Energy Update August 2015 P1

AUGUST 2015

AEMO LAUNCHES 2015-17 CORPORATE STRATEGY

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REPORT REVEALS CHANGING OUTLOOK FOR ELECTRICITY SUPPLY

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THE PEOPLE BEHIND AEMO

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Energy Update August 2015P2

The rapid rate of change continues across the energy sector as we move through the first quarter of the 2015-16 financial year. The level of generation from wind and rooftop PV technologies is growing in areas of the network and will continue to increase to meet the Commonwealth Government’s Renewable Energy Target. The challenge for the industry will be to integrate these renewable energy sources into the grid, while maintaining the levels of reliability and power quality which consumers expect.

AEMO recently completed a NEM-wide roadshow, inviting all interested stakeholders to discuss the opportunities and challenges associated with integrating increased renewable energy generation into the existing operational grid. The roadshow generated productive discussion, and illustrated the need for a whole-of-industry approach to plan for a very different industry than the one we have historically known.

This crucial point about power system security and reliability links to information presented in the 2015 Electricity Statement of Opportunities (ESOO), released on 13 August. The ESOO provides market participants, investors, and policy-makers with a current ‘statement of supply’ from industry in addition to their projected 10-year outlook for various plants and proposed projects around the NEM. The ESOO reports approximately 4,550 MW of generation is intended to be withdrawn from the market over the next decade, with only wind and solar generation projects committed at this stage. This situation could present potential breaches to the Reliability Standard if the market does not adjust and transform appropriately.

To reflect how AEMO is responding to changing external drivers, I am pleased to share a high level view of our 2015-17 strategic initiatives, featured on page 3. Our priorities for the next three years are centred on network security and reliability, efficient market operation, robust forecasting and planning reports, and continued refinement of our settlements

and prudentials processes. Our strategic initiatives take into account stakeholder feedback on aspects of our service delivery, and aim to focus on areas we can influence and deliver greater value to the industry.

As we look at the short and longer term future for the industry, our refined vision is simple – to provide energy security for all Australians – and we welcome both the opportunities and challenges that lie ahead.

UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA

CONTENTSP2 Update from Managing Director and CEO Matt Zema

P3 AEMO launches 2015-17 strategic initiatives

P4 AEMO’S 2015 Renewable Energy Roadshow

P4 Snapshot: 2015 winter stats

P5-7 Electricity Statement of Opportunities reveals changing outlook for electricity supply

P8 The people behind AEMO

P9 In brief

As we look at the short and longer term future for the industry, our refined vision is simple – to provide energy security for all Australians – and we welcome both the opportunities and challenges that lie ahead,” Mr Matt Zema, AEMO Managing Director and Chief Executive Officer.

Energy Update August 2015 P3

AEMO 2015–17 STRATEGIC INITIATIVES

Security and Reliability

Forecasting and Planning

Settlements and Prudentials

RESOURCES

PEOPLE

Markets

GOVERNANCE

IT

OUR VISIONENERGY SECURITY FOR

ALL AUSTRALIANS

STAKEHOLDER-FOCUSED ACCOUNTABLE

ONE TEAM PRIDE AND PASSION

OUR VALUES

FORECASTING AND PLANNINGPublish forecasts and planning information to a frequency and quality that meet stakeholder needs. • Publishquarterlyelectricity

insights from June 2016. • Publishquarterlygasinsights

by December 2016.

INFORMATIONDeliver information and data services that enable greater customer choice. • Workwithstakeholders to understand changing information and data services requirements. • Developanimplementation

plan to deliver relevant data services.

AEMO FEESStructure our fees to betterreflectthechangingenvironment. • RestructureNEMfee(s)by April 2016.• Restructureallotherfeesby mid-2018.

GAS MARKETSFacilitatetheeffectivetradeofgas across eastern and south-eastern Australia. • Enhancementofandaccess

to system information on the NationalGasMarketBulletinBoardbyJune2016.

• HarmoniseNewSouthWalesand Australian Capital Territory B2Bgasretailproceduresandmarket systems.

STAKEHOLDER MANAGEMENTAEMOisimpartial,balancedand thorough. • AEMOengagesstakeholders

on solutions and ideas. • Stakeholderrelationshipsare

collaborative and proactive.

EMERGING TECHNOLOGIES AND DEVELOPMENTSAdaptAEMO’scapabilitytomaintain security and reliability ofAustralia’spowersysteminachanging market environment. • Reviewtechnicalstandards

and operating arrangements toensuretheseallowforchanging technologies.

• Therolesandresponsibilitiesof all parties to deliver security are clear.

• AEMOhastheinformationitrequires to maintain system security and market reliability.

