Energy Update June 2015 P1

JUNE 2015

LNG AND ROOFTOP PV – CHANGING ELECTRICITY CONSUMPTION IN THE NEM

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AEMO INVESTIGATES EMERGING TECHNOLOGIES AND TRENDS IN THE NEM

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THE PEOPLE BEHIND AEMO

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The energy industry is facing rapid change both in Australia and around the world. This exciting time raises a number of challenges and opportunities – as a sector and more broadly. One of the key challenges for AEMO during this time is maintaining a secure, reliable system as the National Electricity Market (NEM) generation mix continues to evolve and consumption patterns change. This change is the result of consumers having more choice and a desire to be actively involved, as well as the many new products and technologies that are entering the market.

This transformation is demonstrated in our 2015 National Electricity Forecasting Report (NEFR), which was published on 18 June. For the first time since 2008–09, electricity consumption in the NEM has stopped its downward trend, flattening over the last year. Electricity consumption is forecast to rise by an average of 2.1% per annum over the next three years, largely as a result of Liquified Natural Gas (LNG) projects in Queensland and population growth across the NEM. A slight recovery in consumption is forecast in the residential and commercial sector, mainly due to population growth, with continued decline in consumption per capita.

Not surprisingly, rooftop photovoltaic (PV) is a key theme in the report, with forecast uptake over the short term set to move maximum demand times to later in the day in Queensland and Victoria, and shift the winter peak in Tasmania to the evening. The shift to an evening maximum demand peak has already started to occur in South Australia, which has the highest penetration of rooftop PV in the NEM.

We recognise the impact renewable energy sources and emerging technologies are already beginning to have on the NEM, and we are tracking how technological advances and distributed generation are changing the profile of daily demand required from the grid.

In line with this, on 26 June we published our inaugural Emerging Technology Information Paper. The paper investigates the viability of battery storage solutions for Australian residential consumers over the next 20 years, and the impact this and other emerging technologies and behaviours, such as the uptake of electric vehicles and fuel switching from gas to electricity, may have on electricity consumption from the grid. We don’t expect to see mass market uptake until the early 2020s, however it is clear that, as an industry, we need to start preparing now.

It’s evident that ongoing investment is needed to prepare the grid for emerging technologies, a rapidly changing generation mix and increasing renewable energy.

You can learn more about all of this and more in our June edition of Energy Update. Keep an eye out for our Electricity Statement of Opportunities, due to be published in August, which assesses supply adequacy in the NEM over the next 10 years.

UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA

CONTENTS02 Update from Managing Director and CEO Matt Zema

03 LNG and rooftop PV – changing electricity consumption in the NEM

04 Battery storage, electric vehicles, fuel switching – AEMO investigates emerging technologies and trends in the NEM

05 AEMO at the world forum on energy regulation

06 AEMO’s 2015 Victorian Annual Planning Report

07 The people behind AEMO

08 In brief

It’s evident that ongoing investment is needed to prepare the grid for emerging technologies, a rapidly changing generation mix and increasing renewable energy.Mr Matt Zema, AEMO Managing Director and Chief Executive Officer.

On the cover: Mario Rositano, Power System Operations (PSO) Specialist, in AEMO’s Mansfield Control Room.

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Published this month, AEMO’s 2015 National Electricity Forecasting Report (NEFR) shows that electricity consumption in the NEM has stopped its downward trend, flattening over the last year from 180,653 gigawatt hours (GWh) in 2013–14 to an estimated 180,390 GWh by end 2014 –15. This is attributed to LNG projects in Queensland and a slight recovery in residential and commercial consumption.

“Queensland is expected to exceed its maximum demand record of 8,897 megawatts (MW) from 2009–10 as LNG operations in the state continue over the next three years,” AEMO Managing Director and Chief Executive Officer Mr Matt Zema said.

In addition to LNG, rooftop PV has also emerged as a key theme in the 2015 NEFR, with forecast uptake in rooftop PV over the short term set to move maximum demand times across the regions.

