This document provides an overview of renewable energy in Australia, with a focus on developments in South Australia and New South Wales. It discusses the growth of the global and Australian renewable energy markets. It notes that South Australia has seen renewable energy penetration approaching 40% of electricity generation, with accompanying declines in emissions and wholesale electricity prices. It also discusses policy options to facilitate further modernization and decarbonization of Australia's electricity system. The presenter concludes that there is significant momentum worldwide to decarbonize electricity, and that higher levels of renewable energy can be reliably achieved in Australia through emerging technologies.

1. Renewable Energy in the NEM
Presentation to the Australian Institute of Energy
May 16, 2016

2. Agenda Arial Bold 28pt
2
• Global Renewable Energy Market
• Renewables in Australia
• South Australia
• NSW
• Progress towards meeting the LRET
• Future Energy/Climate policy options
• Conclusion
Presenter:
Jonathan Upson Senior Development & Government Affairs Manager
Agenda

3. 3
Location: New South Wales
Status: Operational January 2010
Installed Capacity: 140.7MW
Turbine: 67 Suzlon 2.1MW S88
Location: Western Australia
Status: Operational January 2006
Installed Capacity: 89.1MW
Turbine: 54 NEG Micon NM82
Location: South Australia
Status: Operational March 2005
Installed Capacity: 80.5MW
Turbine: 46 Vestas V66
Location: South Australia
Status: Operational September 2008
Installed Capacity: 159.0MW
Turbine: 53 Vestas V90
Location: South Australia
Status: Operational June 2010
Installed Capacity: 39.0MW
Turbine: 13 Vestas V90
Location: New South Wales
Status: Operational October 2011
Installed Capacity: 48.3MW
Turbine: Suzlon 2.1MW S88
Infigen - Australia’s leading wind energy business
ALINTA
LAKE BONNEY 2
LAKE BONNEY 1
LAKE BONNEY 3
WOODLAWN
CAPITAL

4. 4
Infigen Energy’s NSW Investment
• Operational
– $374 Million Capital Wind Farm near Bungendore, NSW
– $115 Million Woodlawn Wind Farm, near the Capital Wind Farm
– Capital East Solar PV Demo/Energy Storage Facility
• Planning Approved
– 70-100 MW Capital II Wind Farm
– 100 MW Bodangora Wind Farm
– 120 MW Flyers Creek Wind Farm
– 37 MW Capital Solar PV Project
– 40 MW Manildra Solar PV Project

5. Wind Energy was #1 for new build worldwide in 2015
5
More wind energy
capacity was
installed in 2015
than any other
electricity generation
technology

6. Renewable technologies made up over 60% of
electricity capacity additions worldwide in 2015
6
Renewable Energy Investments: Major Milestones Reached New World Record Set
United Nations Environment Programme, Bloomberg New Energy Finance March 14, 2016

7. Is there another industry in the world with
such a high and sustained rate of growth?
7
Global Wind Energy Outlook 2015 Global Wind Energy Council April 2016

8. Renewable energy is approaching 40% of SA’s
electricity generation
8South Australian Historical Market Information Report AEMO August 2015
Wind
Solar PV
Coal
Gas
Interconnector

9. Emissions have declined by 22% in the past four years
9South Australian Historical Market Information Report AEMO August 2015

10. Electricity emissions rising significantly
after declining 16% in five years
10cedex Pitt & Sherry November 2015

11. Wind was the dominant source of SA electricity for
ten days last year
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
SA Generation by Fuel Type as % of SA Demand - 04/05/2015 to 13/05/2015
Wind %
Gas %
Brown Coal %
Infigen graph of AEMO data

12. 12
Wind generation is very predictable
NEM wind generation is forecast with 97-98% accuracy one hour ahead of time
12
1-NMAE
(%)
Data from Figure 64, 100% Renewables Study – Draft Modelling Outcomes, AMEO April 2013
NMAE: Normalised Mean Absolute Error

13. AEMO Data: Wind energy lowers wholesale prices in SA
13
2014 South Australian Electricity Market Economic Trends AEMO, September 2014

14. Simplified Wholesale Electricity Market Bid Stack
14
Electricity
Demand
4,000
Electricty
Volume
(MW)
GAS (CCGT) - $60/MWh
2,500
2,000
1,500
1,000
500
6am 8am 10am Noon 2pm 4pm 6pm 8pm 10pm
GAS (OCGT) - $150/MWh
WIND - $5/MWh
COAL - $35/MWh
Average Electricity Price = ~ $70/MWh

15. Same Bid Stack with A Bit More Wind Generation
More expensive generation not needed
15
Electricity
Demand
4,000
Electricty
Volume GAS (CCGT) - $60/MWh
(MW)
2,500
2,000
1,500
1,000
500
6am 8am 10am Noon 2pm 4pm 6pm 8pm 10pm
GAS (OCGT) - $150/MWh
WIND - $5/MWh
COAL - $35/MWh
Average Electricity Price = ~ $45/MWh

16. Inverse relationship of wind generation to pool
prices clearly demonstrated earlier this month
16
Infigen graph of AEMO data

17. Six independent electricity market modelling studies
have shown the LRET does not raise electricity prices
• ACIL Allen’s modelling for the Warburton Review confirmed the earlier results from
SKM (Jacobs), Schneider Electric, ROAM, IES, and Bloomberg
• All six studies generated similar results; reducing the LRET causes:
– Retail prices to decrease by a small amount in the short term
– Followed by retail prices increasing by a larger amount in the medium - long term
• The AiGroup, representing over 60,000 businesses, recognised this in their RET
Review submission, and in a more recent media release
– “Across the board, analysis of the RET has concluded that large reductions
in the target would leave energy users worse off.”
17

18. Causes of South Australia’s high wholesale
electricity prices
• Lack of effective competition in generation
• Over 95% of dispatchable generation relies on increasingly expensive gas
– Rising, volatile gas prices resulting from LNG exports
• SA is interconnected to only one State
– NSW and Victoria are connected to multiple States which is beneficial
• SA has the highest peak to average load ratio of any State
– Resulting in ‘additional’ peaking plants and power lines that are rarely used
18

19. 19
There is significant competition in the Australian
Wind Energy Market
Australian Wind Farm Owners (operating MW)1
Ecogeneration and company websites (2015).
Infigen Energy
14% China State Power
Investment
10%
Trustpower
9%
Shenhua/ Hydro Tas
8%
Acciona
6%
Malakoff
5%
Morrison
5%
UBS IIF/REST
5%
Meridian
5%
Goldwind/Jingeng
4%
InfrastructureCapital
Group
4%
Energy Infrastructure
Investments
3%
AGL
3%
Wind Prospects
3%
Mitsui
3%
20 Others
13%

20. South Australian thermal generation market
is not very competitive
20
Generation capacity and retail offtake data from State of the Energy Market 2015 AER December, 2015

21. EUAA recognises a lack of competition in SA
21

22. Queensland – another less than competitive
electricity market
• Queensland had the highest wholesale electricity prices in the NEM for FY15
– $52.18 (vs $39.38 for SA)
• Similar situation to SA---two dominant generators (Stanwell and CS Energy)
– These state owned generators own almost 2/3 of the State’s generation capacity
• AER states “generators including Stanwell, CS Energy and Callide periodically rebid
large volumes of capacity from low to very high prices late in a trading interval.”
– Ernst & Young estimated late re-bidding added $7-8/MWh to Queensland price cap
contracts in the six months up to March 2015 (AER)
• Queensland had the highest prices in FY15, but they have negligible wind
generation
– Wind farms did not cause Queensland to have the highest wholesale prices last FY
22
Source for AER statements: State of the Energy Market 2015 AER December, 2015

23. Expensive peaking plant generation in SA has
declined as wind energy penetration increased
23
Peaking Capacity, CO2-e Emissions and Pricing in the South Australian Electricity Grid with High Wind Penetration 2005-2013
Dr David Osmond, Luke Osborne Windlab Systems May 2014

24. SA was much more reliant on interconnectors
before wind farms
24
Plotted from AEMO data
-500
0
500
1000
1500
2000
2500
3000
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Wind Capacity (MW) Net Interconnector Imports (GWh)

25. SA Electricity System Reliability
• “…about 95 per cent of reliability issues in the NEM originate in the distribution
network sector.”1
– Only 5% of outages are caused by issues in the high voltage transmission network or
electricity generation plants
• While AEMO continues to evaluate potential future SA electricity market issues,
– “AEMO has not identified any system security challenges that cannot be
managed through existing processes and procedures” in conjunction with
the closure of the Norther Power Station2
25
1 State of the Energy Market 2015 AER December 2015
2 Update to Renewable Energy Integration in South Australia AEMO and Electranet February 2016

26. Frequency Control & Ancillary Services (FCAS)
• The FCAS market procures services to maintain electricity network frequency at 50Hz
– Normal FCAS charges for all of SA are typically less than $35/hour
• FCAS can be ‘imported’ via interconnectors; therefore, provision of FCAS is a non-issue when
the Heywood interconnector is operational
• Likewise, system inertia (which reduces the rate of frequency change) can be supplied over an
interconnector
– Historically, the Heywood interconnector has tripped about once every two years
• For several weeks in Q4 of last year, SA FCAS charges exceeded $25 Million during scheduled
outages of one circuit of the Heywood interconnector
– These charges were shared roughly 50/50 between electricity customers and SA generators
• The Australian Energy Regulator in their report1 made it clear the two primary causes for the
excessive FCAS prices were:
– AEMO implemented changes to established FCAS protocols with little warning to market
participants and customers
– Late rebidding of capacity from low to very high prices by two market participants
26
1 Report into Market ancillary service prices above $5000 South Australia, 11, 12 and 25 October 2015 AER December 2015

