AEMO Energy Update December 2016 by AEMO

DECEMBER 2016

NEW ERA FOR NATIONAL TRANSMISSION PLANNING P4 THE WESTERN AUSTRALIA GAS STATEMENT OF OPPORTUNITIES IS HERE P6 AEMO LAUNCHES ITS INAUGURAL STAKEHOLDER ENGAGEMENT COMMITMENT P7

Energy Update December 2016

UPDATE FROM ACTING CHIEF EXECUTIVE OFFICER KAREN OLESNICKY It has been a challenging year for AEMO and the wider Australian energy industry. I would like to start by expressing my gratitude to the entire AEMO team – from Perth to Brisbane, Adelaide to Norwest, Sydney to Melbourne – for your hard work, resilience and tireless effort. The loss of our dear friend, colleague, and former CEO Matt Zema in July has certainly left a mark on the lives of us all. His unparalleled passion, dedication and expertise within the energy industry was a privilege to be around, and I’d like to take the opportunity to express how grateful I am to have worked alongside such a fantastic individual. Carrying on Matt’s legacy, I had the pleasure of speaking via video on behalf of AEMO at the GO15 conference in Cape Town, South Africa, as the global initiative’s Acting President. With the continued evolution of the changing energy mix globally, I am excited at the opportunity to represent AEMO, and offer our skills and knowledge in tackling some of the biggest issues facing the industry today.

This month, AEMO has successfully published several key industry reports. The 2016 National Gas Forecasting Report, National Transmission Network Development Plan and Western Australia Gas Statement of Opportunities report aim to provide Australian governments, markets, and stakeholders with potential scenarios for Australia’s future landscape. All three reports outline the myriad of potential options the energy industry could take in moving to a low emission future, while at the same time ensuring secure and reliable supply to consumers in the most cost efficient manner. This month also saw the release of AEMO’s third report into the South Australia Black System event on 28 September 2016. This report provided an in-depth analysis on the impacts and effects of the event, and outlines 15 preliminary recommendations for industry and government discussion. Looking forward to 2017, I am excited to continue to strive for excellence in meeting our strategic initiatives for our stakeholders. The release of our Stakeholder Engagement Commitment document last month has solidified AEMO’s core value of remaining stakeholder focused. We have also recently progressed two important strategic initiatives relating to the integration of the Western Australia System Management function and the NEM-wide Power of Choice (PoC) program. On 1 November, AEMO welcomed 32 new employees, contractors and Western Power secondees to the team. AEMO personnel will be based at

the existing East Perth Control Centre facilities until we amalgamate our control room and Perth office into one by September 2017. AEMO’s core role in the PoC reform program is to develop and execute an efficient and effective implementation program that best meets the needs of both consumers and industry. AEMO’s first completed package of procedure changes for National Electricity Rules (NER) amendments (PoC Procedures Package 1) relates to reforms around Competition in Metering, Embedded Networks, and Metering Replacement Processes. We will continue to provide updates on this program throughout next year. The impressive work being done internally has instilled me with the utmost confidence that AEMO will continue to identify and address any issues that arise through the operational changes within the industry, and ensure Australia has a secure and reliable energy industry long into the future. This is an exciting, yet challenging time to be a part of Australia’s energy industry, and we thank you all for your continued support. Wishing you all a very safe and happy holiday season,

Karen Olesnicky.

CONTENTS P2

Update from Acting Chief Executive Officer Karen Olesnicky

An update on our Western Australian market reform program

AEMO publishes preliminary recommendations following the South Australian state-wide power outage

AEMO launches its inaugural Stakeholder Engagement Commitment

New era for national transmission planning

The people behind AEMO

AEMO releases its National Gas Forecasting Report

AEMO industry training courses

The Western Australia Gas Statement of Opportunities is here

Energy Update December 2016

A EMO PUBL I SH E S P REL IM INARY REC OMMEN DATI ONS F OLLOWI NG THE SOUTH AU ST RALI AN STATE-WIDE PO WE R OUTA GE On Monday 12 December, AEMO published its third incident report into the South Australian (SA) state-wide power outage (referred to as the ‘SA region Black System event’) that occurred on Wednesday, 28 September 2016. This report, using collated information as at 7 December 2016, provided a consolidated view of all information published to date, together with further insight into AEMO’s pre-event planning and system restart process in South Australia, and power system and market operations during the Market suspension period. The report also highlighted a number of challenges and measures relevant to broader considerations of how the changing power system responds to extreme events. While extreme events will occur from time to time, testing the wider resilience of the grid system, this report outlined for further analysis a number of preliminary recommendations to mitigate the risk of similar major supply disruptions in South Australia. This third report provided 15 preliminary recommendations with respect to industry’s preparation pre-event, actions during the event, the process for restoration, and communication during the market suspension.

