Energy Update October 2015 P1

OCTOBER 2015

AEMO UNDERTAKES ROLE OF ENERGY MARKET AND POWER SYSTEM OPERATOR IN WESTERN AUSTRALIA

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AEMO HOSTS ELECTRICITY AND GAS EMERGENCY EXERCISES

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THE PEOPLE BEHIND AEMO

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Energy Update October 2015P2

In exciting news for AEMO, I am thrilled to share that we have been asked to undertake the role of independent energy market operator and independent power system operator in Western Australia (WA).

The announcement by WA Treasurer and Energy Minister Dr. Mike Nahan on 30 September means that the electricity market, retail, and wholesale functions currently performed by the Independent Market Operator (IMO) will be transferred to AEMO, along with the independent systems operations being transferred from Western Power.

We can now develop a truly national energy environment and framework, bringing us one step closer to our vision of energy security for all Australians. I would like to take this opportunity to recognise the hard work and ongoing commitment from AEMO employees, and the continuing support from our stakeholders, which has undoubtedly led us to this fantastic result.

We still have a lot of work to do in progressing this new role, which will take effect from 30 November. A feature article on this announcement can be viewed on page 3 of this edition.

I would also like to share that AEMO will be taking a greater role in international GO15 activities over the coming year, by leading a newly established GO15 task force to investigate processes to incorporate non-metered solar data into short-term forecasts. With rooftop photovoltaics (PV) continuing to grow in Australia and across the globe, it is important for grid operators to forecast the impact of small scale, localised generation to gain a greater understanding of the potential impacts to network security and reliability.

With the summer months fast approaching, AEMO recently hosted emergency exercises for both electricity and gas. These exercises provide an opportunity for AEMO, government

representatives, and network service providers to practise their various emergency response functions in the event of major supply disruptions. In November, AEMO will host a specific summer preparedness event for Victorian stakeholders, with presentations from the Bureau of Meteorology and emergency services.

The next few months will be a busy time for AEMO, as we implement our plans for the new role in WA, and prepare the release of two major annual reports – the National Transmission Network Development Plan to be published in November, and the National Gas Forecasting Report due to be published in December.

UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA

CONTENTSP2 Update from Managing Director and CEO Matt Zema

P3 AEMO undertakes role of energy market and power system operator in Western Australia

P4 AEMO takes leadership role in GO15

P5 2015 Transmission Connection Point Forecasting Report for Victoria

P6 AEMO hosts electricity and gas emergency exercises

P7 The people behind AEMO

P8 In brief

We can now develop a truly national energy environment and framework, bringing us one step closer to our vision of energy security for all Australians,” Mr Matt Zema, AEMO Managing Director and Chief Executive Officer.AVAILABLE

FOR DOWNLOAD

AEMO’s 2015 Annual Report

AUSTRALIAN ENERGY MARKET OPERATOR LIMITED

ABN 94 072 010 327

Energy securityfor allAustraliansAustralian Energy Market Operator 2015 Annual Report

AEM014_Annual Report 2015_FA_6.1.indd 1

12/10/2015 4:49 pm

Energy Update October 2015 P3

AEMO is both honoured and excited to be asked to undertake the role of independent energy market and independent power system operator in Western Australia (WA).

The announcement by WA Treasurer and Energy Minister Dr. Mike Nahan will see the transfer of electricity system management and the operation of the wholesale electricity market in the south west of WA to AEMO.

Other functions, previously under the WA Independent Market Operator, including the administration of the Gas Bulletin Board and Gas Statement of Opportunities, will also be transferred to AEMO.

“AEMO believes that there are a number of benefits to be realised by energy market consumers and participants with the potential for common interfaces to be available to participants and investors in the Wholesale Electricity Market (WEM) and the National Electricity Market (NEM),” AEMO Managing Director and CEO, Mr Matt Zema said.

“There are many opportunities that will arise as a result of this reform that will enable the two-way exposure and education of the different market environments. We feel this represents a significant step forward to creating a national energy market environment.”

AEMO’s strategy continues to see us operate our energy markets reliably and securely, and we are committed to delivering the same level of rigor and robustness to the WEM under the WEM rules.

