Consequences of declining annual consumption and forecasting failures include overbuilding of electricity infrastructure and declining use of this infrastructure.
Five Years of Declining Annual Consumption of Grid-Supplied Electricity in Eastern Australia: Causes and Consequences
Introduction
Since the oil crises of the 1970s, global economies have been able to reduce their energy intensity (the use of energy per unit of economic output) (BP Energy Outlook 2035, 2014). In Australia, energy intensity has steadily declined since the 1990s (Energy in Australia, 2014). Nevertheless until recently, absolute energy consumption across all sectors of the Australian economy continued to grow (Energy in Australia, 2014). In the decade preceding the 2008 global financial crisis (GFC), grid-supplied electricity consumption in eastern Australia grew at an average rate of approximately 2 percent per year (Australian Energy Statistics, 2014).
However, consumption of grid-supplied electricity in developed economies globally is now undergoing unprecedented and rapid change. In Australia and elsewhere (Today in Energy, 2013, UK Department of Energy and Climate Change, 2014, PLATTS, 2013), electricity markets are experiencing sustained declining consumption. This presents challenges to industry incumbents, market operators, regulators, and governments. In this article, we describe how in the Australian financial year (FY) ending Jun. 30, 2009 (FY 2008-09), electricity supplied by the eastern Australian grid (known as the National Electricity Market, or NEM) reached an all-time high of 195.0 TWh. Then, over the following five years while the Australian economy grew by approximately 13 percent, annual electricity consumption in eastern Australia declined by 7 percent to reach 181.2 TWh in FY 2013-14. This ongoing multi-year decline was not anticipated by market participants nor by the planning authority, the Australian Energy Market Operator (AEMO). In part, this was because for many decades Australian electricity consumption generally increased from year to year in line with the growing Australian economy. The lower-than-average growth in annual electricity consumption in FY 2008-09 followed by declining consumption in FY 2009-10 was initially credited to temporary factors such as the GFC. In August 2011 following the post-GFC recovery of the Australian economy, AEMO forecast that annual electricity consumption would reach 215 TWh by FY 2013-14 and 248 TWh by FY 2020-21. Experience shows that the forecast for FY 2013-14 was high by approximately 18 percent. Rather than the consumption decline of FY 2008-09 and 2009-10 being a temporary aberration, it presaged a fundamental shift in the Australian electricity market.
It is now clear that annual consumption of grid-supplied electricity in Australia no longer tracks economic growth. In June 2014 AEMO forecast that in a “medium scenario” annual consumption will not exceed the level seen in FY 2008-09 until sometime beyond 2035. In this article, we review some of the reasons for this structural change including: energy efficiency programs, consumer response to dramatically rising retail electricity prices, the widespread deployment of rooftop solar photovoltaic (PV) systems, specific facility closures in the larger-industrial sector, and other factors. We describe some consequences of declining annual consumption and forecasting failures. These include overbuilding of electricity infrastructure and declining use of this infrastructure. Furthermore, overbuilding and declining consumption has driven some industry incumbents to support reversal of energy efficiency, renewable energy, and climate change mitigation programs. We present a scenario illustrating to what extent the annual consumption of grid-supplied electricity could continue to decline over the next 10 years. Finally we describe opportunities to increase electricity consumption while decreasing the use of oil and gas.
