Energy Update February 2016 P1

FEBRUARY 2016

JOINT REPORT FURTHER INVESTIGATES STABILITY OF SOUTH AUSTRALIA’S EVOLVING POWER SYSTEM

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AEMO LAUNCHES NEW ROOFTOP SOLAR GENERATION FORECASTING SYSTEM

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THE PEOPLE BEHIND AEMO

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Energy Update February 2016P2

The speed at which the energy industry is rapidly evolving with renewables, emerging technology, battery storage and active consumer behaviour requires innovative solutions from independent system operators, market participants, policy makers, governments and consumers and communities alike.For AEMO, the challenges are complex, technical and wide-ranging.

As a nation, our current power grid and market has performed quite well in keeping up with innovation and changes in technology so far. From a reliability point of view we have a high reliability standard of 99.998% - or .002% of unserved energy – that is world leading. We have clear pricing signals. We have open access. We have customer choice.

However, as we move forward, we face some unique challenges. And we are not alone. In fact, in every country and certainly most states, territories and jurisdictions within each country, there are unique operational and network challenges. These challenges are geopolitical as much as they are technical.

One of our challenges is how the market will respond in light of the ever-changing generation mix, and to what impact this may have on power system security, with South Australia and Tasmania at the forefront of this change.

In AEMO’s recently released joint report with South Australian transmission network service provider ElectraNet (which you can learn more about on page 3), we investigate the stability of South Australia’s evolving power system.

The report finds that given the high installation of wind and rooftop solar PV, the services that have ordinarily been provided by traditional forms of synchronous generators in the past, are still required to assist in the real-time balancing of supply and demand for power system security.

While the report is designed to look at the extremes of the power system, system security is a complex, serious and necessary challenge. It’s about balancing voltage, frequency and inertia across the power system for its synchronous operation within technical boundaries. Maintaining system security in the new world requires a thoughtful, open and informed discussion.

If we look back five years ago, both the gas and electricity sectors were considered more predictable. In the National Electricity Market (NEM) we had a clearer picture of generation in the grid. We could identify and measure a change in load and determine if the market needed to dispatch more or less in order to maintain system security.

Today, and in the future, ‘behind the meter’ technologies such as rooftop PV, battery storage, and energy management systems are changing the dynamic performance of the power system and making it increasingly more challenging for independent system and market operators to balance the security and reliability of energy supplied against the changing needs and preferences of consumers. We have focused on improving our forecasting systems to provide us with a greater level of detail to capture what is happening behind the meter. You can read more about this on page 4.

The key is to try and make the integration of renewables and new technologies work for us all – while not compromising the integrity of power system security and reliability. It should be seen as an opportunity not a disruption.

Adapting to the effective integration of renewable energy sources is a key focus for the GO15 – a group of the world’s largest power grid operators, representing more than 70 per cent of the world’s electricity demand.

AEMO has been working on issues related to security and reliability of the NEM for a number of years, in addition to being actively involved in the GO15 in identifying how the generation mix of the markets and new products will contribute to the future energy world.

Our system and network has changed a lot in the past five years and we are preparing ourselves for even greater change in the next five. From a market and system operator point of view we continue to provide planning and analysis that allows for informed decisions to be made and the market to respond and adapt appropriately. Our reports will also evolve to reflect these changes and the transformation of the energy industry.

The reliable integration of new technologies into the existing power system requires some innovative thinking and in a new world with increasingly active consumer behaviour, this next phase of where our markets will be going, won’t just be driven by customer involvement, they will be dictated by them.

UPDATE FROM MANAGING DIRECTOR AND CEO MATT ZEMA

CONTENTSP2 Update from Managing Director and Chief Executive

Officer Matt Zema

P3 Joint report further investigates stability of South Australia’s evolving power system

P4 AEMO launches new rooftop solar generation forecasting system

P5 2016 Transmission Connection Point Forecasting Report for Tasmania

P6 Introducing AEMO’s Weekly markets snapshot

P7 The people behind AEMO

P8 In brief

Energy Update February 2016 P3

The power system is changing with the rise and uptake of emerging and renewable technologies, advances in battery storage, increasingly active consumer behaviour, and demand patterns continuing to shift and challenge traditional profiles”, Mr Matt Zema, AEMO Managing Director and Chief Executive Officer.

