Forecasts for power demand on the slide
The Australian Energy Markets Operator, which manages the east coast gas and electricity markets, has forecast electricity demand growth of just 1.3 per cent a year for the next decade.
This is down from the 1.7 per cent forecast a year ago, itself a decline from the 2.3 per cent forecast of 2011.
At the same time, average individual electricity use is expected to continued declining.
"Twelve months ago, we forecast electricity demand would decline, and it is declining faster than we thought," the operator's managing director, Matt Zema, said.
Rooftop (photovoltaic) systems, price rises that have led to increased energy efficiency, and residential, commercial and manufacturing demand dropping off "a fair bit" had all had an impact, he said.
"We had forecast 1.7 per cent growth, which we now see at 1.3 per cent and that is being buoyed by the Queensland gas projects."
The 10-year growth forecast for Victoria has been cut to 1 per cent from 1.3 per cent a year ago, while in NSW it will grow just 0.6 per cent, down from 1.1 per cent forecast last year.
Queensland, by contrast, will have annual growth over the next decade of 3.1 per cent, up from the 2.5 per cent forecast a year ago, thanks to the surge in demand from the start-up of three gas export projects under construction.
"Demand is declining which has led to wholesale [electricity] prices being low," Mr Zema said. "Will retail prices decline as a result? The answer is no, since the wholesale price is only one component."
The other is the network cost, to distribute electricity, where prices will plateau.
"All of the growth [in demand] is driven by population," Mr Zema said. "Manufacturing used to be a driver in the past, but that has dropped."
In the report, released on Friday, the Energy Markets Operator flagged the pending Ford closure in Victoria would weigh on demand, with other factors to include the restart of the Gunns plant in Tasmania and the start-up of the $900 million Hillside mine in South Australia.
Frequently Asked Questions about this Article…
The Australian Energy Markets Operator forecasts national electricity demand to grow about 1.3% a year over the next decade, down from 1.7% a year ago (and 2.3% in 2011). For investors, this slowing growth helps explain why wholesale electricity prices are low, but it also highlights that slower demand is a structural trend driven by things like rooftop solar and energy efficiency.
Average individual electricity use is falling faster than expected because of three main factors in the report: the spread of rooftop photovoltaic (solar) systems, higher retail prices that have driven energy efficiency, and weaker demand from residential, commercial and manufacturing sectors.
The start-up of three export gas projects in Queensland is expected to lift demand significantly — the operator now forecasts Queensland’s annual electricity growth at about 3.1% over the next decade, up from a 2.5% forecast a year ago — meaning Queensland will be a key driver of future demand growth in Australia.
The report cuts the 10-year growth forecast for Victoria to about 1.0% (down from 1.3% last year), reduces New South Wales growth to around 0.6% (down from 1.1%), while Queensland’s forecast rises to about 3.1% thanks to the gas projects.
Not necessarily. The report explains wholesale prices are low because demand is declining, but retail prices include other components — notably network costs to distribute electricity — which are expected to plateau rather than fall. That means retail bills may not drop in line with wholesale prices, and network revenue drivers remain important for utilities.
The report flags that large industrial events influence demand: the pending Ford closure in Victoria is expected to weigh on demand, while the restart of the Gunns plant in Tasmania and the start-up of the $900 million Hillside mine in South Australia would increase regional electricity use.
According to the operator’s managing director, Matt Zema, population growth is the main driver of all demand growth now. Manufacturing used to be a bigger driver, but its contribution to demand has dropped substantially.
Everyday investors should note that slower underlying demand and rising rooftop solar penetration are keeping wholesale prices low, while retail outcomes depend on network costs. Regional projects — like Queensland’s gas exports, the Gunns restart and the Hillside mine — can create pockets of stronger demand, so investors may want to watch how these local developments and network pricing affect generator and network company revenues.
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