UPDATE AUGUST 2013
TAKING THE
ESOO
INVESTMENT OUTLOOK
P5
INVESTMENT LEAD BLUEPRINT FOR
DELIVERING VALUE
P6 P7
UPDATE
FROM CEO MATT ZEMA
This month we released the Electricity Statement of Opportunities (ESOO), which reports that most regions of the National Electricity Market (NEM) are unlikely to require new electricity generation investment before 2022–23. Only Queensland’s investment requirement has been brought forward rather than deferred, with additional generation required in 2019–20. This is largely due to the increase in large industrial consumption given the ramp-up of liquefied natural gas (LNG) projects there. The ESOO highlights the impact of reduced energy consumption across the NEM, driven by a continuing increase in rooftop PV generation and the consumer response to electricity prices, and new large-scale renewable generation development.
Also recently published is the South Australian Electricity Report (SAER), an independent report prepared by AEMO as part of our South Australian advisory function. The SAER provides a high-level executive briefing on South Australia’s electricity supply and demand balance. This year’s report shows there is adequate generation to meet South Australia’s requirements over the 10-year outlook period, again driven by a forecast drop in consumption. The SAER revealed that as at 28 June 2013, over 4,900 MW of potential and committed new electricity generation capacity has been publicly announced in South Australia, most of which is wind-powered. AEMO and the energy sector also face major changes relating to gas; however, the challenge here is quite the opposite, with rapidly-growing LNG demand the driving force behind change.
AEMO also released the Power System Adequacy outlook, which assesses electricity supply over the next two years. It finds that the power system is expected to have sufficient supply capacity to meet reserve requirements for that period.
The Standing Council on Energy and Resources’ (SCER) reform agenda acknowledges the rapidlydeveloping gas markets; implementing a gas supply hub at Wallumbilla in Queensland is one of the ways we are creating more opportunities for trading gas and ultimately increasing price transparency.
The methodology behind the recently-published National Electricity Forecasting Report – a key input into all of AEMO’s planning reports – is now available on our website for those keen to explore in more detail the assumptions behind this year’s findings.
The Energy Market Leaders Forum (EMLF), which I chair, provides high-level input to leaders’ forums for electricity, gas and networks. The EMLF met earlier this month to discuss recent developments across the gas and electricity wholesale markets,
and to consider new research commissioned by AEMO that looks into international examples of capacity trading on gas pipelines. AEMO is working with industry stakeholders to develop a potential voluntary trading capacity mechanism for the Wallumbilla gas supply hub. Enabling shippers to trade capacity on gas pipelines more easily will boost supply hub operations, foster better gas trading opportunities, and enhance liquidity at the hub. AEMO intends to present an update on progress at the next EMLF meeting in November.
Over 4,900 MW of potential and committed new electricity generation capacity has been publicly announced in South Australia.
CONTENTS 02 Update from the CEO 02 AEMO CIO Chris Ford embarks on next career challenge 03 Calling energy graduates for 2014 03 Emergency teams gear up for NEM security exercises
AEMO CIO CHRIS FORD EMBARKS ON NEXT CAREER CHALLENGE AEMO’s Chief Information Officer Chris Ford is moving on to his next career challenge.
06 Taking the lead on market development
Mr Ford joined AEMO in February 2012 to lead AEMO’s Information Management and Technology (IMT) department, with responsibility for managing the critical infrastructure that underpins eastern and south-eastern Australia’s energy markets.
07 AEMO’s blueprint for delivering value in the coming year
“Chris has increased the profile for AEMO in the energy sector community, particularly in
04 Energy outlook for South Australia 05 2013 ESOO shows energy investments can be deferred
08 In brief
02
responding to challenges around cyber security,” said AEMO Managing Director and Chief Executive Officer Matt Zema. “We have started the search for a new CIO and in the interim, our Chief Financial Officer Ms Karen Olesnicky will act in the CIO role,” Mr Zema said.
