To put it mildly, there has been a sea change in how members of the Energy Supply Association of Australia see the power production outlook for the next few years.
The latest association yearbook sets this new perspective out clearly, although without much fanfare.
First, a small piece of history – the load forecasts contained in the yearbook have had something of a reputation for accuracy until very recently.
The publication, including its previous life as the yearbook of the Electricity Supply Association (under which guise I published it from 1991 to 2003), has been appearing for almost 60 years.
Over most of this time the load forecasts looking forward on a rolling 10 year basis have been pretty right.
As an example, way back in 1994 the book projected east coast power production in 2003-04 at 181,086 gigawatt hours – and the eventual outcome was 182,486 GWh.
This forecasting worked well, so long as demand was rising.
Then, following the global financial crisis, consumption started to slump.
Last year, looking out to 2020-21, the association’s members (whose collective insights are the basis for the projections) saw generation output in the so-called “national” electricity market (the east coast one) reaching almost 248,000 GWh.
Now, only a year later, looking out to 2021-22, the projection has been ratcheted down to less than 222,000 GWh.
In today’s production terms, this is the equivalent of pulling both South Australian and Tasmanian electricity generation out of the system.
The association, in its yearbook overview, comments that “the future remains uncertain for the energy supply sector” – which seems something of an understatement given the policy turmoil, the state of manufacturing (the biggest single electricity demand sector) and general doubt regarding the national economic outlook.
While the ESAA doesn’t draw this parallel, a manufacturing sector that faces a substantial decline in gas consumption – down from 332 petajoules in 2011-12 to a forecast 271 PJ in 2021-22 – is also unlikely to be boosting its requirements for electricity.
Green persons like to play up the recent importance of issues like rooftop solar panels – today still accounting for a miniscule amount of residential power despite being on a million roofs – but it’s hard to escape the fact that factories have been the engine room of Australian electricity consumption growth since the Whitlam years.
Before the GFC struck, manufacturing’s demand growth from 1973-74 had reached 175 per cent while all electricity requirements had risen 245 per cent.
And it needs to be kept in mind that the engine room’s heft was extended by manufacturing’s impact on its goods and services providers across the board, with the whole shebang, along with the resources boom, percolating into householders’ greater wealth and purchases of power-thirsty appliances.
The new ESAA yearbook shows that east coast business demand overall was some 1400 GWh lower in 2011-12 than in 2010-11 – the publication’s data set has a one-year lag – compared with an average business sector annual increase over 15 years to 2008-09 of 3033 GWh.
One of the most famous Australian newspaper cartoons of all time is by Stan Cross.
Drawn in 1933, it shows two guys on a collapsing building scaffold, with the bottom one clinging to the top one’s trouser leg and his braces stretching to breaking point.
The bottom guy is yelling: The bottom guy is yelling: “For gorsake, stop laughing. This is serious!”
This is pretty well the message that can be drawn from the ESAA yearbook and, of course, it is far more than a signal for electricity generators, networks and retailers.
The association says in its overview: “After a generation of almost uninterrupted demand growth in Australia, the past five years have seen a levelling and then sustained falls.
“It is entirely feasible to expect flat demand or further falls for much of the rest of the decade, if not longer.”
The numbers in ESAA’s power load forecast add some further shade to this picture.
For the east coast, they project generation crawling up by just on 3000 GWh a year from now to 2021-22 and half of that being contributed by Queensland, thanks to the needs of resource development in the main.
No doubt the crystal-ball gazers in the large energy supply businesses are peering closely at this and their senior executives and board members are thinking long and hard.
It’s not a challenge to conclude that one of the outcomes will be more mergers and acquisitions as the big players boost themselves to cope with an environment beyond the imaginings of their forebears 12-15 years ago.
And they are not likely to sit around watching the market’s scaffolding fall before they act.
How will consumers, regulators and policymakers feel about fewer firms holding larger market shares in this very political essential service?
As Cross’ falling man said, this is serious stuff.