REALLOCATIONS

2 What is a reallocation? Reallocations in the NEM Reallocations in the GSH Discussion  Reallocations and STTM

REALLOCATIONS CONCEPT - NEM 3 AEMO Settlement GeneratorRetailer Swap $60 / MWh NEM $100 / MWh 1 MWh $100 $40 $100 - $40 = $60

REALLOCATIONS 4 What is a reallocation?  Agreement between two authorised counterparties  Movement of settlement liabilities from one party to another o Typically takes advantage of the credit position in the market of the debit party to the reallocation  Prudentially validated prior to system acceptance  Binding agreement o Parties can reverse impact of a reallocation with a new reallocation o AEMO may cancel future reallocations during a default event

REALLOCATIONS - NEM 5 Types of reallocations in the NEM  Ex post and Ex ante  Dollar  Energy (ex ante value initially unknown) Value of reallocations in the NEM  Ex ante can reduce credit support requirements and settlement liabilities  Ex post can reduce settlement liabilities for prudential management as an alternative to security deposits Market Participants and Reallocators can reallocate  Reallocators are typically banks

REALLOCATIONS - GSH 6 Types of reallocations in the GSH  Ex post and Ex ante  Dollar  Energy (ex ante value initially unknown) Value of reallocations in the GSH  Can reduce credit support requirements  Can reduce outstandings as alternative to security deposits for daily prudential management  Can facilitate future trades without the need for posting extra collateral Market Participants and Reallocators can reallocate  Reallocators expected to be banks

REALLOCATIONS - STTM 7 Discussion  Reducing credit support requirements  Alternative to prepayments for prudential management  Unsecured credit (bank) in market