EMERGENCY TEAMS GEAR UP FOR NEM SECURITY EXERCISES CALLING
ENERGY GRADUATES FOR 2014
AEMO is currently accepting applications for its three-year Graduate Development Program beginning in February 2014. Roles are available in Adelaide, Brisbane, Melbourne, and Sydney. The I AM EMPOWERED program targets graduates seeking a unique and challenging career within the Australian energy industry, and is built on the notion that AEMO empowers employees to control their careers. Successful graduates will gain experience in a range of separate business areas across AEMO, including comprehensive training in gas, electricity and information technology. “The program allows graduates to benefit from participating in real projects with real responsibility, and work alongside some of the best energy-focused minds in Australia,” said AEMO Executive General Manager People and Culture, Maree Gardner. “The program also provides graduates with a unique insight into life at the executive level, with opportunities for regular exposure to the Chief Executive Officer and Executive Leadership Team,” Ms Gardner said. This year’s graduate campaign sees AEMO utilise several social media platforms. AEMO has launched its Facebook page and YouTube channel to support the campaign, and has commissioned online advertisements to encourage applications from the top graduates around the country. Follow AEMO on Facebook here to learn more about AEMO’s unique corporate culture.
The 2013 National Electricity Market Emergency Management Forum (NEMEMF) emergency exercises are scheduled for September 2013 and will provide learning opportunities for NEM participants in managing major disruptions to the power supply resulting from a systematic, coordinated attack on a range of electricity network elements.
“This exercise is an opportunity to practise decision-making procedures, and make any necessary revisions to the relevant protocols and procedures,” she said.
The emergency exercises are conducted annually to ensure that jurisdictional arrangements across the NEM are robust and appropriate for maintaining NEM security across a range of emergency scenarios.
Historically the NEMEMF exercise has been centrally coordinated, with participants remaining in their jurisdiction and participating remotely. This year participants will come together in South Australia and Queensland, enabling them to observe activities above and beyond their own specific involvement.
AEMO is leading an exercise planning team comprising Transend, Powerlink, Transgrid, the Department for Manufacturing, Innovation, Trade, Resources and Energy (DMITRE) and the Department of Resources Energy and Tourism (DRET). The northern exercise involves the Commonwealth, Queensland, New South Wales and the Australian Capital Territory; the southern involves the Commonwealth, Victoria, Tasmania, and South Australia. “Coordinated and systematic attacks are an ever-increasing concern pertaining to major infrastructure such as the NEM,” said AEMO Principal Emergency Advisor Shonal Dessmann, who is the exercise director and heads up the NEMEMF planning team.
“The exercise scenarios are being designed to enable rigorous exploration of plans, procedures, practices and protocols in a safe, controlled learning environment. They are an essential component of our commitment to continuous improvement in maintaining NEM reliability and security.”
“This allows for fresh perspectives, new insights, and a deeper understanding of who and what is involved. It will further consolidate our emergency preparedness,” said Ms Dessmann. For more details about AEMO’s emergency management function, see AEMO’s website.
“This exercise is an opportunity to practise decision-making procedures, and make any necessary revisions to the relevant protocols and procedures.”
Graduates can visit AEMO’s graduate website page to apply and explore eligibility criteria. Applications close Sunday, 8 September at 11:30 PM. For further information email Graduates@aemo.com.au.
Energy Update August 2013 03
ENERGY OUTLOOK FOR SOUTH AUSTRALIA
Wind 60.7%
Biomass 0.2% Solar 1.8% Gas 14.6%
Coal 11.6%
South Australian publicly announced and committed generation projects as at 28 June 2013.
Geothermal 11.1%
AEMO’s recently-published 2013 South Australian Electricity Report (SAER) outlines a slight decrease in annual energy consumption over the next 10 years and a flattening of maximum demand, down from the 0.8% average annual growth forecast last year. Annual energy consumption is forecast to decline by 0.1% per year over the next decade, which is consistent with AEMO’s recent 2013 National Electricity Forecasting Report findings. South Australia’s latest energy consumption forecast contributes to a deferred need for additional investment to meet the system reliability standard and satisfy South Australian consumption levels over the 10-year outlook period; continuing the trend evident in the 2012 SAER. As a result, no low reserve conditions are expected in South Australia over the outlook period. 04
Seventeen of the 29 publicly announced projects are wind, with a capacity of almost 3,000 MW.
