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

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

The easy questions Unit of currency – 1 tonne CO 2 -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

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

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

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

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

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

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

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?

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 Delivering profitable sustainability

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 Fonterra Energy Reduction Project Project example

Advanced Solar-Thermal (AST) 1/12/ 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)

Kramer Junction, CA (30MW)

Thank you Greg Denton WorleyParsons