AEMO has released an updated technical report with South Australian transmission business ElectraNet, investigating power system security in South Australia as the state continues to lead the world with its high penetration of renewable generation. The report finds that under normal operating conditions, i.e. no equipment failure, the South Australian power system operates securely and reliably. The state’s stable electricity supply does however rely heavily on the transmission network connecting South Australia to Victoria remaining in service and uninterrupted.

“The joint report with ElectraNet highlights the need for power system support services, such as frequency control services, to maintain a secure and reliable power system. These support services can be provided via the Heywood Interconnector connecting Victoria to South Australia,” said Matt Zema.

“Traditionally, large synchronous generators provide power system support services, such as frequency and voltage control, as they operate in a predictable, continuous manner. With some large synchronous generators exiting the market, especially in South Australia, these pivotal power system support services will need to be sourced by other means,” said Matt.

The ability to maintain frequency control at around 50Hz is critical to maintaining power system security. Frequency control support services provide a fast injection of energy, or fast reduction in energy to maintain the optimum frequency for the electrical system following an event or incident.

“The report highlights a number of operational measures implemented over the past 18 months to address the short term challenges of operating South Australia’s power system securely if it is disconnected from the rest of the National Electricity Market.

“The report also illustrates the need to begin looking at efficient and sustainable solutions with at least a 10 year outlook,” said Matt.

AEMO has formed an industry reference group – the Power System Implications Technical Advisory Group – to provide input towards a comprehensive issues list with a long term outlook. The group met for the first time in early December 2015, and includes nominated representatives from conventional generators, retailers, transmission and distribution businesses, the Clean Energy Council, the Standing Committee of Officials (SCO), the Australian Energy Market Commission (AEMC), and the Australian Energy Regulator (AER).

AEMO will continue to work closely with a range of stakeholders to protect the power system’s stability throughout this transformational change in generation mix.

JOINT REPORT FURTHER INVEST IGATES STAB IL ITY OF SOUTH AUSTRALIA’S EVOLVING POWER SYSTEM

Energy Update February 2016P4

AEMO LAUNCHES NEW ROOFTOP SOLAR GENERATION FORECASTING SYSTEM

With rooftop solar photovoltaic (PV) generation on the rise in Australia and across the globe, AEMO has pioneered a new small-scale rooftop PV forecasting system to be used in its pre-dispatch data and Short Term Projected Assessment of System Adequacy (STPASA) reporting for Australia’s National Electricity Market (NEM).

The latest data from the Clean Energy Regulator shows that as at 1 January 2016, installed distributed rooftop solar generation capacity across the NEM is approximately 4.1 gigawatts (GW) — an almost 50 per cent increase on the approximately 2.8 GW of installed distributed rooftop solar capacity recorded at the end of 20131.

“Forecasting distributed small-scale solar generation is a fairly new concept for our industry, but AEMO has made great advances in its rooftop PV modelling by integrating forecasts of solar irradiance with statistical models, based on samples of actual PV system generation at a sub-regional level. This means we’re able to

improve the accuracy of our forecasts of rooftop solar generation output and provide greater insight as to how this might impact demand from the grid,” said Craig Price, AEMO Group Manager Forecasting.

AEMO’s growing expertise in this area is internationally acknowledged, with AEMO currently leading a global taskforce responsible for exploring ways to estimate rooftop PV generation and incorporate that data into load forecasting. The taskforce is part of a broader GO15 subcommittee, ‘Grids for Flexible Resources’, and comprises members of GO15, a voluntary initiative of 18 of the world’s largest power grid operators representing 70 per cent of the world’s electricity demand. GO15 holds formal meetings and conferences throughout the year to discuss the future of power grids, including the technical, operational and economic aspects of the integration of mass distributed energy sources into power grids.