Recommendations – market suspension Operation of the market during extended periods of market suspension revealed a number of challenges that had not been anticipated. Our preliminary recommendations address the need to develop procedures to minimise unintended dispatch and pricing outcomes. AEMO’s investigation has also identified possible improvements to facilitate the conduct of major event investigations in future. Our preliminary recommendations address the need to develop a more structured process to source and capture data after a major event, and better co-ordinate data requests. Further analysis is required before final recommendations are made following the Black System event in South Australia. Energy and climate policy, consumer preferences, and new technology options are driving the need for long term National Electricity Market–wide solutions. A fourth and final report, expected to be published in March 2017, will provide more detailed information from these investigations, including in regard to generator performance standards. Where these wider investigations indicate changes are required to processes and systems, the March report will outline these final recommendations. For all enquiries, please contact AEMO Media.

Recommendations – pre-event Power system security will always be our number one focus, and we constantly look to improve our processes to ensure this remains paramount. AEMO recommends establishing additional guidelines and processes for forecasting, assessment, and reclassification decisions for a broader range of extreme weather conditions. Recommendations – event These recommendations look at system protection schemes and other measures to minimise the risk of separation at the Heywood Interconnector after a major supply disruption, and to maximise the chances of avoiding a Black System if separation occurs. Recommendations – restoration System restarts are rare events, and therefore each event represents a valuable learning experience for both AEMO and the industry. Our preliminary recommendations in this report aim to improve the speed of restoration, without increasing risk, should another Black System occur.

Energy Update December 2016

N EW ERA F O R N AT IONA L TR A NSMIS S ION P L A NN ING AEMO’s 2016 National Transmission Network Development Plan (NTNDP), released on Monday 12 December, illustrated the need for transmission networks to evolve to maintain a reliable, secure power system for the future. “Transmission networks, historically designed for transporting energy from traditional coal and gas generation centres, will be asked to support largescale renewable generation and be increasingly needed for system support services, such as frequency and voltage support to maintain a reliable supply,” said AEMO Chief Operating Officer, Mike Cleary. AEMO’s assessment of options for national transmission grid development found potential value in developing a more interconnected National Electricity Market (NEM) over the next 20 years to remove network congestion, lower the overall cost of generation dispatched to consumers, and improve the power system’s resilience to unexpected events. “While noting that there may be many different combinations of strategies to meet future balancing requirements, AEMO’s NTNDP modelling reveals positive net benefits for potential transmission developments to help facilitate the diversity of the future generation mix and to improve system resilience,” said Mr Cleary.

Energy Update December 2016

“The NTNDP highlights the need for coordination and contestability to maximise the benefits of transmission investments across the NEM and ultimately for consumers, making transmission development competitively priced, reducing the costs for consumers, and increasing the benefits and efficiencies further.” The NTNDP also noted that interconnection would not necessarily solve all challenges and local, smallerscale solutions involving network and non-network options will also be required to maintain a reliable supply. While AEMO considers the flat expectations for grid demand in its ‘neutral scenario’ as the most likely, a range of uncertainties such as the economic outlook for electricity intensive industries and consumer investment trends point towards demand potentially being materially lower than current expectations. There are further uncertainties in supply as the transforming generation mix largely depends on the timing of coal generation retirements and what type of new generation replaces coal. “Unless alternative technologies can commercially provide the energy and system stability services delivered by coal generation, up to 12 GW of new gas-powered generation (GPG) may be required to support intermittent renewable generation,” said Mr Cleary. AEMO acknowledges transmission investment is costly and can take time to plan and build. Comprehensive RIT-T assessments will examine the full range of potential solutions, including a mix of smaller scale and non-network solutions such as synchronous condensers, energy storage and demand response technologies.