Section snippets
Eastern Australia's Electricity Supply System
The eastern Australian electricity transmission grid serves approximately 21 million people (90 percent of Australians) in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania, and South Australia. It is one of the longest transmission grids in the world stretching across 5,000 kilometers. Electricity transmission interconnections – with limited capacity – connect Queensland with New South Wales, New South Wales with Victoria, Victoria with Tasmania (via a subsea
History of Annual Electricity Consumption in Eastern Australia – Actual and Forecasts
Until recent years, eastern Australian retail electricity prices ranked amongst the lowest in the OECD group of nations (Section IV.B). For many decades, the consumption of grid-supplied electricity increased nearly each year, in step with the growing Australian population and economy. From July 1, 1998, to June 30, 2009, consumption increased at an average rate of 3.9 percent/yr (Australian Energy Regulator, 2013). In the industrial sector, Australian governments historically supported the
Reasons Why Annual Consumption Stopped Growing and Started Declining
This section examines why eastern Australia's annual consumption of grid-supplied electricity failed to grow at historical rates and instead declined in each of the last five financial years. Saddler (2013) investigated why, from FY 2005-06 to FY 2012-13, annual consumption for grid-supplied electricity fell short of a typical historical 2.5 percent/yr growth rate. By FY 2012-13, consumption fell short of the historical trend by 36.9 TWh/yr (∼20 percent, equivalent to the output of 5 GW of
Maximum Demand – Actual and Forecasts
Forecast maximum (instantaneous) demand, which might occur only for a few hours in a given year, is a critical parameter that determines the size that electricity-supply infrastructure must be in order for consumers to be reliably served. Regardless of whether annual consumption of grid-supplied electricity is declining from year to year, if maximum demand cannot be expected to also decline, electricity supply infrastructure must be kept in readiness. This may mean that average utilization (or
The Consequences of Declining Annual Consumption and of This Decline Not Being Forecast
This section describes certain consequences of declining annual consumption of grid-supplied electricity in eastern Australia, and also the consequences of this remarkable change not being reflected in official forecasts until four years after the decline began. These consequences include:
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Overinvestment in electricity generation and supply infrastructure,
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Declining wholesale electricity prices and sales value (turnover),
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Political pressure to scale back or terminate energy efficiency, renewable
Declining Electricity-Generation Carbon Emissions in Eastern Australia
As shown in Figure 13, over the five years from FY 2008-09 to FY 2013-14, annual carbon emissions from electricity generation in eastern Australia declined by 16 percent or approximately 31 million tonnes/yr (CO2 equivalent) (AEMO, 2013). This is a result of:
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The 7 percent decline in annual consumption of grid-supplied electricity;
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Gas-fired generation replacing coal over the period October 2009 to April 2011 (CEDEX, 2014), driven by the construction of new gas-fired generation prior to this time;
How Low Might Annual Consumption Go, over the Next 10 Years?
In 2014, AEMO published “high,” “medium,” and “low” scenario forecasts for grid-supplied electricity consumption (National Electricity Forecast Report, 2014) (Figure 14). In AEMO's “low scenario,” consumption declines to ∼154 TWh in FY 2023-24 as aluminum smelters close and other less-significant decline occurs in other sectors of the economy. We present an “even-lower scenario” where consumption declines to 139 TWh in FY 2023-24, a 29 percent decline overall (56 TWh) versus the FY 2008-09
Opportunities to Switch from Oil and Gas, Using Modern Electric Devices
In contrast to Section VIII, this section describes opportunities in buildings and transport to switch from fossil fuel devices to high-efficiency electrical devices and thereby increase the use of electricity supply and grid infrastructure. (Note that if conversion of eastern Australia's electricity supply-system from coal generation to renewables is delayed, switching from oil and gas to electricity in buildings and transport may not reduce carbon emissions.)
How Maximum Electricity Demand can be Reduced in Eastern Australia
As described in Section V, no new maximum demand records have been set in any eastern Australian state since February 2011. However, maximum demand forecasts depend on forecasts of future climate, weather conditions, the use of air-conditioners and other equipment at times of maximum demand, demand-side participation, and other factors. The Australian population, economy, living standards, and comfort and health expectations continue to grow. Global warming is driving extreme weather events and
Conclusion
For decades in Australia, the consumption of grid-supplied electricity grew in line with population and economic growth. Each year, billions of dollars would be invested in new electricity generation, transmission, and distribution capacity to ensure reliable supply. However in 2009, eastern Australia entered a new world where the annual consumption of grid-supplied electricity declined even while population and economic activity continued to grow. Consumers saw retail electricity prices become
Mike Sandiford is Director of the Melbourne Energy Institute, based at the School of Earth Sciences at the University of Melbourne in Australia.
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Mike Sandiford is Director of the Melbourne Energy Institute, based at the School of Earth Sciences at the University of Melbourne in Australia.
Tim Forcey is an energy advisor to the Melbourne Energy Institute.
Alan Pears is Senior Lecturer at RMIT University in Melbourne, Australia.
Dylan McConnell is Research Fellow at the Melbourne Energy Institute.