This year AEMO developed minimum demand forecasts for South Australia to investigate the impact of residential and commercial rooftop PV on the network.

“The NEFR shows that in 2014–15, the total demand of 1,235 MW for a particular day in South Australia was offset by 445 MW of rooftop PV resulting in a minimum demand of 790 MW from the grid, occurring in the middle of the day,” Mr Zema said.

“This was the lowest grid demand experienced in South Australia in the past ten years, and resulted in rooftop PV contributing one-third of total demand for this particular time of the day.”

This trend of rooftop PV offsetting demand in South Australia is forecast to continue, and by 2023–24, the minimum demand required from the grid in South Australia could fall below 0 MW, assuming current market conditions continue.

“This means that by the summer of 2023–24, rooftop PV generation could be sufficient to meet all demand in that region, at that specific minimum demand time,” Mr Zema said.

Mr Zema said AEMO is investigating this scenario and the possible consequences of such an event on system security and reliability.

“These observations from the 2015 NEFR reflect both the changing generation mix, and increasing consumer engagement when it comes to choice and energy supply solutions,” said Mr Zema.

“The level of generation from wind and rooftop PV technologies is significant in areas of the network and will continue to grow to meet the Renewable Energy Target. The challenge for the industry is how to integrate these renewable energy sources into the grid, while maintaining the levels of reliability and power quality which consumers expect.”

Mr Zema said that these challenges are not unique to Australia and similar issues are being played out in other markets around the world.

“With the growing contribution of renewable technologies to Australia’s energy supply mix, AEMO continues to collaborate with industry and government to investigate how the integration of such technologies is likely to affect NEM operation,” said Mr Zema.

For more information about the 2015 National Electricity Forecasting Report, contact AEMO Group Manager Forecasting Louis Tirpcou.

LNG AND ROOFTOP PV – CHANGING ELECTR IC ITY CONSUMPT ION IN THE NEM

Figure 1: Summarises key points about operational consumption in the NEM. It shows the impact of the continued uptake of rooftop photovoltaic (PV) and energy efficiency measures.

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AEMO has released its first Emerging Technologies Information Paper exploring the potential impacts of battery storage, electric vehicles, and fuel switching (from gas to electric appliances) in the NEM over the next 20 years.

AEMO Managing Director and Chief Executive Officer Mr Matt Zema said the study is a starting point for AEMO to further progress work in this area, exploring how each NEM region might respond to these technologies and trends in the future.

“It’s challenging to forecast the impacts of these emerging technologies and trends given current limitations in scope, methodology and available data. However, like others in the industry, we’re interested in exploring the opportunities and challenges new technology presents for regulatory and operational frameworks,” Mr Zema said.

For each NEM region, the paper forecasts the average time it would take for households to recover the cost of installing a new rooftop PV system with battery storage (payback period), the percentage of these new systems installed, the installed battery storage capacity, and finally how this may impact 20-year maximum demand forecasts.

“Victoria currently has a time-of-use tariff structure that incentivises the uptake of battery storage, as households are able to use electricity from the battery during peak times. As such, Victoria has the highest installed battery capacity by the end of the forecast period,” Mr Zema said.

“In New South Wales, the combination of the tariff structure and average household daily demand profile provides an economic incentive for consumers to install rooftop PV and battery storage. By the end of the outlook period, New South Wales is forecast to have the largest percentage of installed rooftop PV (72%) that is integrated with battery storage.”

Mr Zema said the installation of rooftop PV in South Australia already has a short payback period and forecasts show that the additional benefits of installing

battery storage compared with rooftop PV alone are limited compared to other NEM regions. AEMO has forecast a similar scenario in Queensland.

“Due to the relatively high installed capacity of residential rooftop PV in Queensland, and despite 2,046 MWh of battery storage capacity being installed with new rooftop PV over the forecast period, Queensland is forecast to have a relatively small percentage of total installed rooftop PV capacity,” said Mr Zema.

Projected forecasts suggest Tasmania is different again. As Tasmania has a poor solar resource, the payback period is the longest of all the regions. However, the percentage of total installed rooftop PV that is integrated with a battery storage system is the third highest of the NEM regions across the forecast period.