“AEMO intends to deliver its WA functions with the same commitment and vision to supporting market participants, stakeholders and consumers towards more efficient, secure energy outcomes for the benefit of all Australian energy consumers,” Mr Zema said.

We are also committed to having a physical presence in WA and maintaining both a corporate office and an electricity system control room in the State.

The announcement was welcomed by a number of industry players, including Synergy, the Australian Petroleum Production & Exploration Association, and the Chamber of Commerce and Industry of Western Australia.

For more information, contact AEMO Company Secretary and General Counsel Brett Hausler.

AEMO UNDERTAKES ROLE OF ENERGY MARKET OPERATOR AND POWER SYSTEM OPERATOR IN WESTERN AUSTRAL IA

Wholesale Electricity Market (WEM):

WEM commenced operation in September 2006.

The South West Interconnected System (SWIS) incorporates 7,802 km of transmission lines.

A total of $500 million was transacted in 2014-15.

There are more than 1 million customers in the WEM.

5,788 MW – total registered generation capacity of including 513 MW of Non-Scheduled Generation.

National Electricity Market (NEM):

NEM commenced operation as a wholesale spot market for electricity in December 1998.

Incorporates around 40,000 km of transmission lines and cables.

The NEM supplies about 200 terawatt hours of electricity to businesses and households each year.

$10.1 billion was traded in the NEM in 2013–14.

Supplies around 9 million customers.

45,000MW - total electricity generating capacity.

Energy Update October 2015P4

AEMO is excited to be taking a greater role in upcoming GO15 activities. GO15 is an association made up of 18 of the world’s largest grid operators, established to enable the sharing of knowledge and insights into the challenges and opportunities for the future development of the electricity industry. This is an excellent opportunity to leverage experience from grid operators around the world, while sharing our own knowledge and information.

This year, five new committees have been created to address the most critical areas facing grid operators across the globe. These new committees will organise their work into a number of task forces. Each task force will investigate important and valuable topics, and will deliver a work package for consideration by the GO15 members. The new committees are:

• Grid for flexible resources; • Grid reliability and security; • Grid economic sustainability; • Grid intelligence; and, • Communication.

AEMO will participate in a number of task forces over the coming year, including:

• Estimation methodologies for incorporating non-metered solar into day-ahead/intra-day load forecasts (AEMO as co-lead).

• Smart inverter task force (AEMO participating as an interested member).

• Distribution System Operator – Power Grid Operator (DSO-PGO) interface for areas such as load forecasting and grid services (AEMO participating as an interested member).

“Power grids around the world are experiencing rapid transformation with the influx of new technologies and methodologies for forecasting, operating and managing networks,” AEMO Managing Director and CEO, Matt Zema said.

“Sharing the latest information, research and lessons learnt from experiences around the world is mutually beneficial as we all work to maintain secure, reliable energy systems.”

AEMO’s Group Manager Communications and Corporate Affairs Joe Adamo has been asked to participate in the Communications committee, which is focused on promoting the dissemination of the Committee outcomes and recommendations to members and executives, as well as contributing the information to participate in informed energy debates. We will share key insights and outcomes via Energy Update over the coming months.

We will continue to keep you up to date on all GO15 activities.

ABOUT GO15GO15 currently represents more than 70% of the world’s electricity demand, providing electricity to 3.4 billion consumers on six continents. GO15 is collectively responsible for integration of over 2,500 gigawatts of generation capacity into the grid, of which more than 20% is from renewable energy sources.www.go15.org

AEMO TAKES LEADERSHIP

ROLE IN GO15

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On 30 September, AEMO released its second annual Transmission Connection Point Forecasting Report for Victoria, providing detailed insights into forecast local changes and trends in maximum demand (MD) over the next ten years (2015-16 to 2024-25).

The report showed that total MD across Victorian transmission connection points – the areas on the grid where transmission and distribution networks intersect – is forecast to increase by 1.1% per annum in summer, and 1.2% in winter. This increase is primarily driven by population growth and an increase in the gross state product.

