Hydro Tasmania Presentation to OTTER on Potential Regulation of Raise Contingency FCAS • How the FCAS issues have unfolded • Dispelling FCAS Myths • What others had to say (and why) 10 September 2009 1
Tasmanian FCAS Timeline Mar 08 FOS Review Start Aug 08 Draft FOS Decision Oct 08 ACCC not opposed to AETV sale Dec 08 - FOS Decision - Causer Pays Rule Submitted New entry will & must provide FCAS Apr 09 High priced events May 09 AEMO changes inertia Jul 09 OTTER intention to regulate Aug 09 Causer Pays Draft Dec 09 FOS Where is the new FCAS? change 2
R6 FCAS Comparison Typical hydro generator Typical CCGT HT Typical R6 Trapezium Pelican Point CCGT Bid Trapezium 10 120 16 9 14 100 8 12 7 80 10 Relative Efficiency % 6 R6 (MW) R6 (MW) 8 5 60 4 6 40 3 4 2 20 2 1 0 0 0 0 50 100 150 200 250 300 350 400 450 500 0 10 20 30 40 50 60 Energy Target (MW) Pelican Point CCGT Bid Trapezium The efficient supply of raise contingency FCAS is central to the supply-side equation in Tasmania 3
Tasmanian FCAS Timeline Mar 08 FOS Review Start Aug 08 Draft FOS Decision Oct 08 ACCC not opposed to AETV sale Dec 08 - FOS Decision - Causer Pays Rule Submitted New entry will & must provide FCAS Apr 09 High priced events May 09 AEMO changes inertia Jul 09 OTTER intention to regulate Aug 09 Causer Pays Draft Dec 09 FOS Where is the new FCAS? change 4
Co-optimisation R6 A 210 Envelope of minimum R6 required locally (balance supplied globally) No-go zones 45 0 D E Local R6 for Basslink trip Z C B F G 0 50 50 Import 0 to 478MW Export 0 to 594MW 0MW 478MW 594MW Figure 1 5
Co-optimisation L6 Envelope of minimum L6 required locally (balance supplied globally) No-go zones Current 30-40MW of local L6 For Basslink export 135 90 45 0 0 50 50 G Import 0 to 478MW Export 0 to 594MW 0MW 478MW 594MW 6
Co-optimisation R6 & L6 Envelope of minimum L6 required locally (balance supplied globally) Envelope of minimum R6 required locally No-go zones 210 (balance supplied globally) Current 30-40MW of local L6 Local R6 for Basslink trip For Basslink export 135 Z 90 45 0 0 50 50 G Import 0 to 478MW Export 0 to 594MW 0MW 478MW 594MW 7
Tasmanian FCAS Timeline Mar 08 FOS Review Start Aug 08 Draft FOS Decision Oct 08 ACCC not opposed to AETV sale Dec 08 - FOS Decision - Causer Pays Rule Submitted New entry will & must provide FCAS Apr 09 High priced events May 09 AEMO changes inertia Jul 09 OTTER intention to regulate Aug 09 Causer Pays Draft Dec 09 FOS Where is the new FCAS? change 8
AETV FCAS Liability (1 st -17 th April) • Made the commercial choice on Avg Max level of exposure to energy/FCAS markets knowing MW MW commissioning programs R6 1 9 • Declined existing Raise and Energy capability of BB unit 2 • Approximately $425k (assuming R60 2.3 18.7 fully exposed) • AETV investment in FCAS = Nil?? R5 2.3 19.3 • HT investment in FCAS = $800k (30MW R6 & 100MW L6) 9
Tasmanian FCAS Timeline Mar 08 FOS Review Start Aug 08 Draft FOS Decision Oct 08 ACCC not opposed to AETV sale Dec 08 - FOS Decision - Causer Pays Rule Submitted New entry will & must provide FCAS Apr 09 High priced events May 09 AEMO changes inertia Jul 09 OTTER intention to regulate Aug 09 Causer Pays Draft Dec 09 FOS Where is the new FCAS? change 10
Summary of Submissions Aurora Energy & Businesses exposed its 100% to FCAS due to subsidiary AETV failure to manage • Noticeable omissions market risks. Support – Independent advice (eg LMS and Infratil regulation as cheap (PPA) means of protection AEMO & CRA in TFOS) from competition – New wind proponents Energy Response Experienced market – Other new entrants participants who Hydro Tas recognise the risks of (geothermal) market intervention. R40s • No assessment of net Oppose regulation on market principles. NGF benefit (approach correctly adopted by AER Submission lacks any substantiating AEMC in TFOS review) argument or facts RTA Raise or lower? 11
Cost and savings allocation Costs Savings FCAS Costs Production savings Hydro Tasmania New entrant retailers Aurora/AETV Consumers 12
Summary • April ’08 – Issues – New generation required – Trade off of supply side costs and benefits – R6/L6 availability and costs central to equation • Dec ’08 – TFOS Determination recommends ‘package’ of measures required to ensure net benefit – Slightly tighter FOS – Contingency size limit – Obligation for new entrant to bring new R6/L6 to market • Apr ’09 – high prices expose AETV’s commercial choice not to provide or procure FCAS – inconsistent with TFOS submissions 13
Where to from here? • OTTER announce intent to declare Hydro Tasmania raise contingency FCAS as declared service. • April 08 issues exacerbated and remain unaddressed • How does declaration of a single participant address the key FCAS issues? • What are the market and competition risks created by such a declaration? 14
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