Energy Update April 2015P2

It is no longer ‘new news’ that the energy industry is undergoing an unprecedented transformation. Every day, we hear about sweeping technological advancements in gas, electricity and renewables; we debate how to update our existing regulatory and policy frameworks to reflect the changing generation mix and the rapid development of Australia’s energy markets; and we marvel at the challenges and opportunities borne out of increasing consumer engagement when it comes to choice and energy supply solutions.

We are an industry in transformation – but as seen in this Energy Update, it is clear that our industry has the vision, leadership, and discipline to work together and pool our knowledge and resources. In doing so, we have the opportunity to influence the future direction of the sector, to support improved information and data, stronger competition, and increased market efficiency and productivity, for the benefit of Australian consumers and industry participants.

The National Gas Market Bulletin Board (NGMBB), which AEMO presented at the Australian Domestic Gas Outlook Conference in Sydney in March, is a vital initiative to give gas market participants more transparent, accurate and accessible information. The NGMBB is the result of close consultation between AEMO and gas market participants, and a great example of industry working together to develop an end product that is timely, strategic, and future-focused.

And just 12 months after AEMO launched Australia’s first voluntary gas supply hub in Wallumbilla, Queensland, we celebrate the April listing of the Wallumbilla Gas Futures, a joint project of AEMO and the Australian Stock Exchange (ASX). The establishment of a gas futures market is an important step in helping participants manage risk by providing greater price transparency, and is another example of industry working together to pursue growth opportunities and develop timely solutions.

In developing our 2015 Gas Statement of Opportunities (GSOO) published this month, it became clear that the rate and scope of change in our energy markets increases the challenge of sourcing reliable information, hampering industry’s ability to make informed decisions and implement strategic responses in this time of change. Therefore, accessibility to accurate data is increasingly valuable to industry participants, governments, regulators, and consumers in terms of energy supply and security, and future investment opportunities.

This is an ongoing issue for the energy industry, and one recognised by the Federal Government which has announced that the Australian Competition and Consumer Commission (ACCC) will conduct a 12-month public inquiry into the competitiveness of wholesale gas prices in eastern and southern Australia.

Reliable, transparent, and accessible information is increasingly critical to an industry looking to successfully navigate and shape this new world order, and this is a topic we intend to explore in more detail at our Members’ Briefing on 14 May.

We will continue to pursue diverse opportunities to give industry and consumers better quality information to address the challenges and opportunities of our fast-changing industry as quickly, efficiently, and effectively as possible.

UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA

CONTENTS02 Update from Managing Director and CEO Matt Zema

03 No short-term gas supply gaps expected

04 New products, big impact

05 ASX and AEMO launch Wallumbilla Gas Futures

06 Sunny days ahead for Nyngan Solar Plant

07 The people behind AEMO

08 In brief

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AEMO’s 2015 Gas Statement of Opportunities (GSOO), released on 13 April 2015, forecasts no supply gaps for any of Australia’s eastern and south-eastern gas markets over the short term to 2019.

The 2015 GSOO reports on the adequacy of eastern and south-eastern Australian gas markets to supply maximum demand and annual consumption, as forecast in the 2014 National Gas Forecasting Report (NGFR) published in December.

Lower than forecast consumption levels, most notably in the industrial sector within Queensland and New South Wales, combined with upgrades to gas market infrastructure, have alleviated short-term supply gaps that were forecast by AEMO in its previous GSOO update in mid-2014.

Matt Zema, AEMO Managing Director and Chief Executive Officer, said the shift in supply forecasts illustrates the dynamic, ever-changing natural gas landscape, most notably following the initiation of liquefied natural gas (LNG) exports.

“Australia’s eastern and south-eastern gas markets are experiencing rapid transformational change. The 2015 GSOO points to a 17%* forecast decline in New South Wales’ gas consumption in 2019 and identifies crucial upgrades to gas market infrastructure, such as the commissioning of the Newcastle LNG storage facility,” said Mr Zema.

“A fall in the forecast demand, increased capacity of the Victoria – New South Wales interconnector, and upgrades to the Moomba–Sydney and Moomba–Adelaide pipelines, all reduce the potential for supply gaps in the short term,” said Mr Zema.

“The forecast medium and long-term supply gaps equate to 214 petajoules (PJ), down from the 1,000 PJ anticipated in the 2013 GSOO, largely due to lower gas consumption forecasts following a reduction in the industrial consumption across eastern and south-eastern gas markets,” said Mr Zema.