“Since we last reported on the region 12 months ago, population and economic growth in Victoria has led to an increase in our summer MD forecasts by 7.8% at 2023–24,” AEMO Manager, Connection Point and Operational Forecasting, Ms Leanna Tedesco said. “Our updated winter MD forecast has decreased by 1.8% at 2023.”

“There is a weaker annual increase in summer demand because rooftop PV generation is offsetting the peak to a greater extent than in winter,” Ms Tedesco said.

As part of the report, AEMO also published a dynamic interface which provides detailed forecasts and commentary specific to each connection point.

The report will feed into AEMO’s planning functions. In addition, the Australian Energy Regulator may reference these forecasts in their assessment of the transmission connection point forecasts provided by network service providers as part of their revenue determinations.

For more information, contact AEMO Manager, Connection Point and Operational Forecasting, Leanna Tedesco.

AEMO’S 2015 TRANSMISS ION CONNECT ION POINT FORECAST ING REPORT FOR V ICTORIA

Since we last reported on the region 12 months ago, population and economic growth in Victoria has led to an increase in our summer MD forecasts by 7.8% at 2023–24,” Manager, Connection Point and Operational Forecasting, Ms Leanna Tedesco.

AEMO interactive planning map

Energy Update October 2015P6

AEMO HOSTS ELECTR IC ITY AND GAS EMERGENCY EXERCISESSeptember saw AEMO host separate emergency exercises for electricity and gas. The exercises provided an opportunity for AEMO, government representatives, and network service providers to practise their various roles in the event of major supply disruptions, which is particularly timely as we head into summer.

EXERCISE I L LUMINATE In September, the National Electricity Market Emergency Management Forum (NEMEMF) held Exercise Illuminate in Sydney and Melbourne. As the operator of the NEM, AEMO coordinates these emergency exercises annually to test jurisdictional arrangements.

The two events – a northern and southern exercise – were well attended by representatives from the Commonwealth, Queensland, New South Wales, Australian Capital Territory, Victoria, South Australia, and Tasmania governments, and provided participants the chance to explore relevant plans, procedures, practices, and protocols.

The desktop exercise focused on the key roles of the NEM Responsible Officer (NEM RO), the Jurisdictional Responsible Officer (JRO), the Jurisdictional System Security Coordinator (JSSC), and the Jurisdictional Designated Officer (JDO).

Participants had the opportunity to practise their decision making, communication, and escalation processes and procedures in accordance with the:

• Power System Emergency Management Plan (PSEMP);

• NEM Emergency Powers Memorandum of Understanding (NEM MOU);

• NEM Emergency Protocol; and,

• Mandatory Restriction Offers.

“The exercises were deemed a great success, providing participants the opportunity to work through escalation and activation processes in their various jurisdictional roles and responsibilities,” Mr Damien Sanford, AEMO Group Manager – Real Time Operations said.

“There was a range of experience at the events, which meant that participants had the opportunity to not only learn, but also share their knowledge and experience, as well as properly explore how things would play out in the event of extended major electricity disruptions. It was also an excellent opportunity to strengthen interagency cooperation and professional relationships.”

EXERCISE ZETA Exercise Zeta, a Short Term Trading Market (STTM) Contingency Gas (CG) emergency exercise, was also held in September. CG is an emergency mechanism in the STTM, which is triggered when there is a supply demand imbalance at a STTM hub.

CG has never been scheduled since the market started in 2010, so these exercises are critical to ensure AEMO, STTM facility operators, distributors, and trading participants are operationally functional and effective.

The exercise scenario was developed in consultation with the Moomba to Sydney pipeline facility operator, APA Group, and involved a restriction of gas supply to Sydney causing a supply shortfall of 100 terajoules (TJ).

Participants conducted 20 TJ of renominations and the remaining 80 TJ was scheduled as CG. This quantity of gas was only able to be made up due to the addition of AGL’s new Newcastle gas storage facility. The 80 TJ of CG ended with a clearing price of $400/GJ (gigajoule) and the scheduled gas had a market value for settlement of $32 million.

“While we’ve never scheduled CG, there have been a number of close calls, so this exercise was timely. It’s important that we are closely across these processes with the changes in the way the market is operating due to increasing LNG exports,” Mr Sanford said.

For more information, contact AEMO Group Manager – Real Time Operations, Damien Sanford.

