramp, with both states experiencing higher-than-expected consumption during those periods. Although not major discrepancies, these observations will inform system improvements in the future,” said Group Manager Systems Capability, Mark Stedwell.

AEMO closely monitored electricity supply and consumption levels, as well as bushfire activity around the electricity network, successfully securing supply without needing to shed any load. AEMO published a report summarising its observations during the heatwave, and hosted a debrief event for industry and government to discuss the incident, AEMO’s response, and the lessons learned. The report outlines the contribution of rooftop solar PV, and scheduled and non-scheduled wind generation, which was noticeably higher in South Australia than Victoria. It also provides detail about wholesale electricity prices, which were lower than experienced during the 2009 heatwave. As expected, prices were volatile during the heatwave, and exceeded typical January averages. The report is available on AEMO’s website.

Energy Update February 2014

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Photo courtesy Alinta Energy

Photo courtesy QGC

WA L L U M B I L L A – A TRADER’S VIEW Alinta is one of a growing number of companies registered to trade at the new, voluntary Wallumbilla Gas Supply Hub. Alinta’s east coast gas interests include Braemar 1, a 500 MW gas-powered generation plant comprising three open-cycle gas turbine units, located in southern Queensland. It also owns around 150 km of gas pipeline between Condamine and Braemar, used exclusively to supply the Braemar Power Station. Alinta’s Gas Trading Manager, Peter Frost, said the new market would provide greater flexibility and liquidity in gas trading on the east coast. “Setting aside any impact from the carbon price, spot and wholesale electricity prices are at low levels and gas prices are steadily increasing as a result of the growing LNG export industry,” he said. “In this environment, Alinta potentially sees value in gas being sold as a commodity rather than as a fuel to generate electricity. “There is already interest in trading at the Wallumbilla location, but exchange conditions vary between counter parties with each new sale requiring considerable legal work.” The hub will introduce standardised terms and conditions under an exchange agreement, developed by market participants. Automatic matching of buyer bids and seller offers is useful, with the market providing anonymity to protect participants’ commercial positions. Prudential arrangements also protect participants. “Delivery netting should reduce transaction and administration costs because spot traders won’t have to physically nominate receipts and deliveries for each transaction,” Mr Frost said. Intra-day trading at the hub will also enable faster response times. This is important to Alinta, which operates in the volatile electricity spot market where prices can rise and fall rapidly.

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In this environment, Alinta potentially sees value in gas being sold as a commodity rather than as a fuel to generate electricity. Peter Frost


WA L L U M B I L L A G A S S U P P LY H U B GEARS UP FOR M A R K E T S TA R T

The new gas supply hub at Wallumbilla, Queensland, is due to start operating on 20 March 2014. It is the first market of its kind in Australia. The trading exchange is designed to enhance transparency and reliability of gas supply by creating a voluntary market that offers a low-cost, flexible method to transfer gas titles between parties. AEMO’s Group Manager Business Strategy, Peter Geers said after nearly two years of collaboration and development with the gas industry, the 20 March go live date is fast approaching. “Most of the activity underway now centres on registering participants, the market trial, and ironing out any pre-production issues. We have eight registered trading participants for market start with more indicating an interest to trade by mid- to late-2014.

“We also have seven viewing participants from market start. We couldn’t have asked for a better start to a market that is voluntary and designed to complement existing gas supply arrangements and gas transportation agreements,” Mr Geers said. The market launch comes at a time when the east coast gas market is rapidly expanding to accommodate LNG export. Demand for gas on the east coast is expected to treble from 745 to 2,182 petajoules in the next 20 years. The gas supply hub will launch with products for the sale and purchase of gas delivered through any of the three major connecting pipelines at Wallumbilla. Participants place anonymous offers (to sell) or bids (to buy) a specified quantity at a specified price; these are automatically matched on the exchange to form transactions. Wallumbilla is a major transit point between Queensland and other gas markets on Australia’s east coast. It is strategically located close to significant gas supply and demand: Wallumbilla is a collection point for major gas fields and a supply point for demand centres in Gladstone and Brisbane, and is close to gas storage facilities and gas-powered generation.