AEMO is excited to share its recently released 2015-17 strategic initiatives. The strategic initiatives focus on areas including forecasting and planning, gas markets, information, stakeholder management, fees, and emerging technologies and developments – all part of AEMO’s vision to continue to provide energy security for all Australians.

AEMO LAUNCHES 2015 -17 STRATEGIC IN IT IAT IVES

AEMO 2015–17 STRATEGIC INITIATIVES

Security and Reliability

Forecasting and Planning

Settlements and Prudentials

RESOURCES

PEOPLE

Markets

GOVERNANCE

IT

OUR VISIONENERGY SECURITY FOR

ALL AUSTRALIANS

STAKEHOLDER-FOCUSED ACCOUNTABLE

ONE TEAM PRIDE AND PASSION

OUR VALUES

FORECASTING AND PLANNINGPublish forecasts and planning information to a frequency and quality that meet stakeholder needs. • Publishquarterlyelectricity

insights from June 2016. • Publishquarterlygasinsights

by December 2016.

INFORMATIONDeliver information and data services that enable greater customer choice. • Workwithstakeholders to understand changing information and data services requirements. • Developanimplementation

plan to deliver relevant data services.

AEMO FEESStructure our fees to betterreflectthechangingenvironment. • RestructureNEMfee(s)by April 2016.• Restructureallotherfeesby mid-2018.

GAS MARKETSFacilitatetheeffectivetradeofgas across eastern and south-eastern Australia. • Enhancementofandaccess

to system information on the NationalGasMarketBulletinBoardbyJune2016.

• HarmoniseNewSouthWalesand Australian Capital Territory B2Bgasretailproceduresandmarket systems.

STAKEHOLDER MANAGEMENTAEMOisimpartial,balancedand thorough. • AEMOengagesstakeholders

on solutions and ideas. • Stakeholderrelationshipsare

collaborative and proactive.

EMERGING TECHNOLOGIES AND DEVELOPMENTSAdaptAEMO’scapabilitytomaintain security and reliability ofAustralia’spowersysteminachanging market environment. • Reviewtechnicalstandards

and operating arrangements toensuretheseallowforchanging technologies.

• Therolesandresponsibilitiesof all parties to deliver security are clear.

• AEMOhastheinformationitrequires to maintain system security and market reliability.

Energy Update August 2015P4

Declared Transmission System (DTS) cumulative system demand for 2015 is approximately 12,000 terajoules (or 10%) higher than 2014

Nine consecutive July days the gas system demand exceeded 1,000 TJ

14 days total of more than 1,000 TJ of system demand in July

This is compared to an average daily July system demand of 883 TJ over the past five years

Over the past five years daily system demand has exceeded 1,000 TJ only three or four times during July.

SNAPSHOT: 2015 WINTER STATS

1,000TJ

TJ883

AEMO’S REAL-T IME GAS OPERATORS KEPT BUSY TH IS WINTER

“We have had a record peak system demand of over two million standard cubic metres per hour, together with three days in a row of total demand (includes Gas Powered Generation) of 1,150 TJ, and nine consecutive days and a total of 14 days of more than 1,000 TJ of system demand in July. Historically, this would have put immense pressure on the system with the potential loss of gas supply to the outer extremities of the distribution networks, however in 2015 we have not seen any pressure breaches within the system,” said AEMO Senior Manager - Gas Real Time Operations, Matthew Clemow.

“Winter demand levels started earlier than usual this year, and paired with supply restrictions from Longford due to delayed planned maintenance, Gas RTO is pleased that the system has functioned very well amid these challenging conditions,” said Mr Clemow.

For more information, please contact AEMO Senior Manager - Gas Real Time Operations, Matthew Clemow.

It has been the coldest Victorian winter in 20 years, resulting in higher than average gas demand across the Declared Transmission System (DTS). The year to date cumulative system demand (which includes domestic and industrial) for 2015 is approximately 12,000 terajoules (or 10%) higher than last year.

AEMO’s Gas Real Time Operations (RTO) team reports that the system has held up very well due to a combination of good operation and increased pipeline capacity. This includes the recently commissioned Winchelsea compressor on the South West Pipeline and the expansion of the Victoria to New South Wales Interconnect.

AEMO’s inaugural Renewable Energy Roadshow kicked off in August. Taking place in Melbourne, Brisbane, Sydney, Canberra, Hobart, and Adelaide, the roadshow was held to inform attendees about the potential impacts of the changing mix of energy generation in the NEM.

AEMO’s Rob Jackson, Principal Renewable Energy Analyst, and Reena Kwong, Manager, Renewable Integration, spoke at the events, providing attendees with insights on the following three key areas:

• an overview of rooftop PV in the NEM;

• an overview of operational impacts of energy storage; and

• an update on work relating to renewable energy integration in South Australia, following on from the joint report produced by AEMO and ElectraNet in October 2014.