The 2015 GSOO also confirms that the Victorian Declared Transmission System (DTS) can supply the maximum forecast 1-in-20-year gas demand of 1,257 terajoules per day from 2015–2019.

NO SHORT-TERM GAS SUPPLY GAPS EXPECTED

* The 17% reduction is due to the decline in residential, commercial and industrial demand in New South Wales, as reported in the National Gas Forecasting Report (NGFR) of December 2014.

Energy Update April 2015P4

Following a collaborative effort by our Corporate Development, Operations, and Markets departments, the submission states it is critical that regulatory structures allow our energy markets to evolve in light of the massive change taking place, rather than entrench existing structures.

“Energy markets are developing and changing quickly in terms of who interacts with customers, the products and services offered, and how customers source energy services,” says AEMO Executive General Manager Corporate Development David Swift, who recently presented on the topic at a COAG Energy Council workshop, highlighting how risks to network and market operations from new products and services can be managed.

“The current retail framework reflects a market model that prevailed a decade ago, when the potential and scale of embedded generation – or storage technology – was not envisaged,” he said.

“What we’re seeing now are new business models and service providers seeking to develop new products to leverage the customer response.

“Markets are also transitioning, to offer a variety of products and services with an increased focus on unbundling. As an example, advances in metering mean that service providers can now develop products tailored to the needs of individual customers, where before usage patterns were much more opaque.”

New and alternative energy services – including from the grid, off the grid, photovoltaic, energy storage, electric vehicles and so on – are also emerging alongside new technologies, like smart devices, to help us better understand and manage energy use.

The submission states a streamlined regulatory framework focused on future needs, and which supports efficient network pricing – including tariffs that give customers the opportunity to respond to price signals – is necessary.

“Greater network access is also needed to ensure our markets evolve efficiently. Networks should develop business models that do not inhibit the development of competitive markets, to support new products and services,” Mr Swift said.

“Importantly for AEMO, we need appropriate access to information to operate the market and maintain power system security and reliability. The risk for us is that we lose visibility of what is happening behind the meter, which could compromise system security and undermine our ability to prepare accurate forecasts.”

For more information contact AEMO Executive General Manager Corporate Development David Swift or see the presentation on the COAG website.

A shared platform to support key market processes will support the efficient deployment of new electricity products and services. This, and a range of other reforms will help drive a more efficient, more competitive, and more environmentally sustainable electricity market, according to a new AEMO submission to the Council of Australian Governments’ (COAG) Energy Council.

NEW PRODUCTS, B IG IMPACT

Energy Update April 2015 P5

ASX AND AEMO LAUNCH WALLUMBIL LA GAS FUTURES

The establishment of a gas futures market is an important step towards increasing transparency and competition in Australia’s growing eastern and south-eastern gas markets.Mr Matt Zema, AEMO Managing Director and Chief Executive Officer.

This month, the ASX and AEMO launched the ASX Wallumbilla natural gas futures, which commenced trading on 7 April 2015.

The launch comes a year after AEMO established Australia’s first voluntary gas supply hub in Wallumbilla, Queensland. The Wallumbilla End of Day Benchmark price will be used as the reference price for ASX’s new gas futures contract.

The listing coincides with a significant change in the dynamics of the Australian east coast gas market, with the start of liquefied natural gas exports moving an increasing number of molecules offshore.

ASX’s Deputy Chief Executive Officer Peter Hiom said, “ASX is committed to supporting the development of Australia’s energy markets. Our new futures products help gas industry participants manage their forward price risk and will provide greater price transparency – both critical ingredients for customers in growing their businesses.”

Matt Zema, AEMO Managing Director and Chief Executive Officer, said that the establishment of a gas futures market will greatly assist the gas industry, and is an important step towards increasing transparency and competition in Australia’s growing eastern and south–eastern gas markets.

“Participants will be able to use the Wallumbilla Gas Supply Hub Benchmark price as a basis price for their gas contracts, with the development of a derivatives market providing a risk management tool for forward pricing and planning,” said Mr Zema.

The new ASX gas futures are part of ASX’s expanding energy derivatives business, which is designed to meet the risk management needs of Australian energy participants. They complement ASX’s existing electricity derivatives product suite, which has grown 18% year-to-date compared to the same time last year, from 135,329 to 159,455 contracts traded, or the equivalent of 1.8 million megawatt hours of electricity per day.

