Demand for coal's great decline?

For the first time coal-fired generation has fallen across all four states in the NEM, but with the carbon tax in place, is it a trend or just a data quirk? And while electricity demand is falling, what's happening to emissions?

The introduction of the carbon price scheme on July 1 did not just grab attention, it brought to bear a further factor on electricity demand and the mix of generation supplying that demand.

This update contains CEDEX graphs for electricity up to the end of July 2012, and so includes the first full month with the carbon price in place. When looking at these graphs it is important to appreciate that what is called demand in most discussions of the NEM, including here, is not in fact the same as demand by final consumers. Rather, NEM demand is the quantity of electricity supplied by generators despatched by the Australian Energy Market Operator and transported through the transmission system.

This quantity is affected by both changes in demand for electricity by final consumers and also by changes in electricity supplied by all types of generation embedded in distribution networks, including rooftop PV and small/medium scale co-generation or tri-generation. So what the graphs show is what is happening to the big generators, and what they are doing.

“Big generators” in this context includes large windfarms and hydro generators, as well as the major coal and gas fuelled generators. Regular CEDEX readers will know that all data is presented on a moving annual total basis.

Demand for electricity supplied by NEM generators continued to fall, and the fall from June to July was steeper than seen in most, but not all, of the last 18 months. This is not surprising.

Business consumers (billed monthly) are only now receiving their first bills with a full billing period at the higher price, while residential consumers (billed quarterly) have some weeks still to wait for bills which have a majority of consumption at the higher price.

Perhaps more interesting is what is happening on the supply side.

Output from both black and brown coal fuelled power stations fell and, for the first time, coal-fired generation fell in all four states in the same month. Total coal-fired generation was 1.4 TWh lower in the year ending July 2012 than it was in the year ending a month earlier. This is the amount by which coal fired generation was lower in July 2012 than it was in July 2011, and is equivalent to a decrease of 10 per cent in coal-fired generation for the month.

It is the largest monthly decrease in coal-fired generation over the whole period covered by CEDEX, with the exception of two months at the end of 2010. The decrease in coal-fired generation was larger than the decrease in total demand; the difference was made up by increases in both gas and hydro generation.

The decreases in coal-fired generation cannot necessarily be attributed to the impact of the carbon tax. The recent decrease in brown coal generation, was mainly attributable to the continuation of reduced output from Yallourn power station, because of flooding in its associated coal mine. Output from Hazelwood also fell slightly, as did output from Morwell, but both Loy Yang A and Loy Yang B increased their output.

Amongst black coal power stations, there were some notable changes to which the price on emissions may well have contributed. Northern power station in SA closed in early July, and from now on, if it continues in operation, will only do so during summer, which is the peak period in SA. In Queensland, output from Gladstone power station fell by about one third, relative to both the previous month, and to July last year. These are the two most emissions intensive coal-fired power stations currently operating in Australia.

As in previous months, however, by far the largest fall in output at the state level was in NSW. The previous monthly CEDEX update explained that the NSW generators are being squeezed by the combination of lower demand and higher fuel costs.

According to a 2010 report for AEMO, by ACIL Tasman, the difference in short run marginal costs, mainly attributable to fuel costs, between NSW and Victorian generators is in the range $12 - $15 per MWh generated. The carbon tax will have reduced the operating cost disadvantage faced by the NSW generators. We estimate the benefit to be about $14 per MWh, relative to Hazelwood, and $7 per MWh, relative to Loy Yang. It is easy to see, therefore, that the brown coal generators retain an operating cost advantage.

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