Each roadshow was attended by representatives from the energy industry, government, consumer groups, and tertiary institutions.

“We have received great feedback from attendees, making the roadshow a very worthwhile exercise and an excellent opportunity to engage with our stakeholders,” said AEMO Group Manager Systems Capability, Mark Stedwell.

For more information please contact AEMO Group Manager Systems Capability, Mark Stedwell.

AEMO’S 2015 RENEWABLE ENERGY ROADSHOW

Energy Update August 2015 P5

AEMO’s recently released 2015 Electricity Statement of Opportunities (ESOO) reports that over the past 12 months, industry has announced that it intends to withdraw approximately 4,550 megawatts (MW) of generation capacity across the National Electricity Market (NEM) in the next decade.

AEMO Managing Director and Chief Executive Officer Mr Matt Zema said most of these withdrawals are planned for New South Wales (NSW) and South Australia (SA), which could lead to a greater reliance on interconnectors to supply electricity to these states.

“Long-term outcomes modelled in the ESOO are based on current conditions and capacity changes reported by industry,” said Mr Zema. “Should today’s market conditions continue, previously projected surpluses in all regions will reduce as these withdrawals place greater reliance on imports from other regions. This means that under a medium demand scenario, NSW, SA and Victoria may be at risk of breaching the NEM Reliability Standard at various points over the next decade.”

The 2015 ESOO uses current information provided by industry to report on the adequacy of existing and committed electricity supply in the NEM to meet the maximum demand and annual consumption forecasts detailed in AEMO’s 2015 National Electricity Forecasting Report over the next ten years (2015–16 to 2024–25).

Supply adequacy is tested under three demand scenarios – high, medium, and low – to identify Low Reserve Condition (LRC) points. The LRC points indicate whether any regions are at risk of breaching the NEM Reliability Standard which targets less than 0.002% of unserved energy for each financial year.

“A lot has changed in 12 months, not least within the energy industry which continues to undergo a rapid transformation. This time last year, industry was reporting a projected surplus generation capacity of 7,400 MW across the NEM in the next ten years,” said Mr Zema.

“The 2015 ESOO shows that the market outlook continues to adjust and adapt in response to the rapid rate of change impacting the energy industry. And we expect that an efficient market will continue to adjust and respond appropriately to this latest information.”

Mr Zema said that, although there are only wind and solar projects committed at this stage, AEMO is also tracking 21,689 MW of proposed new generation capacity. This includes 55.4% (12,021 MW) wind, 27.9% (6,040 MW) gas, 9.2% (2,000 MW) coal, 1.3% (287 MW) solar, 3.1% (666 MW) water and 3.1% (676 MW) other generation.

“AEMO will continue to monitor the status of generation projects, and keep the market informed of developments through AEMO’s online Generator Information page. Investment opportunities could and would need to occur through schemes supporting renewable energy generation, to meet localised consumption growth pockets, or to manage intermittent generation,” said Mr Zema.

Mr Zema said the ESOO does not consider market prices, profitability, or other costs and incentives that affect commercial decisions to invest in or withdraw generation capacity.

“Rather, the ESOO provides market participants, investors, and policy-makers with a current ‘state of play’ update from industry as to their projected 10-year outlook for various plants and proposed projects around the NEM,” said Mr Zema.

AEMO is continuing its work with stakeholders across the industry, including market participants, governments, and regulators, to identify and explore the opportunities and challenges presented in this latest supply adequacy assessment.

ELECTR IC ITY STATEMENT OF OPPORTUNIT IES REVEALS CHANGING OUTLOOK FOR ELECTR IC ITY SUPPLY

1 The National Electricity Law defines unserved energy as the amount of energy demanded, but not supplied, in a region determined in accordance with clause 3.9.3C(b), expressed as: (a) GWh; or (b) a percentage of the total energy demanded in that region over a specific period of time such as a financial year.

Energy Update August 2015P6

2015 ELECTRICITY STATEMENT OF OPPORTUNITIES

Energy Update August 2015 P7

The 2015 Electricity Statement of Opportunities uses current information provided by industry to report on the adequacy of existing and committed electricity supply in the National Electricity Market to meet the maximum demand and annual consumption forecasts detailed in AEMO’s 2015 National Electricity Forecasting Report over the next ten years (2015–16 to 2024–25). Check out AEMO’s Interactive Planning Map for more detailed supply and generation information.

For more information about the status of generation projects, visit AEMO’s Generation Information page.

Energy Update August 2015P8

In this Energy Update column, we take you behind the scenes at AEMO, introducing you to some of our employees. In this edition we talk to Nicola Falcon, Group Manager Planning, about the important role her team plays at AEMO, and what’s next on her horizon.

Energy Update (EU): Thank you for sharing your story with us, Nicola. Can you tell us a bit about your background?

