AEMCPAGE 1 Choosing a New Future John Pierce Chairman AUSTRALIAN ENERGY MARKET COMMISSION World Forum on Energy Regulation.

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Choosing a New Future

John PierceChairman

AUSTRALIAN ENERGY MARKET COMMISSION

World Forum on Energy Regulation

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The NEM

Design

• Gross pool, energy only market: all energy traded through the market

• 5 regional spot prices, set half hourly

• Secondary financial markets for risk hedging

Scale

• Total network length: 900,000kms

• Number of customers: 10million

• Energy: 200 terawatts per year

• East-coast only

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The power system

Source: AER, 2011 State of the Energy Market

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NEM Governance structure

Relative hourly prices in the NEM 1999-2010

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Source: PricewaterhouseCoopers, Investigation of the efficient operation of price signals in the NEM, December 2011, p.7

Average and peak spot price and demand in NSW across an average and peak demand day

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Source: AEMO half hourly price and demand data

Physical and financial flows in the NEM

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AER, State of the energy market 2010

Installed capacity by fuel source – 2000 to 2011

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Source: AEMO, 2011 Electricity Statement of Opportunities, p.2-6

Wind penetration levels in international power systems

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Source: Jones, L, Strategies and decision support systems for integrating variable energy resources in control centres for reliable grid operations, US Department of Energy, p.xxii

(Australian systems highlighted in red)

Wind generation and total South Australian demand from 20 Jan 2011 – 2 February 2011

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Source: AEMO, 2011 South Australian Supply and Demand Outlook, 2011, p.77

Average and marginal emissions intensity, with and without a carbon price

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Source: AEMC, Impact of the enhanced renewable energy target on energy markets – Interim report, 25 November 2011

REC prices and the broader policy environment

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Source: Investment Reference Group, A Report to the Commonwealth Minister for Resources and Energy, April 2011, p. 89

Conclusion

• Australian energy consumers need to be supplied with a reliable, secure supply of electricity at an efficient price, in the face of challenges to the market such as the Clean Energy Future Package and the enhanced RET

• effective policy implementation requires an appreciation of how the markets operate - previous market interventions in Australia have had unintended consequences, resulting in the potential to affect overall efficiency

• Market frameworks and mechanisms must be designed to be resilient and have the ability to deliver high level policy objectives at the lowest overall cost

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