An economic zap for power providers

If you want to know why electricity supply is a tough commercial gig, look at the Energy Supply Association yearbook.

The latest issue of ESAA's Electricity Gas Australia has just been published.

It's the industry's data bible, containing a myriad of statistics about the power and gas businesses – and one stands out.

In 2010-11, the latest year for firm data, ESAA says the electricity business contributed $14.5 billion to Australia's gross domestic product of $1307.3 billion.

An impressive number, yes?

Well, go back to 2009-10 and you will find the industry contributed $17.4 billion to a GDP of $1222.8 billion and in 2008-09, the year electricity supply peaked in Australia, the contribution was $17.2 billion out of $1197 billion.

That latter figure was a 7.2 per cent rise on the previous financial year.

The new stats are a mirror to the harsher environment in which the power business on the east coast now finds itself – the level of electricity supply is a reflection of the economy as a whole outside Western Australia, regardless of how much some may wish to focus on the influence of energy efficiency and solar power.

The sudden large decline in GDP contribution in 2010-11 appears to reflect the combined impact of very low wholesale power prices and the static state of demand.

This is also shown in the Australian Energy Regulator's market analysis, which reports that, close to the end of the past financial year, turnover in the east coast market stood at $5.5 billion from sales of 187 terawatt hours compared with $7.4 billion in 2010-11 (sales of 204 TWh) and $9.6 billion in 2009-10 (sales of 206 TWh).

ESAA says electricity consumption in 2010-11 increased by just 0.01 per cent over the previous financial year compared with around 1.5 per cent in earlier years.

Industrial and commercial loads, which together accounted for more than 70 per cent of consumption before the GFC struck, slid back to 69.7 per cent in 2010-11 and we still have to see the impact of past year's manufacturing problems.

Business demand fell from 143 TWh in 2008-09 to 141.4 TWh in 2010-11.

This may partly be explained by the Queensland floods because that state's business power use slid 9.4 per cent in 12 months to June 2011.

This contrasts sharply with Western Australia – where business demand has risen by almost 29 per cent in two years.

In fact, if you pull the west out of the power picture, things would look rather different – because WA electricity consumption overall is going up at a rate of 8 to 9 per cent a year.

It is still a titchy market – only a quarter the size of the NSW one and 40 per cent of Victoria's – but it is, if you will pardon the expression, powering along thanks to the resources boom.

One always has to be careful about playing around with numbers.

Take, for example, the present conventional wisdom that household demand is flat-lining.

Well, it wasn't in 2010-11 for the four eastern mainland states and the ACT, which make up 85 per cent of the national residential power market (with 7.85 million account holders).

There were about a quarter of a million more buyers in this region in 2010-11 compared with 2008-09 and their power requirements rose from 47.75 terawatt hours to 51.6 TWh. Do the arithmetic and you will find this represents a small increase in average home consumption.

As for business demand, the four states, which account for almost 85 per cent of national industrial and commercial consumption, have seen their first fall-back in years: standing at 119.6 TWh in 2010-11 versus 123.3 TWh two years earlier.

Business is marginally down in the key manufacturing states of NSW and Victoria and effectively flat in South Australia compared with 2008-09.

Most of the drop is in flood-hit Queensland.

Power supply is like an onion, of course, with layer upon layer of factors; try to peel them and your eyes water.

It's possible to identify one segment of the industry with a claim to hurting the most, however, and that is the black coal generation sector.

The ESAA statistics show that black coal power production has fallen back from 129 TWh in the peak year of 2008-09 to 115.5 TWh in 2010-11.

This will please the greenies because it represents a reduction of more than five million tonnes a year in coal burning in NSW and Queensland, the states in which the black coal generators have taken the biggest hits.

The NSW trio Barry O'Farrell is trying to sell right now have seen their sales fall 9.3 TWh in two financial years while the coal gencos in the “can-do” hands of Campbell Newman have sustained a fall of 5.7 TWh.

To rub salt in to their wounds, these generators are the ones to whom Julia Gillard and Wayne Swan have declined to give a cent of carbon tax compensation.

There is an awful irony, don't you think, in being the biggest single contributor to carbon emissions abatement in the past two years and being financially punished, too.

Another set of fossil fuellers are enjoying most of the gains from a decline in coal generation output – brown coal production has also dropped by a little less than 2 TWh over two years – and they are the gas generators, whose annual sales have gone up 17 TWh.

By comparison, wind farmers have gained 2.4 TWh and, thanks to the ending of the 'Big Dry', hydro generators have gained almost 4.4 TWh of extra sales.

A whole raft of stakeholders – suppliers, users, regulators and policy advisors – will be reading the ESAA yearbook this month and coming to their own conclusions.

It will be a surprise if any of them think they now have all the answers – and they will be hanging out for the next data set in a year's time to discover the next twist in this story.