Energy Update October 2015 P7

In this Energy Update column we take you behind the scenes at AEMO, introducing you to some of our employees. In this very special edition, we talk to Mark Miller, Executive Officer, who recently retired. Mark is highly regarded in the energy industry, with a career spanning 43 years. We wish him all the best as he takes on the exciting journey of retirement.

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

Mark Miller (MM): I joined the energy industry in 1972 as a cadet at the Electricity Commission of NSW, which was a very different time – there were no electronic meters, and paper tape had to be physically removed from the meters each month, boxed, posted and reconciled at the head office before a bill was produced. We saw a lot of change in that time, including: data acquisition, supervisory control and data acquisition (SCADA) systems, establishing master stations from the ground up, introducing remote terminal units, dealing with larger quantities of data than ever before, and power system alarming. And all this in an ever changing energy world and all before we hit the 80s!

I then completed a Masters in Engineering in the USA before coming back to Australia and working as an Engineer of Area Operations in Newcastle, and then as assistant Engineer in Operations Control for all of NSW. I then spent some time working for NEMMCO (National Electricity Market Management Company Limited) in various roles before it was succeeded by the AEMO in 2009, where I remained – again, in various roles – until retirement.

EU: Please elaborate on some of the significant change you have seen?

MM: Absolutely. In the 1970s the only access to computing from remote sites was via telex and, even if you had access to it, it was very limited. At head office, you had to prepare ‘punch cards’ as a batch job for the mainframe computer. You would have to take the box of

cards down to the computer room and come back later to check the print out. Generally, the job had terminated at some point due to a coding error. You would then have to track down the offending card and punch up a replacement and start the process again. It was all very cumbersome and we had to develop good skills for rough estimation.

In the 1990s the electricity market rapidly evolved and I was closely involved in the linkage between the New South Wales and Victorian markets which came into effect in 1997. The rest is history really, with constraints, reliability, communications, interconnectors, Frequency Control Ancillary Services all coming on board – this is just to name a few things that spring to mind.

EU: Can you please tell us what you liked most about working at AEMO?

MM: What I most liked were the challenges that I worked with in both market and system operations in gas and electricity. And of course, the privilege of working with a great team of people who were committed to meeting the needs of energy customers.

EU: Finally, do you have any words of wisdom to leave us with?

MM: Over my career I’ve seen a lot of mostly predictable change, but what we are seeing now is unpredictable and unstructured change. Tomorrow will bring a very different power system. It’s exciting and challenging but one thing will always remain the same: it’s all about people.

THE PEOPLE BEHIND AEMO…

SAY ING FAREWELL TO MARK MIL LER , EXECUT IVE OFF ICER

Mark Miller at his farewell party.

Energy Update October 2015P8

Course Location Date

Metrology for the National Electricity Market (NEM)

Melbourne 11-13 November 2015

Overview of the Short-Term Trading Market (STTM)

Melbourne 19 November 2015

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.

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On 28 October, AEMO Managing Director and Chief Executive Officer, Matt Zema, spoke at the CEDA: Energy Market Outlook event. Matt presented a high level overview of the Australian energy market, including discussion around how a number of factors are impacting supply and demand in both the electricity and gas markets.

Mr Zema’s address covered recent consumption trends in the NEM, the impact of new LNG gas exports on domestic supply, key insights from AEMO’s 2015 Electricity Statement of Opportunities (ESOO), the long term future of energy systems and markets, and the development of new technology and innovation.

On 8 September, AEMO National Planning Analyst, Matt Armitage, presented at the Disruption and the Energy Industry conference, which was co-hosted by RenewEconomy and Informa.

Mr Armitage was one of four panellists leading a discussion,: ‘What are the economics of battery storage? And does anyone have a business model to suit?’ The conversation focused mainly on how new business models may drive uptake. The general consensus among presenters and attendees was that, currently, there is a lot of discussion about storage without much action – but it is widely expected that storage options will hit the market soon, and the uptake could be rapid when it does occur.

CONFERENCE WRAP UP

CEDA: ENERGY MARKET OUTLOOK

DISRUPT ION AND THE ENERGY INDUSTRY