Nicola Falcon (NF): I have a degree in Operations Research, from Canterbury, New Zealand. I moved to Australia in 2002 and started consulting, specialising in market modelling for the energy industry. After consulting for over 13 years, I moved to AEMO about a year ago.

EU: What was it about AEMO that attracted you?

NF: The type of work AEMO gets involved in, the people, the passion, the intellect, and the feeling that we are doing something that genuinely helps energy consumers in Australia.

EU: Can you please explain what your team does and why it’s such an important function at AEMO?

NF: There are two groups that sit under the Planning team: Network Planning and Supply Planning. Our role is to make sure that we can continue delivering energy security for all Australians. This requires us to assess future supply needs in both the gas and electricity markets, publish timely and relevant information and insights to facilitate efficient market responses, and provide a strategic overview of the transmission needs of the NEM. Importantly, we provide a holistic view of both the NEM and eastern gas system in the long-term that will ensure that we have an efficient, reliable and secure energy supply now and into the future.

EU: This edition of Energy Update looks at the 2015 Electricity Statement of Opportunities (ESOO). What’s next?

NF: The next big piece of work is the National Transmission Network Development Plan (NTNDP), which is due in November and builds on the ESOO and looks further ahead – 20 years – to what the future generation mix and transmission network needs might be under various scenarios. It will tie together some of the work AEMO has already published this year on emerging technologies and minimum demand, and look at the power system reliability and security implications of these forecasts. This allows us to identify challenges that we are going to be facing in the future, and look at how we can prepare.

EU: Finally, what do you like most about working at AEMO?

NF: I like the challenges and the satisfaction I get in my role, but more importantly it’s the people that I work with and the values that we share. Again, with AEMO it’s really about working in the best interest of consumers, and it’s satisfying to be part of it.

THE PEOPLE BEHIND AEMO…INTRODUCING NICOLA FALCON, GROUP MANAGER P LANNING

Energy Update August 2015 P9

THE PEOPLE BEHIND AEMO…

Course Location Date

Overview of the National Electricity Market (NEM)

Brisbane 24 September

Network and Frequency Control Ancillary Services (FCAS) constraints in the National Electricity Market (NEM)

Brisbane 14-15 October

Overview of the National Electricity Market (NEM)

Sydney 29 October

Overview of the Victorian Gas Market (DWGM)

Sydney 5 November

Metrology for the National Electricity Market (NEM)

Melbourne 11-13 November

Overview of the Short-Term Trading Market (STTM)

Melbourne 19 November

AEMO TRA INING

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.

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.

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On 17 August AEMO Group Manager Planning, Nicola Falcon, spoke at the Australian Institute of Energy – Gas in Transition forum.

Ms Falcon presented a high level overview of AEMO’s 2015 Gas Statement of Opportunities (GSOO), which was released in May 2015. Ms Falcon discussed AEMO’s take on gas supply issues, capacity trading, the gas supply hub, and the need for improvements relating to transparency of data.

An exciting piece of work is underway to completely overhaul AEMO’s existing website to better meet the needs of our stakeholders, with the project due for completion mid-2016.

Do you have feedback on AEMO’s current website? If so, we would love to hear your thoughts and suggestions. Please contact Group Manager Communications and Corporate Affairs, Joe Adamo.

CONFERENCE WRAP UP

AEMO WEBS ITE REDEVELOPMENT UNDERWAY

AUSTRAL IAN INST ITUTE OF ENERGY – GAS IN TRANSIT ION FORUM

GRATTAN INST ITUTE ’S ENERGY FUTURES SEMINAR

AUSTRAL IA’S CONFERENCE ON INTEGRAT ION OF D ISTR IBUTED ENERGY RESOURCES

On 19 August Nicola Falcon spoke at the Grattan Institute’s Energy Futures Seminar, which sought to answer the question, can renewable energy meet ‘baseload’ power?

Ms Falcon presented on AEMO’s 2015 Electricity Statement of Opportunities (ESOO), which features in this edition of Energy Update. Ms Falcon took the group through what our needs are from a reliability standard perspective over the next ten years, and raised questions as to whether renewable generation can meet that need, and what challenges we as an industry need to address for the future.

On 20 August AEMO National Planning Analyst, Matt Armitage, presented at the Cigré Conference on Integration of Distributed Energy Resources (CIDER).

Mr Armitage took attendees through the key insights from AEMO’s 2015 Emerging Technologies Information Paper, which was released in June 2015.

Mr Armitage gave an overview of other work AEMO is doing to investigate the impact of emerging technologies on the NEM. This included a teaser for the upcoming National Transmission Network Development Plan (NTNDP), together with a high level overview of Systems Capability’s work on the integration of renewables and the Regulatory Readiness for Storage working group.