Mr Zema said electric vehicles and fuel-switching were forecast to have only minimal uptake over the outlook period, and therefore minimal impact on the grid.

“Based on initial assumptions and current market conditions, AEMO anticipates there will be negligible impact on the daily load profiles in each NEM region in the 20-year outlook period based on the estimated uptake of electric vehicles,” Mr Zema said.

In the NEM, only 1,909 electric vehicles were sold to 30 April 2015. In 2014, electric vehicles represented 0.1% of new

vehicle sales. Based on this current level of uptake and the absence of any policy incentives, AEMO assumes the uptake of electric vehicles to continue to be small, with a projected 165,734 electric vehicles across the NEM in 2024–25, increasing to 524,775 in 2034–35.

“In the absence of policy incentives, we expect the uptake of electric vehicles to remain low, with 524,775 electric vehicles forecast to be in the NEM by 2034–35, representing a 0.54% increase on residential and commercial consumption forecasts for the same year.

“We also expect the impact of fuel switching amongst Australian households to stay low across the NEM during the outlook period. We think that by 2034–35, fuel switching may contribute an additional 2,552 GWh (1.2%) to consumption from the grid.”

Mr Zema said that AEMO is working with stakeholders across the industry, including governments, network service providers, and organisations such as the CSIRO and the Australian Energy Market Commission, to address data limitations and improve its forecasting methodologies in this area.

“We welcome industry feedback and input on this paper and will be exploring the implications of battery storage and emerging technologies further,” Mr Zema said.

BATTERY STORAGE, ELECTR IC VEHICLES, FUEL SWITCHING – AEMO INVEST IGATES EMERGING TECHNOLOGIES AND TRENDS IN THE NEM

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AEMO Executive General Manager Corporate Development David Swift joined top energy executives from the world’s largest grid operators at a recent GO15 meeting in Istanbul, Turkey.

GO15 is a voluntary initiative of 18 of the largest power grid operators in the world, representing more than 70 per cent of global electricity demand.

The GO15 President, Secretary General, and committee chairs, gathered in Istanbul on 26 May to coordinate the overall work program of GO15.

Mr Swift said that AEMO benefits as a member of GO15 and plays a role in the international community through its contribution to four standing steering committees.

“GO15 has restructured its joint work program into four standing committees which are responsible for planning and delivering a program of tasks over time. Work on these tasks allows us to share experience on a range of important strategic issues, providing our experience in the Australian context while tapping into the expertise of the world’s largest grid operators,” said Mr Swift.

Mr Swift co-chairs Committee C3 on ‘Grid Economic Sustainability’ on behalf of AEMO, alongside co-chair Mr Jean-Pierre Gerrard on behalf of France’s RTE.

“The first face-to-face meeting of Committee C3 was held in Istanbul on 29 May to advance the existing tasks and develop a draft roadmap of work for the next three years,” said Mr Swift.

The Committee C3 has established three work streams:

• The regulatory arrangements required to sustain the grid of the future;

• The market arrangements required to sustain the grid of the future; and,

• The procurement and delivery of the services required to support the grid of the future.

Mr Swift said the GO15 meetings were held in Istanbul at the same time as the 2015 World Forum on Energy Regulation (WFER), the sixth meeting of world energy regulators which is held every three years under the auspices of the International Confederation of Energy Regulators (ICER).

“A side event held at the WFER was a joint workshop between the energy regulators (ICER) and grid operators (GO15) which was attended by 100 industry experts,” said Mr Swift.

“The delivery of the joint workshop was a project of GO15’s Committee C3, and I was asked to deliver the opening address on meeting the flexibility challenge in

electricity networks, focusing on cross-border balancing. Australia’s NEM faces the same challenges as our international compatriots to integrate increasing percentages of intermittent renewable generation into the grid, and the same need to access flexible resources to balance the grid and maintain security and reliability of supply.”

Mr Swift said that interconnections represent an important level of flexibility and provide value for short-term balancing.