“Given the range of potential developments in consideration, and the interdependencies between them, a coordinated, national approach to plan for the energy transformation is imperative to enable optimal solutions to be implemented in the long-term interest of NEM consumers,” said Mr Cleary. AEMO will continue to work closely with industry and policy-makers to further explore network development requirements and opportunities for the future. To view the NTNDP, please click here. For more information, please contact Matt Armitage.

The NTNDP highlights the need for co-ordination and contestability to maximise the benefits of transmission investments across the NEM. Mike Cleary AEMO Chief Operating Officer

A E MO RE L EA SES I TS NAT I ON A L G A S F O RE C A ST I N G R E P O RT

With this outlook comes great challenges for policy-makers, infrastructure planners, and asset operators. Mr Mike Cleary AEMO Chief Operating Officer

This month AEMO has released its third annual National Gas Forecasting Report (NGFR). The report forecasts the annual gas consumption and maximum gas demand for Australia’s eastern and south-eastern gas markets, and provides a view into Australia’s gas future over a 20–year outlook period. The NGFR takes into account the complex interdependencies between energy supply and demand, competition and price dynamics, the gas and electricity sector, and the relationship between Australia’s energy demand and growing linkages to the international gas sector and manufacturing economy.

Several key points from our latest NGFR are: • Forecast demand for liquefied natural gas (LNG) exports will catapult Australia to become the world’s second largest LNG exporter by 2017, and act as a major supplier for East Asian markets. • To meet Australia’s emissions reduction targets, there will be a growing demand for gas-powered generation (GPG) towards the end of the 20-year outlook period. • During the 2020s, GPG is expected to support the achievement of Australia’s climate commitments by replacing higher-emitting coal generation and complementing renewable energy technology along a pathway to a lowemissions power system.

AEMO Chief Operating Officer Mike Cleary cautioned that while the projected outlook for gas demand is positive, projections may be hampered by commercial and operational challenges resulting from a range of major uncertainties facing the industry. “With this outlook comes great challenges for policy-makers, infrastructure planners, and asset operators. As we continue to highlight in each of our forecasting and planning reports, the energy industry, the economy, and the consumer is transforming rapidly, requiring a reimagining of the energy system and new solutions to manage the transition to new energy sources and technology,” said Mr Cleary. To view the latest NGFR please click here. For more information, please contact Scott Maves.

Energy Update December 2016

THE WESTERN AUSTRALIA GAS STATEMENT OF OPPORTUNITIES IS HERE This month AEMO has released its 2016 Western Australia Gas Statement of Opportunities (WA GSOO). The WA GSOO forecasts the annual gas supply and demand of WA’s gas market over the 10–year outlook period from 2017 to 2026, and also includes an assessment of transmission infrastructure and storage capacity in WA. “Growth in domestic gas demand is forecast to be a marginal 0.1% over the outlook period, as there are only a handful of large gas consumers that are expected to enter the market over this horizon, and we are projecting a lower decrease in gas consumption from both mining and minerals processing since this was last reported in the 2015 WA GSOO,” said AEMO’s Executive General Manager, Western Australia, Cameron Parrotte.

Energy Update December 2016

Under its base scenario, AEMO forecasts current and ‘in development’ gas production facilities would be able to meet demand over the outlook period, and based on current production rates of domestic gas and liquefied natural gas (LNG), proved and probable reserves are expected to last until 2035. “Assuming the continued development of gas reserves, domestic gas supply in WA could exceed demand by at least 88 terajoules (TJ) per annum over the 10–year outlook period. However, should there be delays in the commencement of the Wheatstone domestic gas production facility, the domestic market could become tight in 2017 or 2018. “It is important to highlight that continued expenditure may be required to enable several other domestic production facilities to have sufficient developed reserves to operate beyond 2021. “Adding to the uncertainty, a large proportion of proved and probable reserves are held by LNG export facilities, who may only make gas available for the domestic market beyond their domestic gas obligation quantities should it be commercially viable,” said Mr Parrotte.

With approximately 92% (158,373 PJ) of Australia’s total conventional gas resources located onshore and offshore in WA, it is important to note that a large proportion of these resources have not been explored and discovered. In addition to the above, an estimated 311,428 PJ of unconventional resources (tight and shale gas) may be located in WA. To view the latest edition of the WA GSOO please click here. For more information, please contact Neetika Kapani.

