Electricity demand will not recover - AEMO

In a major departure, the energy market operator has now given up any hope electricity demand will recover to historical peaks over the next decade.

The Australian Energy Market Operator has painted a grim story for electricity generators but a positive one for consumers, energy security and carbon emissions in its latest annual electricity forecasting report

AEMO now believes that energy consumption from centralised electricity generators (excluding electricity generated by solar PV) in the National Electricity Market will not experience any meaningful recovery over the next decade, and by 2023-24 will still remain noticeably below the peaks of 2009-10 when consumption was 197,700 gigawatt-hours.

AEMO also sees demand during peak periods barely growing across all states other than Queensland, meaning there isn’t even a need for new gas peaking capacity let alone baseload coal. Given the concern about blackouts during last summer’s heatwave in Victoria and South Australia, AEMO rather interestingly doesn’t foresee much chance of these states exceeding their historical record peak demand levels for the next two decades. This is also expected to be the case for Tasmania, while NSW is only expected to exceed its historical peak by 2022-23.

The chart below conveys much of the story. The black dashed line was last year’s mid-range forecast from AEMO. However, actual electrical energy consumption from centralised generators continued to decline this year. This decline will continue next year thanks to closures of major industrial facilities, in particular the Point Henry aluminium smelter and Bulwer oil refinery.

AEMO then foresees a short-lived recovery, illustrated by the yellow line, thanks to natural gas liquefaction plants coming online in Gladstone, Queensland, before pretty much flatlining afterwards. Were it not for the LNG plants, energy consumption would remain stuck at under 180,000 GWh.

NEM annual electrical energy consumption - actual and forecast

Graph for Electricity demand will not recover - AEMO

Source: AEMO (2014) National Electricity Forecasting Report

In addition, AEMO has looked at the possibility of things getting much worse for centralised power generators by considering the impacts on demand if Australia’s remaining aluminium smelters were to close. This is shown in the bottom orange line.

The financial viability of Australian aluminium smelting is under serious question making such a scenario important to consider. Several of the smelters were granted subsidised electricity supply contracts by state governments over a decade ago which will soon expire. In addition the Chinese central government has done a poor job of reigning-in largely unprofitable excess aluminium smelting capacity in that country which has caused a global glut of supply.

It was thought that the expiry of state government subsidised electricity contracts would spell the end of the aluminium smelters. However, with the drop-off in electricity demand, and ongoing addition of generating capacity via the Renewable Energy Target, these smelters may be able to negotiate quite favourable new contracts. This could be a lifeline that allows them to survive.

(For what AEMO data suggests caused this demand decline see: Demand destruction - Solar, energy efficiency or carbon tax wrecking ball?)

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles