Interim Forecasting Best Practice Guideline

1. Interim Forecasting Best Practice Guideline AER Stakeholder Workshop Friday 31 May 2019

2. Timeline • draft Interim guideline released for consultation last week • Submissions due 19 June 19 • final Interim guideline 30 September 19 • Then we start again • Would like to test what we have done • Will build on the interim GL as a starting point • Final GL to be published 30 November 2020

3. Nested Obligations and Guidelines • AER must develop a Forecasting Best practice Guideline • Guides AEMOs forecasting practices • AEMO must develop a Reliability Forecast Guideline (4A.B.4) • Details how a reliability forecast is prepared • Describes how AEMO will implement the Forecasting Best Practice Guideline

4. Forecasting Best Practice Guideline • Why is the greater engagement and transparency important • Reliability forecasts have financial impact…. • forecasts Inform the AER’s decision to make the instrument that activates the RRO • Forecasts trigger RRO actions • MLO trading requirements, • Liable entity reporting • POLR resettlement • Principle based – not technical • AEMO doesn’t have to use it this year but must from 2021

5. The SOO and the RRO • The Statement of Opportunities • Now includes a reliability forecast • Reliability forecast tells the market the gap • The gap is the number of extra MW of capacity (generation or DER) needed in the market to meet the 0.002% reliability standard • Information in the Gap includes: • Region • Size (MW) • Gap period (months, days of week) • Gap trading intervals (time of day)

6. Forecasting Best Practice Guideline • AER must have regard to these principles : • As far as possible forecasts should be • be accurate; • use comprehensive inputs; and • be unbiased • Basic inputs, assumptions and methodology should be disclosed; and • Give stakeholders greater opportunity to engage

7. What is in the Forecasting Best Practice GL • New reporting requirements • AEMO tells the AER how it has, or has not, followed the guideline. • informs our decision to make a Reliability Instrument. • Custom principles on • Methodologies • Inputs, and • Reporting

8. The Consultation Procedure • Forecasting Best Practice Consultation Procedure • Based on NER 8.9 requirements • Tailored for AEMO - removes NA content • Longer time to respond and consult • 2 tier process: • Every 4 years, or if things change materially, AEMO should use our procedure, to: • Determine the fundamental forecasting methodologies for • demand, • supply and • S-D balance • the input components and how they are identified, defined, supplied, reviewed, updated and consulted on • Reporting, verification and commentary - forecast performance review • AEMO must follow what was defined in 1, when they produce a reliability forecast or indicative reliability forecast.

9. Consultation time line If there is a material change in environment - Repeat best practice consultation procedure Perform best practice consultation procedure Use described process Use described process Use described process Use described process Use described process Use described process Use described process Use described process SOO SOO SOO SOO SOO update SOO update SOO update SOO update Year 1 Year 2 Year 3 Year 4

10. Greater consultation on the forecasting process • Our Guideline requires consultation on the three methodological streams • Demand • Supply and • Supply demand balance to identify the gap • on the • Components that make up the forecast inputs and assumptions. • And on the way it is all reported

11. On the Methodologies • Consultation on methodologies should include • the suite of models to be used • how data will be incorporated, distributed and published • Accounting for exogenous factors • representation of resource constraints affecting energy delivery • stakeholders engagement opportunities with interim results, if appropriate, and the final results • AEMOs internal verification approach and results.

12. On the Inputs • Consult on how to • determine or source the values for the forecast horizon. • AEMO could use internal analysis, consultants, relevant industry bodies or state or federal departments; • the stakeholder engagement approach how to • expose the actual input values for each component • match the stakeholder consultation approach with the • complexity of the task, and • the decisions and assumptions AEMO uses • the cut-off time frame • the use of confidential data • the mechanisms for the release of data

13. Component based forecasting • Typical demand forecast components • factors that affect both gross and chronological demand such as: • Population growth • Rooftop PV forecast • EV forecasts • Battery penetration forecast and charging profiles

14. Component based forecasting • Typical supply forecast components • factors that affect generator performance in summer and reliability such as: • Installed capacity • Summer and non-summer ratings • Variable and fixed costs • Reliability (forced and partial outage rates)

15. Confidential Data • Not surprising – AEMO should get the best data available on which to forecast • This should include confidential data • AEMO should describe how it will treat that data

16. Questions for stakeholders • The AER is interested in stakeholders’ views on whether: • the Forecasting best practice consultation procedures provide a sound basis for stakeholder consultation during AEMO’s development of forecasts. • the “Disclosure and publication of data” approach will facilitate stakeholder engagement with AEMO’s forecasting processes and protect confidential information.

17. Interrelationships with other Guidelines and processes underway • AEMO Reliability Forecast Guidelines • must describe how AEMO will implement the Forecasting Best Practice Guidelines in preparing a reliability forecast • Reliability instrument guidelines • When assessing a request from AEMO to make a reliability instrument, the AER will consider whether AEMO has prepared the relevant reliability forecast in accordance with the Forecasting Best Practice Guidelines. • Application to other AEMO forecasting exercises • These Forecasting Best Practice principles could be used to establish forecasting approaches in other applications.

18. Discussion and Questions