A N U P D AT E O N OUR WESTERN AUSTRALIAN MARKET REFORM PROGRAM This month AEMO was informed by the Public Utilities Office (PUO) that the Western Australian (WA) Government’s Electricity Market Review Bills are unlikely to pass through Parliament until after the state election in March 2017. In light of recent events, the PUO has advised AEMO that if the Bills are rejected, the time required to identify, enact and implement a revised plan will most likely delay the start of the new market until 1 July 2019. AEMO and the PUO remain committed to the important policy reform of the WA market, and will continue to work with our stakeholders to deliver the best outcome for WA energy consumers. For all enquiries, please contact the WAMRP team.

AEMO LAUNCHES ITS INAUGURAL S TA K E H O L D E R E N G A G E M E N T C O M M I T M E N T The document is a public declaration designed to set out the framework for what our stakeholders can and should expect when they engage AEMO, and is an official promise to keep stakeholder engagement at the forefront of everything we do.

If you would like to view the Stakeholder Engagement Commitment, please click here. For all enquiries, please contact Sandra McLaren.

“AEMO’s Stakeholder Engagement Commitment is our way of making sure we continue to deliver the high standard of advice, services and support that our stakeholders expect from our people. Through this commitment, we are keeping AEMO accountable to you, our stakeholders,” said AEMO Acting Chief Executive Officer (CEO), Karen Olesnicky. AEMO believes that the Stakeholder Engagement Commitment document is key to ensuring that we continue to engage with stakeholders on potential issues and solutions that may arise within the industry, and will help fulfil AEMO’s vision to deliver energy security to all Australians. “Informing, involving and collaborating with our stakeholders, as set out in the commitment, forms the basis of how AEMO aims to get the most out of our stakeholder relationships, so we can more effectively and efficiently operate the energy market and power systems,” said Acting CEO, Karen Olesnicky.

Energy Update December 2016

THE PEOPLE BEHIND AEMO… INTRODUCING T J A A RT VA N D E R WA LT , MANAGER, O P E R AT I O N S P L A N N I N G , O P E R AT I O N S In this section, we take you behind the scenes at AEMO to introduce you to some of our employees. This month we spoke with Tjaart Van Der Walt, Manager, Operations Planning, Operations about his role at AEMO and the national power system. Tell me about your background before AEMO? Prior to working for AEMO, I was employed at the South African electrical utility company Eskom for 14 years. Over there I worked closely with the control room, focusing on emergency planning, real-time emergency management and ensuring the load shedding plans for South African distributors were executable and practiced. What is your role at AEMO? I am the senior manager for the National Electricity Market’s (NEM) Real Time Operations. My role has many responsibilities, but some of my key duties include ensuring the ongoing

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security and performance of the national electricity power system, establishing and maintaining flexible policies, systems and guidelines for the NEM, effectively managing stakeholder requirements in relation to the development and maintenance of the national power system, and gaining credibility and acceptance with our stakeholders. What drew you to working in the energy industry? I was drawn to the fact that electricity is such an essential part of everyday life. I think society depends on electricity more than they realise, and I like how integral energy is to the operation of countless industries, companies, and communities. I also like being a part of an industry that allows you to see how your role can directly impact the world around you. What do you love most about working for AEMO? I love the amount of new opportunities I’m faced with every day. AEMO always gives you the chance to develop and grow within your field, and gain some really valuable experience that you can’t get anywhere else. I also like being a part of such a positive working environment, where all your hard work is rewarded at the end of the day.

For all the details on upcoming training courses for 2017, you can visit AEMO’s website here.

Given the recent state-wide black out in South Australia, can you tell us a little bit about what the event was like from a control room perspective? Emergency situations like these are exactly what my team and I are trained for, and from there it was a matter of enacting these plans. I have previously experienced four black outs working in the control room over in South Africa, so the situation wasn’t entirely new to me. I felt really confident in AEMO’s ability to safely get everything operational again. What new challenges do you think are facing the energy industry today? I think one of the biggest challenges the energy industry is facing today is being able to manage all the new technologies being developed in real time. The faster new technologies begin to evolve and enter the market, the less time there is to properly study, map and test how they will affect our power grids. I think it is going to be both interesting and challenging to see how we manage to integrate all these exciting new developments into providing one secure, reliable power network for all Australians.

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

T E L L U S W H AT Y O U T H I N K AEMO welcomes your feedback. If you have suggestions, comments, or wish to change your contact details, please email media@aemo.com.au.

Energy Update December 2016