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Implementing the Australian Emissions Trading Scheme

Implementing the Australian Emissions Trading Scheme. Greg Denton WorleyParsons A trading perspective. aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa. Text space for forum. 19 & 20 May 2008 Parliament House Canberra. Perspective. My last 12 years in energy markets:

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Implementing the Australian Emissions Trading Scheme

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  1. Implementing the Australian Emissions Trading Scheme Greg Denton WorleyParsons A trading perspective aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa Text space for forum 19 & 20 May 2008 Parliament House Canberra

  2. Perspective • My last 12 years in energy markets: • Design and regulation • PJM, NEM, WEM • Auction for transmission rights • Strategy • Retailers, generators, transmission • Enter • Buy/build • Trading • Deal durations of 1 day through to 15 year deals • Economics, Finance and Politics

  3. The easy questions • Unit of currency – 1 tonne CO2-e • It doesn’t really matter, but international standard • Restrictions on participants - None • Good market designs provide incentives, and don’t prescribe outcomes or limit individual mandates • Secondary market development • Keep the primary market simple and consistent • Allow private development of forward/futures markets

  4. Primary market design issues • Annual date stamping of permits • Limited carryover of permits (3yr?) • Frequent auctions (4-6 p.a.) • Offer current year permits + the following year or two • No reserve price • No ICB (bank) • Allow purchase and sale in auctions • Auction price outcomes will indicate scarcity

  5. What companies are doing • Financial • Voluntary transactions • Energy market transactions • Physical • Real emission reductions for today and tomorrow • Voluntary transactions

  6. Energy market transactions • Certainty timeline • Since the Rio de Janeiro meeting in 1992, emissions trading in Australia was possible • Since July 2003 decision of the EU to introduce the ETS, emissions trading in Australia probable (but with unknown timing) • Mid 2007 certainty of emissions trading by 2010/11 • July 2008(?) certainty for the details

  7. Energy market transactions • Most (90%+) electricity market transactions are of 4 years duration or less • By 2011, virtually all electricity market transactions would have been contracted with knowledge of emissions trading • ~80% with full knowledge • ~14% without knowledge of the detail • ~5% with a probable expectation of emissions trading • ~1% with a possible expectation of emissions trading

  8. How emissions have been priced • Change of law clause • In effect, the contracted electricity price will increase with the pricing of emissions • The “perfect” hedge for generators • Specific exclusion clause • Emissions trading will not alter the price • the “perfect” hedge for electricity retailers • Middle ground often represented by a formula

  9. Physical • Investment in both plant (new and improvements) made with varying degrees of emissions knowledge • Most “uninformed” (pre-1992) capital sunk • Capital invested since 2000 made in an environment with Mandatory Renewable Energy Targets – “informed” • A considerable portion of capital spent since 2000 has reduced CO2/MWh

  10. Case for compensation • Given that financial contracts have allocated the risk (and reward) it is difficult to argue for compensation. • To who is owed? • A dramatic reduction in expected physical output may warrant consideration • Unlikely outcome, even with $30/tonne emissions price • MRET dramatic impact on some gas-fired generation, without compensation. A benchmark?

  11. Delivering profitable sustainability social, ecological, community improvement in environment sustainability perspective assess, understand & model understand the changes profitable operations improvement in business technology perspective deliver innovative solutions adapt to the changes

  12. Project example Fonterra Energy Reduction Project Manufacturing facilities, New Zealand Energy efficiency monitoring & assessment Re-thinking of project boundaries Complex process design Integration of water, heat and energy systems Using multiple low-grade heat sources a 17% overall reduction in energy use has been delivered

  13. Advanced Solar-Thermal (AST) Utility-scale (50-300MW) solar-thermal power generation technology for Australia The potential to provide a highly competitive source of renewable energy to Australia on a scale presently unmatched by other current renewable energy projects Draws on proven WorleyParsons global capability (particularly California) 13 31/10/2014

  14. Kramer Junction, CA (30MW)

  15. Kramer Junction, CA (30MW)

  16. Thank you Greg Denton 0408 522 125 WorleyParsons greg.denton@worleyparsons.com

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