“In mutualising the uncertainty and intermittency across regions, we reduce the need for reserves and allow frequency control services to be shared. We have an advantage in Australia where the same market arrangements, rules and regulatory arrangements apply at both ends of our interconnectors. Often this is not the case in international markets. However to deliver the potential benefits available, grid operators need to promote market mechanisms that define and value flexibility and ensure efficient recruitment and sharing of reserves,” said Mr Swift.

For more information about the GO15 meeting or the 2015 World Forum on Energy Regulation, contact AEMO Executive General Manager of Corporate Development David Swift.

AEMO AT THE WORLD FORUM ON ENERGY REGULAT ION

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AEMO’S 2015 VICTORIAN ANNUAL PLANNING REPORT

The 2015 VAPR identifies key emerging investment opportunities to address network constraints over the next 10 years on the Keilor–Deer Park–Geelong 220 kilovolt (kV) lines – which will service parts of western Melbourne – and on the Ballarat–Horsham 66 kV lines servicing parts of regional Victoria. The Ballarat–Horsham lines also affect export capacity to New South Wales.

The VAPR also finds that further investigation of network congestion on the South Morang 500 / 330 kV F2 transformer limiting export capacity to New South Wales is warranted.

The 2015 VAPR includes AEMO’s forecast analysis of network charges, and concludes that over the next decade, transmission network charges to customers – generally comprising some 5% of a typical residential electricity bill – are expected to reduce by 1.3% a year under a medium growth scenario.

“These forecast changes to transmission network charges demonstrate the pricing impacts of Victorian transmission asset renewal and augmentation projects over the next 10 years,” said AEMO Group Manager Planning Nicola Falcon.

“Most transmission network expenditure will relate to renewal, as assets reach the end of their useful life rather than network augmentation, due to the lower growth in forecast demand in Victoria.”

The 2015 VAPR is available on the AEMO website.

The latest Victorian Annual Planning Report (VAPR) shows that while overall electricity maximum demand growth is slowing across Victoria, there are some areas that require network investment due to population growth.

AEMO is responsible for planning and directing augmentations to Victoria’s electricity transmission declared shared network, and publishes the VAPR annually.

The VAPR considers the adequacy of the network to meet its reliability requirements over the next 10 years, and identifies possible network and non-network investment opportunities to address emerging network constraints.

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In this Energy Update column we take you behind the scenes at AEMO, introducing you to some of our employees. In this edition we talk to Louise Thomson about the important role her team plays at AEMO, particularly in the context of the rapidly changing energy industry.

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

Louise Thomson (LT): I qualified as a lawyer in the United Kingdom (UK) in 1993 before moving to Australia in 1997. I’ve worked in energy and resources for most of my legal career. About two years before leaving the UK I got a junior solicitor job at one of the major generators. I was designated as ‘the gas lawyer’, which was perfect timing as the UK was just starting to transition towards an open access regime and short term gas trading. On moving to Melbourne I joined law firm, Allens, and was lucky enough to be involved in some state energy privatisations and restructures, as well as major energy market developments and institutional changes. I worked at Allens for about 15 years before joining AEMO in 2012.

EU: What was it about AEMO that attracted you?

LT: I had worked with AEMO as a client – as well as previously with VENCorp and NEMMCO – and so I knew the organisation well and had worked closely with a number of its people. I was an energy regulatory specialist, so I was familiar with the regulatory framework around AEMO’s markets. It felt like a natural fit when the job came up.

EU: Can you explain what your team does and the importance of compliance at AEMO?

LT: Starting with compliance, by that we simply mean doing the right thing in the right way. We need to do the best we can to comply with the letter and spirit of the law, and general ethical and good governance principles. As a team we act in the best interests of AEMO as an organisation, and that includes protecting its reputation. AEMO can’t perform its role effectively without the trust of our very diverse stakeholders, and if we aren’t seen to be doing the right thing we will quickly lose that trust. We keep on top of the very broad range of obligations we have, and provide guidance on how best to comply with those requirements. We’ll be focusing on strengthening our compliance frameworks in the coming year.