Mr Zema said that AEMO held regular meetings with industry to refine its benchmark price methodology in keeping with industry needs and expectations.

“Industry has been supportive of mechanisms to facilitate the development of a derivative market in gas, with the publication of a benchmark price being integral to the process,” said Mr Zema.

For more information about the Wallumbilla End of Day Benchmark price, contact AEMO Trade Facilitation Specialist Angelo Mantsio.

Energy Update April 2015P6

SUNNY DAYS AHEAD FOR NYNGAN SOLAR PLANT

ASEFS was a joint project, with collaboration between organisations including CSIRO, AEMO, the Bureau of Meteorology, and several Australian universities. ASEFS joins the existing Australian Wind Energy Forecasting System (AWEFS) in meeting AEMO’s obligations under the Rules for intermittent generation.

AEMO Group Manager Forecasting Louis Tirpcou said the introduction of the ASEFS was key to facilitating increased participation from large-scale solar generation in the National Electricity Market (NEM) and improving AEMO’s ability to forecast the solar energy contribution to electricity supply.

“To date, solar generation has largely been confined to residential photovoltaic (PV). The Nyngan Solar Plant is an example of the NEM’s evolving generation mix and was the first semi-scheduled solar plant in the NEM to register in ASEFS in December last year,” said Mr Tirpcou.

“Once in production, two AGL-owned solar plant projects – this one at Nyngan and a second to be built at Broken Hill with a generating capacity of 53 MW – will produce around 360,000 megawatt hours (MWh) of electricity annually.”

The Nyngan plant comprises around 1,350,000 solar PV north-facing modules installed on frames. The modules are wired together in arrays and connected to inverters to transform the direct current that is produced into alternating current to be fed into the electricity network.

The Nyngan plant has been developed with funding assistance from the Australian Renewable Energy Agency (ARENA) and the New South Wales Government. There are only two other small non-scheduled solar plants in the NEM.

For more information see the Nyngan Solar Plant fact sheet.

The Nyngan Solar Plant is an example of the National Electricity Market’s evolving generation mix.AEMO Group Manager Forecasting Louis Tirpcou.

The first large-scale solar generating plant to be registered in AEMO’s Australian Solar Energy Forecasting System (ASEFS) production system commenced operation in March. The Nyngan Solar Plant, a 102 megawatts (MW) solar plant located 10 kilometres west of the New South Wales town of Nyngan, has begun generating up to 25 MW of electricity as it ramps up to full capacity.

Nyngan Solar Plant – photo courtesy of AGL.

Energy Update April 2015 P7

In a new column for Energy Update, we take you behind the scenes at AEMO, introducing you to some of our employees. In this edition we talk to Matt Armitage ahead of his presentation to the Australian Energy Storage Council Conference on 3-4 June 2015.

Energy Update (EU): Thank you for sharing your story with us, Matt. Let’s start with your background?

Matt Armitage (MA): I started my career as a Chartered Accountant and Tax Adviser in the United Kingdom. After working in the financial services sector for a number of years, I realised that I simply wasn’t impassioned by tax and accounting. My wife and I relocated to Australia in early 2011 so that she could be closer to her twin brother who had been here for years, and I saw this as an opportunity to focus on a career that I could feel truly excited about. The energy and resources sector is arguably the largest industry in Australia, and given the ever-changing energy landscapes, I went back to school and studied a Masters in Energy and Resources Management. The research phase of my Masters led to a role at AEMO in March 2014.

EU: What was the focus of your research?

MA: I looked at the economics of residential electricity storage (RES) battery systems that complement solar photovoltaic (PV), now being sold to grid-connected consumers. Many people believe this technology could disrupt the electricity industry in the future. My research paper used a cost optimisation model to analyse the economic viability of battery-based RES for residential consumers today, and to project the likely paybacks for such systems when investing over the next decade. I also looked into how RES could impact the National Electricity Market (NEM) in terms of the timing, volume and volatility of residential demand for grid delivered electricity. I wrote, and still strongly believe, that a lot of work is required by the industry as a collective to ensure that storage and other emerging technologies are integrated into the NEM effectively as the uptake from consumers increases. But from my experience in the industry so far this topic is a high priority for most people, which is great.