Committed and publicly announced generation projects in the state focus on renewable energy projects, particularly wind. Seventeen of the 29 publicly announced projects are wind, with a capacity of almost 3,000 MW. The only committed project is the 270 MW Snowtown Stage 2 Wind Farm, which was confirmed in September 2012. South Australia’s annual energy consumption remained materially unchanged over the past 12 months. In 2012–13, South Australia reached a maximum demand of 3,158 MW; a 179 MW increase on 2011–12, but 266 MW lower than the record maximum demand in 2010–11. AEMO Senior Manager Energy Forecasting, Margarida Pimentel, said there are several reasons why electricity consumption has remained relatively flat in South Australia. “Our 2012–13 data points to a substantial increase in rooftop PV installations in
South Australia, partially driven by a rush to install rooftop PV ahead of the scheduled feed-in tariff reduction in September 2013,” said Ms Pimentel. This is an increase of 10.9% (49 GWh) of rooftop PV generation compared to the 2012 forecast. “In addition to increased rooftop PV installations, consumption was also influenced by improved energy efficiency measures due to changes in building standards, and heightened consumer concern over price increases. “In terms of large industrial consumption, the 10-year outlook period is expected to be relatively static due to the Olympic Dam mine expansion deferral and no new projects expected to come online.” The SAER is available on AEMO’s website. It is an independent annual report prepared by AEMO as part of its South Australian advisory functions.
2013 ESOO SHOWS ENERGY INVESTMENTS
CAN BE DEFERRED Continuing increases in rooftop PV installations and consumer response to electricity prices have contributed to slowing energy consumption. Together with new large-scale renewable generation developments, this has resulted in all regions of the NEM, except Queensland, being unlikely to require new electricity generation investment before 2022–23. The recently released 2013 Electricity Statement of Opportunities (ESOO) – AEMO’s annual analysis of opportunities for electricity generation – reports a deferral in the forecast reserve deficits in New South Wales, Victoria, South Australia and Tasmania until after 2022–23. These results align with the 2013 National Electricity Forecasting Report (NEFR) annual energy consumption forecast, which shows a 2.4% drop in forecast consumption for 2013–14 compared to the 2012 NEFR. Queensland is the exception in terms of reserve deficit forecasts over the ESOO’s 10-year outlook, showing a deficit in 2019–20 under a medium economic growth scenario. This brings the low reserve condition (LRC) point forward by a year compared to the 2012 ESOO.
More than 520 MW of new large-scale generation capacity was added to the NEM in 2012–13, primarily comprising wind farms, with some coal-fired, cogeneration, and landfill gas generation. One thousand megawatts of new generation has also been committed across the NEM since the 2012 ESOO, comprising 95% wind generation and 5% solar generation. This includes six wind farms, totalling more than 954 MW, and more than 45 MW of large-scale solar generation. During the same period, 870 MW of coal-fired generation in Queensland was placed in either seasonal dry storage or was decommissioned. The 2013 ESOO incorporates improved supplydemand modelling that uses simulated hourly dispatch. This results in more accurate forecast of reserve deficits, and is more consistent with AEMO’s suite of planning studies. AEMO’s Power System Adequacy (PSA) report, which assesses the electricity supply outlook over the next two years and complements the ESOO investment snapshot, has also been released. It finds that the power system is expected to have sufficient supply capacity to meet reserve requirements. The 2013 ESOO and PSA, together with associated publications, are available on AEMO’s website.
This earlier LRC point in Queensland is largely due to higher energy consumption growth from increased large industrial demand and the ramping-up of liquefied natural gas (LNG) projects from 2013–14. “Reduced growth in energy consumption across the NEM compared to 2012, rising rooftop PV generation, increasing consumer response to electricity prices, and new large-scale renewable generation development is behind the expected deferral in new generation investment,” said AEMO Manager Supply Forecasting Nathan White. “However, should there be changes in the energy landscape which impact the future mix of generation projects, for example if thermal plant closes or is placed into dry storage, there may be a corresponding change in the timing of LRC points,” Mr White said.
AEMO will continue to monitor developments and update the market through its Generator Information page and ESOO Update.
“AEMO will continue to monitor developments and update the market through its Generator Information page and ESOO Update.”
Energy Update August 2013 05
Earlier this month, the Energy Market Leaders Forum (EMLF) met to discuss developments across the wholesale gas and electricity markets and examine new research into capacity trading on gas pipelines to complement the Wallumbilla gas supply hub.
