Demand destruction - Solar, energy efficiency or carbon tax wrecking ball?

Greg Hunt cites AEMO to suggest a carbon tax industry wrecking ball is largely to blame for dropping electricity demand. He's wrong. Meanwhile, solar is emerging as a major market player.

There has been considerable consternation and confusion about why electricity demand started to decline since 2008-09.

AEMO, in developing its annual forecasting report, has access to data down to quite a granular level which allows us to better understand what is going on.

The chart below breaks down National Electricity Market electrical energy consumption by heavy industry (orange) versus residential and commercial (light blue) and also looks forward to forecast expected future reductions in demand associated with growth in use of solar PV (red) and improved energy efficiency (brown). (The blue and grey show energy losses from transmission and power to run generators.)

Figure 1: Breakdown of NEM annual energy consumption (and avoided energy consumption) by sector

Graph for Demand destruction - Solar, energy efficiency or carbon tax wrecking ball?

Source: AEMO (2014) National Electricity Forecasting Report

Energy efficiency, not a carbon price industry wrecking ball, the key driver of decline

Contrary to the Environment Minister Hunt’s continual verballing of AEMO*, you can clearly see that most of the reduction in consumption to date has been in the residential and commercial sector, not declines in industrial usage.

Per capita consumption across these two sectors has declined from about 8 megawatt-hours in 2005-6 to a little above 6 megawatt-hours now. In total, consumption across these two sectors has declined in absolute terms by 13,300 GWh since its peak in 2007-08. By comparison industrial energy consumption has only declined by 2300 GWh since its peak in 2010-11.

However, looking forward the irony is that post abolition of the carbon price, industrial facility closures will take a much deeper bite out of electricity consumption. Next financial year, with the carbon price gone, industrial energy consumption will drop by 3200 gigawatt-hours. This single year drop in industrial demand is 39 per cent more than the entire decline that occurred over the year that preceded the carbon price and the two subsequent years it has been in operation.

Solar PV minor but becoming big

Solar PV take-up did not really reach market influential scales until quite recently. This financial year, solar PV generation will represent 2.1 per cent of total end consumer electrical energy consumption in the NEM (this excludes wasted energy in transmission losses and power consumed by power stations while including small non-scheduled generators). AEMO forecasts that rooftop solar will represent 5.4 per cent of customer consumption by 2020-21 and generate 10,700GWh of energy, while by 2030 it will meet 9 per cent of consumption. 

In terms of peak demand, AEMO has adjusted its analysis to account for the fact that solar generation is now shifting the peak in customers' demand for generation from scheduled centralised generators to later in the day. This acts to obscure and underestimate the contribution of solar to the actual real peak of customers’ consumption of electricity (and therefore electricity prices), but is what AEMO needs to consider in planning power system reliability.

To illustrate this obscuring effect, the chart below shows solar PV’s contribution to peak demand in South Australia in red. In 2014-15 and 2015-16 it is assessed to be very significant, but in the next year AEMO’s model pushes the peak demand time back an hour to 6.30pm. Now it’s not like households suddenly shifted the time at which they get home from work and school to flick on their air-conditioners and other appliances, so solar is still making an impact on this demand. It’s just the model shifts the point of time when it defines peak demand to one based on power from the transmission system rather than actual households and businesses.

Figure 2: South Australia’s level of summer peak demand (10 per cent probability of exceedence)

Graph for Demand destruction - Solar, energy efficiency or carbon tax wrecking ball?

Source: AEMO (2014) National Electricity Forecasting Report

Based on such an approach, solar PV’s contribution to transmission system-based peak demand still remains quite significant in Victoria and South Australia over the outlook period. However, in the case of Queensland’s transmission system maximum demand, solar shifts it from 5.30pm to 7pm (when solar generation is negligible).

No doubt some will now conveniently misinterpret AEMO’s data to conclude solar does not reduce our need for power generating capacity when it actually does.

*At a number of public engagements Minister Hunt has stated that AEMO officials have told him that half the reduction in electricity consumption Australia has experienced in recent years is due to rationalisation of industrial facilities. This seems hard to reconcile with the results from this recent report from AEMO.