AEMO Energy Update August 2014

AUGUST 2014

NO NEW GENERATION NEEDED FOR A DECADE P3 AEMO’S FIRST CONNECTION POINT FORECASTS P5 FCAS IMPROVEMENTS DRIVE EFFICIENCIES P6 Energy Update August 2014

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UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA Australian Government changes to energy policy continue to make news headlines. AEMO has been monitoring market outcomes following the repeal of the Clean Energy Act, including the carbon tax, since 1 July.

We engaged extensively with industry stakeholders during the repeal transition period, including adjusting prudential arrangements by changing credit limit procedures in line with the expected drop in electricity spot prices, and winding up our anticipatory certification role under the Clean Energy Act following its repeal.

The Renewable Energy Target (RET) Review’s recommendations will also play a role in changing the current energy policy landscape. At the time of writing this article, the Review’s findings were released 28 August and have generated broad debate. Although AEMO does not participate or invest in any markets, we tendered a submission to the RET Review Panel due to our role in supporting Australian energy markets in a technology-natural manner. I would like to state that as a member of the Panel as an individual contributor, not as a representative of AEMO, I was not involved in the preparation of AEMO’s submission. The submission was reviewed

by AEMO’s Chairman, Dr Thomas Parry.

In early August, we published our 2014 Electricity Statement of Opportunities (ESOO) report, revealing more than 7,500 megawatts (MW) of generation capacity would need to be removed from the National Electricity Market (NEM) to affect supply adequacy in 2014-15.

...more than 7,500 megawatts of generation capacity would need to be removed from the National Electricity Market to affect supply adequacy in 2014-15.

These independent reviews support the efficient, reliable, and secure development of electricity supply infrastructure for the long-term benefit of consumers, and have been submitted to the Australian Energy Regulator to consider as part of its regulatory determination process for network investment. AEMO has now shifted focus to other regions within the NEM, and as we did in New South Wales and Tasmania, we will work closely with network businesses to encourage transparent information exchange and engagement.

Improved stakeholder engagement is a key focus area for AEMO in the year ahead. We recently conducted a stakeholder survey to gain a better understanding of what we are doing well, and what we can improve on. I would like to thank all those who responded openly and honestly, as this feedback will guide an enhanced approach to stakeholder consultation that will continue to evolve.

It is important to note that investment opportunities could still arise through schemes supporting renewable energy generation to meet localised consumption growth pockets, or to manage intermittent generation. An example of future investment is the focus on wind generation in South Australia, with 16 wind farm projects proposed from now until 2023-24.

In a new development for AEMO, we have conducted independent assessments and forecasting reviews of transmission network businesses operating in New South Wales and Tasmania.

CONTENTS

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02 Update from Managing Director and CEO

05 AEMO’s first connection point forecasts

03 No new generation needed for a decade

06 FCAS improvements drive efficiencies

04 AEMO publishes independent assessment

07 South Australian investment focused on wind

04 Inaugural National Gas Forecasting Report in the pipeline

08 In brief

Energy Update August 2014

NO NEW G E N E R AT I O N NEEDED FOR A DECADE

For the first time in the history of the NEM, no new generation capacity is needed over the next decade to maintain supply reliability, due to the continuing decline in electricity consumption.

The 2014 ESOO shows that over 7,500 MW of generation capacity would have to be removed from the market to affect supply adequacy in 2014-15.

“There is an oversupply of generation capacity in the NEM for the current financial year,” said AEMO Group Manager Planning Louis Tirpcou.

“Based on the current forecasts and generation fleet, there are no consumption-driven investment drivers for generation, although there may still be opportunities stemming from renewable energy initiatives, or to meet local consumption growth pockets or manage intermittent generation.”

“The magnitude of the oversupply is such that even if we saw 10 consecutive years of consumption growth, by 2023-24 more than 4,500 MW of generation capacity could still be withdrawn from the NEM without affecting supply adequacy,” said Mr Tirpcou.

The ESOO estimates there may be up to 8,950 MW of surplus generation capacity in the NEM in 2014-15, with around 90% located in New South Wales, Queensland, and Victoria.