The diversity of business activities and the number of industry participants at Wallumbilla create a natural point of trade. Mr Geers said the hub also provides a capacity listing that allows participants to list any unused pipeline capacity. The listing service is available to both trading and viewing participants wanting to advertise their interest to buy or sell haulage capacity. “We’re still working with industry on a set of standard terms and conditions for shipper-to-shipper capacity transfers. We are pleased with the progress so far and are also working with pipeline operators to develop an industry-led operational capacity transfer model,” he said. The hub also has the potential for longerterm (such as quarterly) trading, and expansion into other regions to enable locational swaps that offset trades in one region with trades in another region. “We expect that in 12 to 24 months the market will have been reshaped to meet the changing needs of trading participants. Industry will take a lead role in defining new products for the exchange,” Mr Geers said. For more information, see AEMO’s website.

Energy Update February 2014

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SURVEY HIGHLIGHTS S TA K E H O L D E R V I E W S OF AEMO SERVICE DELIVERY A recent survey of around 200 of AEMO’s industry and government stakeholders has revealed broad satisfaction with AEMO’s overall service delivery. Overall satisfaction levels ranged from 61% to 73%, indicating that AEMO’s core service offering is valued by stakeholders and their organisations. AEMO performed well in terms of quality and accessibility of employees, being viewed as a “technically strong and competent market operator”. Another highlight was AEMO’s approach to stakeholder engagement and the quality of information shared.

The survey also identified areas for improvement, including AEMO’s consultation processes and more clarity about AEMO’s role. There was strong support for AEMO’s new role as the national forecaster, but lower satisfaction with the actual forecast data. AEMO is developing new initiatives to improve its forecasting, including the introduction of more granular connection point forecasts starting this year. AEMO will publish further information about the survey in coming months, along with outcomes from the stakeholder feedback received. For more information contact Acting Group Manager, Regulatory Policy Jo Witters.

In some measures, respondents operating in competitive electricity and gas markets expressed higher satisfaction levels than those in transmission or distribution sectors.

AEMO TO HOST WORLD’S LARGEST POWER GRID O P E R AT O R S AEMO is gearing up to host the GO15 – Reliable and Sustainable Power Grids Governing Board meeting on 17–19 March 2014. The meeting will see the world’s largest power grid operators (PGOs) assemble in Sydney to progress strategic issues facing power grids worldwide.

“It’s an opportunity for AEMO to maintain international contacts with executives of major grid operators and to share information on the challenges and issues we collectively face, including improving market efficiencies,” said Mr Swift.

AEMO has been instrumental in organising the event, which includes discussions, presentations, and a tour of AEMO’s electricity control room.

The GO15 was established in 2004 following several major blackouts around the world. It investigates fundamental issues of common interest and develops joint action plans to improve power system security. The GO15 members represent more than 70% of the world’s electricity demand, providing electricity to 3.4 billion consumers across six continents.

AEMO will deliver a presentation on the design of Australia’s electricity market, focussing on the interactions between the physical and financial markets—a feature of interest to international PGOs. “AEMO and the energy industry gain real benefits from the information exchange generated at the GO15’s Governing Board meetings and the international working groups,” said AEMO Executive General Manager, David Swift.

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“Topics of discussion will likely include the integration of renewables, demand-side participation, the impact of electric vehicles on grids, modelling grid behaviour, and a range of economic and technical issues. The group has a clear road map to address these strategic issues while continuing to deliver security and reliability.”

For more information on GO15, see www.go15.org


NEXT STEPS IN E S TA B L I S H I N G A VA L U E O F CUSTOMER RELIABILITY Following a pilot survey late last year, AEMO will soon be asking residential and business customers across the NEM to place a value on their electricity supply. The survey is part of a broader project to establish Value of Customer Reliability (VCR) for different customer types. The VCR helps electricity planners, asset owners, and regulators strike a balance between delivering a secure and reliable

electricity supply, and reasonable network costs for customers. Acting Group Manager, Regulatory Policy, Jo Witters said the pilot VCR survey results were presented to a stakeholder workshop in January 2014. “The pilot for residential customers has provided useful results already and has also highlighted challenges given the relatively complex survey material, and the approach taken,” said Ms Witters. She said AEMO would adopt a more targeted approach for businesses, conducting focus group sessions rather than the online surveys being used for residential customers.