27. Power outage in SA on November 1st
• Line two of the Heywood interconnector was off-line for scheduled work as part of
the interconnector upgrade
• Line one of the interconnector “tripped when an automated test signal was
unexpectedly interpreted by the new relay as a trip signal.”
• AEMO makes it clear in their report that there was no relationship between
the power outage and wind farms in SA
• There were delays reconnecting SA to the NEM caused by difficulties stabilising the
SA electricity network frequency at 50Hz
– However, AEMO also makes it clear in their report that these difficulties were caused
by issues with thermal generators---not wind farms
27
Source: Load Shedding in South Australia on Sunday 1 November 2015 AEMO February 2016

28. 28
Installed Wind Energy Capacity by State
Clean Energy Report 2014.,CEC June 2015
NSW currently ranks
4th for wind farm
investment and jobs
NSW
NSWNSW

29. NSW forecast to achieve the largest share of
renewable investment over the next decade
29
RET Review Modelling ACIL Allen August 2014

30. Renewables in NSW
• NSW has 660 MW of wind energy installed today
– Two large wind farms committed to be built in the New England region of NSW
– Goldwind’s 175 MW White Rock and CWP’s 260MW Sapphire wind farm
• NSW is leading the country with 175MW of installed large-scale solar projects
– Together, wind and large scale solar make up about 5% of NSW’s generation
• In 2014, about 11% of NSW’s electricity came from renewable sources
– NSW REAP calls for 20% of electricity to come from renewables by 2020
• In order to meet the bi-partisan 33TWh LRET target, the CEC estimates that about 6000MW
of new generation capacity worth $10 Billion and creating 6500 jobs are required by 2020
– NSW should capture about half of these new jobs and investment
30

31. Retailers have only 4 options to meet their legislated
LRET obligations
1. Build large-scale renewable developments they own (as AGL has
largely done)
2. Purchase, and then build, developments from other companies
3. Negotiate Power Purchase Agreements (PPAs) with developers
enabling them to finance and build projects
4. Purchase LGCs from the spot market
– The Clean Energy Regulator, and energy analysts, have made it clear
that this is not a viable option for the three large retailers
The first three options have a 18-24 month lead time

32. Clean Energy Regulator’s RET Annual Statement
32

33. Clean Energy Regulator’s view
33

34. Renewables penetration by State in 2014
34Clean Energy Report 2015 CEC June 2015

35. Can the rest of the NEM accommodate SA’s market
share of renewables?
• South Australia accommodates 40% variable RE market share today
without significant issues
• Current LRET target of 33TWh (~23% RE) can also be achieved without
significant technical issues or economic impact for customers
• Other States will not approach SA’s variable RE market share for at least
10 years without very significant changes to current policies
• In less than 10 years, higher levels of renewables will be facilitated by
– Solar Thermal which will be more cost competitive
– ‘Baseload’ renewables automatically providing FCAS and inertia
– Large-scale battery storage which will almost certainly be cost competitive
– Other technologies will also contribute
35

36. Facilitating the energy transformation/modernisation
• There are significant disincentives for older, more polluting generators
exiting the market
– First mover disadvantage
– Significant redundancy/remediation costs
– Lose ability to realise higher prices/payouts which they hope might occur
• Several proposals on the table to ‘encourage’ high emitting power stations
past their use-by-date to close
– Brown Coal generator paid to close from levy on remaining coal generators
(Frank Jotzo, ANU)
– Change Safeguard mechanism to reduce electricity emissions (Grattan)
– Emissions Intensity Scheme (AEMC)
– Regulatory Closure (based on age?, emissions?)
• It is more important that effective bi-partisan action is taken that will survive the
next election(s) than which mechanism is selected
36

37. Preliminary CCA modelling of electricity
abatement options
37
Report urging carbon tax on power withheld Peter Hannam www.smh.com.au May 6, 2016

38. LRET found to be the most efficient wind energy
support scheme in the world
38
International support for onshore wind Frontier Economics (UK) June 2013. PPP: purchasing power parity

39. In summary
39
Consumer Price Index and Retail Electricity Prices

40. Conclusion
• It’s clear there is serious momentum to decarbonise electricity generation
around the world
• South Australia is not an experiment that has gone wrong
– Renewables apply downward pressure on wholesale electricity prices
– There is no threat to the security of supply today (AEMO)
– Electricity emissions have declined dramatically
• There are no technical issues, or significant economic impacts of,
achieving the LRET target of 33TWh in 2020
• Higher levels of renewables penetration will be facilitated by new
technologies (solar thermal, batteries, etc.)
– Modernisation of Australia’s electricity generation fleet will occur
40

41. 41
QuestionsQuestions