TAKING THE LEAD ON MARKET DEVELOPMENT Objective of the supply hub: to foster greater gas trading and develop price transparency.
Representatives from the Australian Energy Market Commission (AEMC) and the Department of Energy, Resources and Tourism (DRET), and participants from across the gas and electricity markets met via video link at AEMO’s offices in Melbourne, Sydney and Brisbane. This was the second meeting of the new AEMO-chaired forum, which replaces the previous gas and electricity leaders’ forums. Issues under discussion ranged from electricity market design to recent developments across the gas market, including market reviews underway by both the AEMC and DRET. The group also discussed the findings of research commissioned by AEMO to look at international experience in pipeline capacity trading. The concept of making it easier for shippers to trade capacity on gas pipelines complements the objective of the supply hub: to foster greater gas trading and develop price transparency. There was general support for the research commissioned and its findings, which show that several approaches to capacity trading internationally have evolved over time. AEMO intends to work with industry stakeholders as part of the gas supply hub reference group to apply the learnings of overseas
markets in implementing an effective voluntary capacity trading mechanism for the Wallumbilla hub. This work will focus on ways to reduce the transaction costs associated with trading and to increase parties’ ability to seek other counterparties to trade with through more transparent market information. As part of this work, AEMO, in collaboration with industry, will look to develop a set of standardised terms and conditions that could be used for trading capacity at the hub. The research findings will help to shape discussions around the gas supply hub, and can also be used by industry and government more widely. This research may be relevant to broader gas market reviews being conducted by DRET and the AEMC that consider aspects of the market arrangements for capacity trading. November’s EMLF forum will also incorporate a workshop to consider a range of issues affecting the performance of the National Electricity Market. For more information about the Wallumbilla gas supply hub, visit AEMO’s website.
Photo courtesy APA Group
06
AEMO’S BLUEPRINT
FOR DELIVERING VALUE IN THE COMING YEAR AEMO celebrated its fourth anniversary in July, and it’s fair to say the organisation is now operating in a very different environment since its inception in July 2009. However, our vision remains steadfast – to be pivotal to markets that secure Australia’s energy needs.
Markets
Planning and Forecasting
Financial Services
Wallumbilla Gas Supply Hub
Connection point forecasts
Establishing a gas supply hub at Wallumbilla in Queensland is the next significant step in Council of Australian Governments (COAG)led gas market reforms aimed at increasing transparency, competition, and reliability of supply.
AEMO’s 2013–14 value propositions include broadening the scope of national energy forecasts through the provision of connection point forecasts.
Our 2013–14 value propositions reflect this and identify four areas of focus: markets, security and reliability, planning and forecasting, and financial services. The following highlights some of the key priorities for the coming year.
The Standing Council of Energy and Resources (SCER) has tasked AEMO with implementing the hub. The design uses a brokerage model for a new commodity market, which uses an electronic platform or exchange to match gas trades between buyers and sellers. The supply hub is being developed in close consultation with gas industry stakeholders for delivery by March 2014.
AEMO is working to identify opportunities to improve the settlement and prudential services associated with the energy markets. This involves the development of initiatives which support the more efficient utilisation of capital in prudential processes, and improving the resilience of energy markets in the event of a participant failure.
Demand Response Mechanism
For more details, see our 2013-14 value propositions in the Statement of Corporate Intent on AEMO’s website.
AEMO is working collaboratively with industry to design a detailed Demand Response Mechanism (DRM) to include in a rule change proposal to the Australian Energy Market Commission (AEMC). DRM provides a way to manage energy price rises driven by the network investment required to meet peak demand. The DRM system enables both supply and demand market participants to respond to high electricity consumption by altering their behaviour with the aim of delivering the most efficient market results. The project arose from the AEMC’s Power of Choice Review, which is part of a broader reform agenda to develop efficient demand-side participation in the NEM. The SCER presented AEMO with terms of reference to establish an advisory stakeholder working group, and industry experts are progressing five key project areas with AEMO’s support.