Large industrial customers directly connected to the electricity grid will also be surveyed. “The changes we are making will deliver more robust results and provide a good base for future surveys,” Ms Witters said. Final VCRs for residential customers are due mid-year and business VCRs will be delivered later in 2014. For more information, see AEMO’s website.

A E M O R E L E A S E S 2 014 SOUTH AUSTRALIAN FUEL AND TECHNOLOGY REPORT AEMO’s 2014 South Australian Fuel and Technology Report (SAFTR), published in January, outlines the range of renewable and fossil-fuelled energy resources available for electricity generation in South Australia. The SAFTR is one of several statistical and research documents AEMO prepares for the South Australian Government each year as part of its advisory function. The report outlines the spectrum of fuel resources and generation technologies available in South Australia, now and into the future. The SAFTR confirms that while coal and gas-powered generation remain in use, renewable resources, particularly wind, are the largest growing component of South Australia’s generation mix. Solar power is also prominent, with 18.5% of Australia’s total 2012–13 rooftop solar PV generation occurring in South Australia. Geothermal and wave-powered generation resources are also being explored.

Water 2.5 MW, <1%

Biomass and Waste 16 MW, <1%

Liquid Fuel 270 MW, 5%

Natural Gas 2672 MW, 50%

Coal 770 MW, 14%

Solar 400 MW, 8%

Wind 1203 MW, 23%

South Australian generation capacity by energy source, July 2013

The SAFTR is available on AEMO’s website. Energy Update February 2014

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IN BRIEF AEMO WELCOMES NEW C H I E F I N F O R M AT I O N O F F I C E R Following a comprehensive search and selection process, AEMO is pleased to welcome Susan Sly as Chief Information Officer (CIO), based in the Melbourne office. Susan has worked in the IT industry for 13 years, and brings comprehensive experience in human resources and management across the oil and gas industries, defence, and state government.

In 2013 Susan was recognised as CIO of the Year in the Victorian and national iAwards. The awards recognise achievements in technology across all sectors in the economy. Most recently, Susan was Executive General Manager, IM&T at VicRoads where she was instrumental in managing the strategic acquisition and operations of VicRoads’ information and technology assets. “We are delighted to welcome Susan to AEMO and look forward to having her work with us to achieve our vision and key objectives,” said Managing Director and Chief Executive Officer, Matt Zema.

A E M O ’ S C L A S S O F 2 014 Eleven new graduates recently joined AEMO’s three-year Graduate Development Program, which provides unique and challenging career opportunities within Australia’s energy industry.

AEMO’s “class of 2014” will gain experience in a range of business areas across the organisation, including comprehensive training in gas, electricity, and information technology. They will work alongside experienced technical experts in a supportive learning environment.

AEMO TRAINING Course

Location

Date

Network and FCAS Constraints in the NEM

Brisbane

13–14 March 2014

National Electricity Market Overview

Sydney

21 March 2014

National Electricity Market Overview

Melbourne

28 March 2014

Declared Wholesale Gas Market Overview

Sydney

4 April 2014

For more details and how to register for a course, visit AEMO’s Learning Centre website.

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The new recruits undertook a comprehensive orientation week in AEMO’s Melbourne office before settling in to AEMO’s New South Wales, Queensland, and Victorian sites. “The program sees graduates participating in real projects with real responsibility, working alongside some of the best energy minds in Australia,” said AEMO Executive General Manager, People and Culture, Maree Gardner. “The graduates will meet regularly with AEMO’s CEO, Executive Leadership Team, and Board of Directors. They will also have opportunities to become chartered engineers or to explore further study, with financial support from AEMO,” said Ms Gardner.

T E L L U S W H AT YOU THINK AEMO Energy Update welcomes your feedback. If you have suggestions and comments or wish to change your contact details, please email media@aemo.com.au.


AEMO Energy Update February 2014