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

AEMCPAGE 2 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

AEMCPAGE 3 The power system Source: AER, 2011 State of the Energy Market

AEMCPAGE 4 NEM Governance structure

Relative hourly prices in the NEM AEMCPAGE 5 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 AEMCPAGE 6 Source: AEMO half hourly price and demand data

Physical and financial flows in the NEM AEMCPAGE 7 AER, State of the energy market 2010

Installed capacity by fuel source – 2000 to 2011 AEMC PAGE 8 Source: AEMO, 2011 Electricity Statement of Opportunities, p.2-6

Wind penetration levels in international power systems AEMCPAGE 9 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 AEMCPAGE 10 Source: AEMO, 2011 South Australian Supply and Demand Outlook, 2011, p.77

Average and marginal emissions intensity, with and without a carbon price AEMCPAGE 11 Source: AEMC, Impact of the enhanced renewable energy target on energy markets – Interim report, 25 November 2011

REC prices and the broader policy environment AEMCPAGE 12 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 AEMCPAGE 13

AEMCPAGE 14