The oversupply of generation capacity in the NEM follows continuing reductions in electricity consumption driven by a decline in energy-intensive industries, including the closure of Victoria’s Point Henry aluminium smelter, and strong growth in energy efficiency savings and rooftop PV generation in Queensland and Victoria.

Since the 2013 ESOO, just 170 MW of new generation capacity has been commissioned, with the 169 MW Musselroe Wind Farm the only large-scale generation plant commencing operation. Over the same period 1,385 MW of thermal baseload generation capacity was placed in storage.

The ESOO estimates there may be up to 8,950 MW of surplus generation capacity in the NEM in 2014-15

The 2014 ESOO consolidates analysis of the adequacy of existing and committed electricity supply to meet operational consumption from AEMO’s quarterly supply-demand snapshots, and includes the latest electricity generator and consumption information.

The 2014 ESOO is available on AEMO’s website.

Energy Update August 2014

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AEMO PUBLISHES INDEPENDENT ASSESSMENT AEMO has published its first independent assessment of the transmission network investment requirements for New South Wales and Tasmania, as part of its national transmission planner role.

In an environment of rising pressure on network costs, AEMO has released an independent view of the projects proposed by the New South Wales and Tasmanian transmission network service providers TransGrid and TasNetworks.

The review provides additional transparency to promote efficient network investment for the long-term benefit of consumers, and has been submitted to the AER to consider as part of its regulatory determination process.

AEMO’s review assesses the extent to which proposed investments are required to address transmission network needs, and considers whether alternative options could better support the efficient operation of and investment in electricity networks.

“Our assessment of the projects proposed

by TransGrid and TasNetworks determines the need for the projects, and suggests alternative options in some cases. We do not support proposed projects where our analysis does not confirm their need,” said AEMO Group Manager Planning Louis Tirpcou.

“However, our review did not assess the condition of assets or analyse the cost or alternatives for proposed projects related to asset replacement.”

An important part of the work involved developing an assessment methodology to apply consistently across both regions.

This involved liaison with TransGrid and TasNetworks, as well as New South Wales distribution businesses and the AER. This review complements—and incorporates—AEMO’s independent forecasts of maximum demand at transmission connection point level for New South Wales and Tasmania.

The independent assessment are available on AEMO’s website.

The review provides additional transparency to promote efficient network investment for the long-term benefit of consumers

I N A U G U R A L N AT I O N A L GAS FORECASTING REPORT IN THE PIPELINE AEMO is extending its forecasting capabilities by developing independent, in-house gas forecasts. These will be used to produce its inaugural National Gas Forecast Report (NGFR) in December 2014. These transparent and modular demand forecasts and analysis will provide clarity and insights into the rapidly evolving gas market. The NGFR will include gas consumption forecasts across all customer segments. It will also include gas-powered generation forecasts that AEMO has produced for some time, and liquefied natural gas forecasts.

For more information please contact Nathan White via nathan.white@aemo.com.au

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Energy Update August 2014

AEMO’S FIRST CONNECTION POINT FORECASTS AEMO’s first independent electricity forecasting reports of maximum demand at transmission connection point level have been published, providing increased transparency and supporting efficient network investment for the long-term benefit of consumers.

The forecasts, developed at the point where the transmission network meets the distribution network, complement the maximum demand forecasts published in AEMO’s National Electricity Forecasting Report to provide a holistic view of electricity demand in the NEM. AEMO’s first forecasts are for New South Wales and Tasmania, and were developed at the request of the Council of Australian Governments as part of its energy market reform implementation program.

“The connection point forecasts provide transparent, granular demand information at a local level. They have been submitted to the AER to consider as part of its regulatory determination process for transmission network investment,” said AEMO Group Manager Forecasting Joe Spurio.

“In the coming year, AEMO will extend the connection point forecasting project to Victoria, South Australia, and Queensland.

“Work has already commenced on developing forecasts for Victoria, and by July 2015, we will have developed our first complete set of transmission connection point forecasts for all NEM regions. These will continue to be updated annually.”