Day to day we get involved in a huge variety of work. As well as giving advice on compliance and the application of our regulatory obligations across our markets, operations and business activities, we help with commercial and regulated contracts, legal review of AEMO publications, consultation requirements, drafting of rules and

procedures, market development, and memorandums of understanding with bodies like the Australian Energy Regulator, Australian Energy Market Commission and the Clean Energy Regulator. We also maintain some AEMO policies, such as confidentiality, privacy and whistleblowing.

EU: Is the rapidly changing energy landscape creating challenges for you and your team?

LT: Absolutely. Emerging technology is a great example of where new technology and innovation in the market is well ahead of regulation. We find ourselves trying to squeeze new technologies into rules that were written 15 or 20 years ago around traditional systems and service models. This creates a number of challenges in our current regulatory environment, where it frequently takes a couple of years for new rules and procedures to be implemented. The only certainty is that things will have changed again by that time.

EU: What do you like about working at AEMO?

LT: That AEMO is independent and not-for-profit – it means that there is a genuine sense of working to a higher goal. We need to look at the bottom line in terms of costs, but we can put principles above profit. Above all there are many passionate, dedicated and intelligent people here, who know their stuff and are great to work with. We are here to work in the best interests of energy consumers and I think that really is an objective we all share.

THE PEOPLE BEHIND AEMO…INTRODUCING LOUISE THOMSON, GROUP MANAGER - LEGAL AND COMPL IANCE, GOVERNANCE

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Course Location Date

Understanding MSATS (last scheduled MSATS course for 2015)

Sydney 8-9 July

Network and Frequency Control Ancillary Services (FCAS) constraints in the NEM

Sydney 22-23 July

Overview of the Victorian Declared Wholesale Gas Market (DWGM)

Melbourne 6 August

Overview of the NEM Melbourne 13 August

Overview of the Short-Term Trading Market (STTM)

Brisbane 27 August

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 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 launch the search for its next group of graduates, with applications for our 2016 Graduate Development Program (GDP) opening on 12 June.

Graduates at AEMO contribute to Australia’s energy future in an environment that challenges and empowers its people to be their best.

Our graduates benefit from a three-year program which offers real projects, with real responsibilities and exposure to mentoring from some of the top energy experts in Australia. Our graduates rotate across our business and are provided with a structured development program supported by a mentor, manager, and a buddy.

Our graduates go on to have successful careers as power system engineers, gas

operations engineers, analysts, statistical modellers, forecasters, and economists.

With sites in Victoria, New South Wales, Queensland, and South Australia, AEMO offers its graduates an attractive remuneration and benefits package, including study assistance, health and wellbeing programs, and an active social club.

Do you want to be empowered at AEMO? Do you know someone who might be interested? Learn more about our 2016 Graduate Development Program. Applications close on 13 July 2015.

On 9 June Managing Director and Chief Executive Officer Matt Zema spoke at the Italian Chamber of Commerce and Industry - Infrastructure forum. Mr Zema presented a high level overview on the changing nature of demand, the challenges the energy industry faces, and the external factors that influence AEMO.

Mr Zema discussed some of the key challenges AEMO currently faces, including maintaining system security and reliability as the NEM generation mix continues to evolve and consumption patterns change.

On 3 June AEMO National Planning Analyst Matt Armitage presented at the Australian Energy Storage Conference and Exhibition in Sydney.

Mr Armitage’s presentation, ‘Economics and new ownership models of grid connected storage’ leveraged the findings of his 2014 research into the ‘Economics of Residential Storage in Victoria’, to explore the different types of business models that could drive energy storage system uptake in Australia, the possible payback periods for energy storage systems, and the looming battle for domestic market share.

AEMO’S 2016 GRADUATE DEVELOPMENT PROGRAM

CONFERENCE WRAP UPI TAL IAN CHAMBER OF COMMERCE AND INDUSTRY - INFRASTRUCTURE FORUM

AUSTRAL IAN ENERGY STORAGE CONFERENCE AND EXHIB I T ION