“AEMO’s new rooftop solar generation forecasting system plays a critical role in improving Australia’s energy systems operations through assisting generators, retailers, and market participants to better manage the intermittency and uncertainty of solar generation, by capturing the increase in rooftop PV across the NEM and improving the accuracy of short-term demand forecasts,” said Craig.

AEMO’s new solar generation forecasting system, known as the Australian Solar Energy Forecasting System 2, is expected to be operational in March 2016. For further information, please contact AEMO Group Manager – Forecasting, Craig Price.

AEMO’S ROOFTOP SOL AR GENERATION FORECASTING SYSTEM AT GL ANCE:

• Improve accuracy of short-term demand forecasts.

• Assist generators to manage generating unit commitment, supply and fuel contracts.

• Assist retailers to manage supply and industrial customer contracts.

• Improve the accuracy of reserve calculations and more appropriate published reserve notices to the market.

1 Clean Energy Regulator: http://www.cleanenergyregulator.gov.au/RET/Forms-and-resources/Postcode-data-for-small-scale-installations

Energy Update February 2016 P5

AEMO’s 2016 Transmission Connection Point Forecasting Report for Tasmania, released in February, shows that maximum demand (MD) across Tasmanian transmission connection points – the areas on the grid where transmission and distribution networks intersect – is forecast to increase slightly from winter 2016 to 2025. This Tasmanian report, which details insights into local changes in demand and trends in MD, is the first connection point report for 2016. The reports forecast independent electricity MD at the transmission connection point level for regions across the National Electricity Market.

The 2016 Transmission Connection Point Forecasting Report for Tasmania shows forecasts remaining relatively steady at an annual average rate of 0.12% (10% Probability of Exceedance or ‘POE’) and 0.16% (50% POE) per annum in winter, and at a rate of 0.11% for both the 10% and 50% POE in summer.

“The aggregated forecasts show a slight growth in MD until winter 2016. This is due to population growth and changes in gross state product, which is driving an increase in residential and commercial demand,” said Craig Price, AEMO Group Manager Forecasting.

“From winter 2016, demand is forecast to remain relatively steady, as increasing electricity prices are offsetting demand growth.

“While aggregated demand is forecast to only slightly rise, individual connection point forecasts increase at some locations, and decrease at others. This is due to various drivers including population and economic growth, load transfers – deliberate shift of electricity demand from one connection point to another – and industrial closures,” said Craig.

As part of the report, AEMO has also published a dynamic interface which provides detailed forecasts and commentary specific to each connection point. AEMO’s Interactive planning map is available the AEMO website.

The report will feed into AEMO’s planning functions, and will also be used by the Australian Energy Regular in its revenue determinations, as a point of comparison to the transmission connection point forecasts provided by network service providers.

For further information, please contact AEMO Group Manager – Forecasting, Craig Price.

2016 TRANSMISSION CONNECTION POINT FORECAST ING REPORT FOR TASMANIA

Energy Update February 2016P6

Late last year AEMO launched its Weekly markets snapshot via AEMO Communications.In line with AEMO’s strategic initiative to provide greater transparency of information to the market, each week we deliver this snapshot of our markets, which covers the National Electricity Market (NEM) and the Wholesale Electricity Market (WEM),

as well as the Wallumbilla Gas Supply Hub (GSH), Declared Wholesale Gas Market (DWGM), and the Short Term Trading Market (STTM).

AEMO Communications is a weekly email sent to AEMO’s stakeholders to keep them up to date with the latest news from AEMO and the industry, including information on AEMO’s upcoming training courses and career opportunities. Please contact us if you would like to sign up to receive AEMO Communications.

INTRODUCING AEMO’S WEEKLY MARKETS SNAPSHOT

Energy Update February 2016 P7

In this column we take you behind the scenes at AEMO, introducing you to some of our employees. In this edition we talk to Frank Montiel, Executive Officer - Corporate Development, about the important role his team plays at AEMO, and the challenges they face in a rapidly evolving energy industry.

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

Frank Montiel (FM): I’m an electrical engineer, and I started out working in the Queensland electricity industry in 1995. I worked at Powerlink before working overseas with a generator in Spain, before working for National Grid in the United Kingdom. I then came back to Powerlink for a time before joining the National Electricity Market Management Company Limited (NEMMCO) in 2005, which was succeeded by AEMO in 2009. I’ve been here ever since.