The forecasts have also been used in AEMO’s first independent assessment of transmission network investment requirements in New South Wales and Tasmania (see page 4), and will inform AEMO’s planning studies to strengthen its assessment of network infrastructure requirements across the NEM. A consistent forecasting methodology will be applied across all NEM regions for the connection point forecasts, to support a consistent and transparent approach.

AEMO also consulted extensively with network businesses in New South Wales and Tasmania, sharing local knowledge of the network, understanding differences in forecasting methodologies, and exchanging data.

AEMO’s connection point forecasts are available on AEMO’s website.

Energy Update August 2014

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Photo courtesy of Basslink

FCAS IMPROVEMENTS DRIVE EFFICIENCIES AEMO has improved the frequency control ancillary services (FCAS) required to secure power system reliability in Tasmania, driving projected cost efficiencies of around $1 million per year, which will ultimately be passed on to energy consumers.

AEMO identified an opportunity to increase the efficiency of FCAS procurement by recognising that the Basslink Interconnector between Tasmania and Victoria manages frequency controls, and corrects deviations ahead of the generators that had traditionally provided FCAS. AEMO’s efficiency improvements involve updating NEM constraint equations to better account for Basslink’s fast frequency control response times, and reduce the amount of FCAS that needs to be procured.

In July and August 2014, AEMO updated over 30 relevant constraint equations to include Basslink’s fast frequency control response times and reduce the volume of FCAS being purchased. AEMO will monitor their effectiveness for the remainder of 2014.

FCAS enables AEMO to maintain power system frequency at 50 hertz at all times, as required by NEM frequency standards, and assists AEMO to operate the power system in a safe, secure, and reliable fashion.

FCAS is needed to correct the supplydemand balance in response to minor deviations in either load or generation, or following a major contingency event such as the loss of a generating unit.

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Energy Update August 2014

AEMO Group Manager Systems Capability Mark Stedwell said that in the six weeks after implementing the equations, savings of over $110,000 in Tasmanian FCAS were made.

“These cost savings continue AEMO’s focus on adding value to markets,” Mr Stedwell said.

AEMO continues to liaise with Tasmanian generator Hydro Tasmania and transmission network service provider TasNetworks, in updating the equations.

In late 2013, AEMO proposed changes to the FCAS requirements. These were supported by Hydro Tasmania and TasNetworks, who suggested further investigation of the impact of FCAS on out-of-service generators located in the Tamar Valley, north of Launceston.

This feedback, and the results of AEMO’s investigations, were submitted to the Tasmanian Government, Hydro Tasmania, and TasNetworks, outlining the rationale and implementation plan for AEMO’s proposed FCAS modelling changes.

Further information on FCAS is available on AEMO’s website.

SOUTH AUSTRALIAN INVESTMENT FOCUSED ON WIND

Assuming existing generation in South Australia remains available, no new generation capacity is needed in the state to maintain supply adequacy over the next decade

Cathedral Rocks Wind Farm. Wind power station at Port Lincoln, Lower Eyre Peninsula, South Australia.

Wind generation continues to be the main focus of investment interest in South Australia, with 16 wind farm projects proposed, including the committed 270 MW Snowtown Stage 2 project, according to AEMO’s latest South Australian Electricity Report (SAER).

The SAER provides an overview of supply adequacy, generation investment trends, and electricity consumption in South Australia.

The report notes that the Snowtown Stage 2 project is expected to be completed in late 2014; however, two other wind farm projects are no longer being pursued, and the future of the 1 MW Port MacDonnell wave energy project is uncertain following damage to its wave energy converter.

Two geothermal energy generation proposals at Parachilna and Port Augusta are also no longer being pursued.

Generation Capacity (MW)

5,000

4,000

The drop in consumption is driven by reduced industrial consumption, continuing rooftop PV system installations, and increased energy efficiency savings.

“The 2014 SAER shows there could be as much as 600 MW of surplus capacity in South Australia in 2014-15, and between 350 MW and 1,000 MW by 2023-24,” said AEMO Group Manager Planning Louis Tirpcou.