EU: Is this the subject of your presentation at the upcoming Australian Energy Storage Council conference?

MA: Yes. Electricity storage is a very exciting subject. There are certainly some limitations for the widespread introduction of energy storage systems, most notably the high cost of the technology. However, with a reduction in cost, combined with changes to tariffs to incentivise uptake, and possible changes to the business models that deliver this technology to consumers, I believe adoption of this technology will be sooner than many believe.

EU: What’s it like working at AEMO?

MA: I love it here! I love the people as there is a real breadth of backgrounds and diversity. As a career ‘transitioner’, AEMO welcomed my diverse, non-traditional engineering background. I am the only non-engineer in my team in the National Planning division, but I feel truly welcomed by my colleagues who are assisting me in getting up to speed on the technical side of things.

EU: The energy sector can be daunting for newcomers. Any tips for those interested in a career in energy?

MA: I love to speak to people who have years of experience and wisdom. I have found people, not just at AEMO but across the broader industry, to be very open and generous with their time. So my tip is to listen to the experts and ask as many questions as you can.

Matt Armitage will be speaking at the Energy Storage Council Conference in Sydney at Australian Technology Park on 3-4 June 2015. For more information on the Conference, please visit the website or contact Matt directly.

THE PEOPLE BEHIND AEMO…INTRODUCING MATT ARMITAGE – ANALYST, NAT IONAL P LANNING AT AEMO

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Course Location Date

Understanding MSATS Melbourne 6-7 May

Metrology for the National Electricity Market

Sydney 6-8 May

Overview of the National Electricity Market Brisbane 14 May

Overview of the Short Term Trading Market Sydney 28 May

Overview of the National Electricity Market Hobart 4 June

Overview of the National Electricity Market Sydney 25 June

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 is pleased to announce its first ‘Overview of the National Electricity Market’ session for Hobart, Tasmania, scheduled for 4 June 2015.

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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AEMO is pleased to announce that it will be relocating its existing Queensland operations from Mansfield to 10 Eagle Street in the Brisbane central business district (CBD).

AEMO Managing Director and Chief Executive Officer Matt Zema said the Mansfield site has served AEMO well over the years.

“We are proud of the diverse team environment and the culture of hard work and commitment we have developed at Mansfield over the years, and we look forward to building on this legacy at our new office in the Brisbane CBD,” Mr Zema said.

“The move to 10 Eagle Street will position AEMO for a successful future by ensuring our people and systems continue to be accommodated in

AEMO has commenced a formal search for a new chair, and also to fill an existing vacancy on the AEMO board for a non-executive director.

In accordance with AEMO’s Constitution, the search for a chair arises due to the retirement of current chair, Dr Thomas (Tom) Parry AM, when his second term concludes at the annual general meeting to be held in November 2015. AEMO has engaged board search firm Heidrick & Struggles to undertake the search for a new chair.

For the non-executive director vacancy, the Board is seeking suitable candidates who have experience leading transformational change driven by technology. While experience in the energy industry, markets or utilities is desirable, it is not considered essential. AEMO has engaged a separate board search consultancy, Boomerang, to conduct this search.

Both appointments must meet the independence criteria set out in AEMO’s Constitution.

AEMO Members are welcome to refer potential candidates for both positions to the relevant executive board consultancy.

A Special General Meeting will be held once the Council of Australian Governments’ (COAG) Energy Council Appointments Selection Panel has

AEMO’S QUEENSLAND OPERAT IONS ON THE MOVE

AEMO BOARD UPDATE

modern and functional facilities that are fit-for-purpose, adaptable, and centrally located for the convenience of employees, visitors and industry stakeholders.”

Mr Zema said AEMO is closely managing the relocation process and working with our stakeholders to ensure that there is no disruption to critical systems, and only minimal impact on employees and market participants during the transition.

“AEMO is planning for a smooth transition of our Queensland operations, which we expect to be completed by early 2016,” said Mr Zema.

undertaken candidate interviews and is in a position to make recommendations for the appointments to AEMO Members. At that meeting, Members will consider whether they agree to recommend the candidates to the COAG Energy Council for appointment. This meeting will also consider any directors eligible for reappointment.

Further information on the process for appointment is available on the AEMO website.

For more information on the selection process or the Special General Meeting, please contact AEMO Company Secretary and General Counsel, Brett Hausler.