EU: What was it about AEMO that attracted you? FM: What really drew me to AEMO was the national focus and the fact that the work being done had the potential to have a broad and positive impact. I wanted to do something that would genuinely make a difference – and AEMO provided that opportunity.

EU: Can you please explain a bit about the work you are doing in the Corporate Development team, and why it’s such an important function at AEMO?

FM: We have recently established a work program looking at the changing environment in which we operate the electricity power system. To explain that a bit, the power system has been designed with certain assumptions in mind in terms of how power generation works and how consumers behave. As we all know, this is changing rapidly. This doesn’t mean that things are broken, but it does mean that, as the power system operator, AEMO needs to adapt to this changing world. So, we are looking forward at what the future

power system operation may look like, and our team is considering the long term implications of these changes and efficient frameworks for operating the power system under these changing conditions.

EU: Finally, what do you like most about working at AEMO?

FM: During my time working at AEMO I have been in a number of different roles looking at many different facets of the energy industry. One of the things that is always been prevalent is that we are constantly looking at how we can change the way we work in order to add more value to our stakeholders. That’s an element that is really important to me – we’re not just producing work for the sake of it, we’re constantly challenging ourselves to think about how we can provide the greatest value that is in the best interest of consumers. At the moment the work that we are doing is completely aligned with that and it really energises and motivates me.

THE PEOPLE BEHIND AEMO…INTRODUCING FRANK MONTIEL , EXECUTIVE OFF ICER – CORPORATE DEVELOPMENT

What really drew me to AEMO was the national focus and the fact that the work being done had the potential to have a broad and positive impact.

Energy Update February 2016P8

Course Location Date

Wholesale Electricity Market (WEM) Introduction

Perth 9 March 2016

Energy Markets: STEM, Balancing and LFAS

Perth 16 March 2016

Reserve Capacity Mechanism Perth 16 March 2016

Network and FCAS constraints in the NEM

Melbourne 16-17 March 2016

Overview of the National Electricity Market (NEM)

Sydney 24 March 2016

Overview of the National Electricity Market (NEM)

Melbourne 6 April 2016

Metrology for the NEM Sydney 27-29 April 2016

AEMO TRAINING

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 welcomes your feedback.If you have suggestions, comments, or wish to change your contact details, please email media@aemo.com.au.

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IN BRIEF

Earlier this month AEMO Chair Dr Tony Marxsen and Managing Director and Chief Executive Officer Matt Zema joined Queensland employees at a welcome morning tea to mark the opening of AEMO’s new Queensland office at 10 Eagle Street, Brisbane.“We are proud of the strong team environment and the culture of hard work and commitment we developed at Mansfield over the years, and we look forward to building on this legacy at our new office in the Brisbane CBD,” Matt said.

“The new Queensland headquarters will position AEMO for a successful future by ensuring our people continue to be accommodated in secure, modern and functional facilities, in a workspace that our people can take pride in and that is fit-for-purpose, adaptable, and centrally located for the convenience of AEMO employees, visitors and industry stakeholders,” said Matt.

The Heywood Interconnector, the electricity transmission lines connecting South Australia to Victoria, is now capable of transferring 570 megawatts (MW) of electricity from Victoria to South Australia. Following configuration and rigorous testing by AEMO and South Australian transmission business ElectraNet, the Heywood Interconnector now has a 70 MW higher transfer limit from Victoria to South Australia.

The 70 MW increase in maximum capacity is a major milestone of the upgrade project to increase the bi-directional flow capacity from 460 MW to 650 MW across the Heywood Interconnector. The next phase of this project will focus on increasing the capacity of flow from South Australia to Victoria.

The upgrade project is due to be completed and at full capacity by March 2017.

AEMO’S NEW QUEENSL AND OFFICE OPEN FOR BUS INESS

HEYWOOD INTERCONNECTOR NOW OPERAT ING AT HIGHER CAPACIT Y