“This oversupply is a result of a forecast 0.8% average annual reduction in South Australian electricity consumption over the next 10 years, driven by a reduction in large industrial usage by SA Water’s desalination plant, a small decrease in residential and commercial forecasts due to ongoing rooftop PV installations, and increased energy efficiency savings.”

Between 2009-10 and 2013-14, rooftop PV generation grew from negligible levels to an estimated 709 GWh, 21.6% higher than forecast for 2013-14. Growth in rooftop PV installations was stable in 2013, but is expected to increase given rising electricity prices and falling rooftop PV system costs. By 2023-24, rooftop PV generation is projected to reach 2,034 GWh. Given the evolving generation mix in South Australia, AEMO has worked with transmission network business ElectraNet to study the operational impacts of high levels of renewable generation and low levels of online synchronous generation in the state.

3,000

2,000

AEMO will release the findings of this study in September, for consultation with stakeholders.

1,000

0

SAER analysis confirms that, assuming existing generation in South Australia remains available, no new generation capacity is needed in the state to maintain supply adequacy over the next decade as a result of a decline in electricity consumption.

The 2014 SAER is available on AEMO’s website.

Coal

CCGT

OCGT

Gas Other

Solar

Wind

Water

Biomass

Geothermal

Other

Proposed

–

150

570

–

50

Committed

–

–

–

–

–

3,107

–

–

523

–

270

1

–

–

Existing (Withdrawn)

240

–

–

–

–

–

–

–

–

–

Existing

546

662

778

1,280

–

–

1,203

3

13

–

270

Energy Update August 2014

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IN BRIEF AEMO FOCUSES ON I M P R O V I N G S TA K E H O L D E R ENGAGEMENT APPROACH AEMO is changing the way it does business by embracing a greater stakeholder focus to drive and support improved outcomes for the energy industry and consumers.

Feedback from a recent AEMO stakeholder survey was generally positive, with more than three-quarters of respondents indicating that AEMO’s support teams make it easy for them to resolve requests or incidents. Some areas for improvement were also identified, specifically in terms of consulting and responding to stakeholder issues.

Taking this feedback on board, AEMO has made improving stakeholder engagement a key focus area for 2014-15, with a program of activities underway to enhance stakeholders’ experience.

“The survey showed AEMO has good core operations but that our stakeholder engagement and consultation can be improved. Our new program of work in this space will ultimately drive and support better outcomes for energy consumers over the long term,” said AEMO Group Manager Stakeholder Relations Sandra McLaren.

“Our stakeholder-focused approach centres on a holistic plan to improve the end-to-end experience by building on our skills to support impartial, balanced, and thorough consultation.”

The new approach targets processes from the beginning—ensuring new market registrants have the right experience from the outset—and continues with increased stakeholder collaboration to address industry issues. Throughout the stakeholder journey, AEMO “checks in” on stakeholder requirements with effective ongoing communication supported by a consistent consultation process.

Course

Location

Date

Network and FCAS Constraints in the NEM

Melbourne

16 – 17 October

NEM Overview

Sydney

31 October

Overview of the Victorian Gas Market (DWGM)

Melbourne

7 November

Metrology of the NEM

Sydney

12 – 14 November

Overview of the Short Term Trading Market (STTM) Sydney

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

Energy Update August 2014

One such initiative has been the forecasting Energy Exchange.

Stakeholders expressed interest in this topic, and AEMO hosted forums in most NEM regions during August to provide updates on future forecasting activities.

Participants have been very positive about the sessions, noting that they provide a good opportunity to discuss issues with their AEMO counterparts. A further forecasting forum will be held in Canberra in September.

The next round of Energy Exchanges will focus on AEMO’s Planning functions.

More information is available on AEMO’s website or via email stakeholder.relations@aemo.com.au.

“Our aim is to streamline our engagement by making sure we really understand our stakeholders and their needs, and that we develop a consistent baseline process that works for all consultation,” said Ms McLaren.

AEMO TRAINING

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“One of our first priorities is to set out our expectations for employees, and demonstrate our support and accountability for joint industry initiatives,” she said.

21 November

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