This year AEMO will continue to work alongside industry to provide electricity demand forecasts at a more granular level, at the connection point – or the interface between electricity loads and the transmission grid – providing even greater insight to assist stakeholders. Such transparency will enable the Australian Energy Regulator (AER) to better assess revenue reset proposals from network service providers and should result in more efficient investment in infrastructure and lower long-term costs for end-use consumers. The first connection point forecasts will be developed for Tasmania and New South Wales by mid-2014 as their revenue reset processes occur sooner than in other NEM regions.
One such initiative is the improved NEM Prudential Standard, which introduces a new statistical method to calculate collateral requirements for market participants that are more in line with the potential risk posed by their possible default. The Rule is expected to contribute to achieving the National Electricity Objective and benefit energy consumers – a core focus for AEMO – by improving efficiency within the prudential framework, increasing the transparency of the market arrangements, and providing greater certainty for both market participants and AEMO.
Value of Customer Reliability
Security and Reliability
The SCER recommended that AEMO undertake a national review of the value of customer reliability (VCR) as part of its response to the AEMC’s Review of Extreme Weather Events. AEMO is now developing a national measure for the VCR, which puts a price on the level of reliability that customers want. The VCR will be used to inform revenue and price determinations, and planning decisions.
AEMO also aims to increase the value of the services it provides by procuring network operating and system restart services – such as Network Support and Control Ancillary Services (NSCAS) and System Restart Ancillary Services (SRAS) – at a cost-effective price, which will ultimately benefit energy consumers.
Energy Update August 2013 07
IN BRIEF
AEMO CONSULTS ON CORPORATE GOVERNANCE
AEMO TRAINING
AEMO has published a discussion paper on its current corporate governance arrangements.
Network and FCAS Constraints Brisbane, 5–6 September 2013
The consultation aims to improve the effectiveness of AEMO’s existing corporate governance processes, ensuring AEMO retains its focus on efficiency and commercial drivers in decision-making.
Metrology for the NEM Melbourne, 18–20 September 2013 NEM Overview Brisbane, 27 September 2013 Short Term Trading Market Melbourne, 4 October 2013 NEM Overview Sydney, 18 October 2013 Understanding MSATS Sydney, 24–25 October 2013 Declared Wholesale Gas Market Melbourne, 8 November 2013 NEM Overview Melbourne, 22 November 2013
The discussion paper reflects AEMO’s operational experience since its establishment in 2009 and seeks feedback on the current arrangements. A commitment to review governance arrangements after three years of operation was part of AEMO’s implementation plan. Aspects of the governance arrangements highlighted for discussion include potential amendments to the duration of terms for Board appointments, streamlining the director reappointment process, aligning the “independent director” definition with the Australian Stock Exchange (ASX) guidelines, and including scope for experience of working with energy customers as part of the relevant skills for appointment on AEMO’s Board. The paper notes that no adjustments are likely to be required to AEMO’s present ownership weighting (currently 60% government, 40% industry) or AEMO’s remit to hold working capital to fund additional activities. “As long as the percentage of the split retains a sizeable holding for its “minority” members, this should keep suitable pressure on both sets of stakeholders to ensure that all concerns continue to be recognised,” said the paper.
AEMO has submitted the discussion paper to the Standing Council on Energy and Resources for noting. AEMO invites feedback from industry stakeholders and interested parties on the options presented in the report before discussing them further with members at its Annual General Meeting in November. The Governance Review paper is available on AEMO’s website.
“BLENDED” LEARNING
A SUCCESS
TELL US WHAT 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.
www.aemo.com.au
Over 180 people completed AEMO’s new online National Electricity Market (NEM) Overview course in the last financial year – a strong success indicator of the new “blended” learning approach.
Participants are required to complete the online course so they can absorb information at their own pace prior to attending the comprehensive face-to-face course.
In addition to this, more than 450 people completed the full suite of electricity and gas face-to-face courses combined with online learning.
“We are pleased that participants continue to be enthusiastic about taking up learning opportunities provided by AEMO,” said Manager Information and Support Services, Belinda O’Dwyer.
In April 2013 AEMO offered its first blended learning course, which combines e-learning and face-to-face sessions. The NEM Overview course was the first of AEMO’s suite of six gas and electricity courses to move to this model.
AEMO will introduce further online learning and participants can now also search, register and pay for training courses through a secure online payment gateway within the AEMO Learning Centre at https://aemolearningcentre.aemo.com.au.