February saw no let up in the steady fall in demand for electricity from NEM generators and in emissions from the electricity generation sector; in fact it saw an increase in the rate of fall of both demand and emissions.
As has been the case ever since the big demand fall started, more than two years ago, the change in emissions is caused by the squeeze which the combination of falling demand and increased supply from gas and renewable generators is putting on the dominant coal generators.
In NSW, the decline in coal-fired generation has been almost halted, with supplies through the interconnectors from Victoria and Queensland, dropping to match the fall in demand. This is an interesting reversal of the trend up to about four months ago, which saw increased supply from interstate at the expense of the NSW generators. With the closure of one of the two 500 MW units at Wallerawang C, foreshadowed in the last Cedex Update, some of the more modern generators, including Mt. Piper, Vales Point and Liddell have been able to achieve modest output increases.
In Queensland, by contrast, large falls in output from Kogan Creek, Stanwell and Tarong saw a marked drop in total coal-fired generation. In Victoria, output from all four major brown coal-fuelled power stations (Loy Yang A, Loy Yang B, Yallourn W and Hazelwood) was lower than in February 2012, meaning that annualised output, and hence emissions, fell for the seventh month in a row.
Gas, hydro and wind generators have all increased output, although the increases from gas and wind were quite small. Annualised output from the Tasmanian hydro system grew strongly for the twelfth month in a row, and output from the Victorian side of the Snowy also increased significantly.
During the last week in February, media attention was drawn to the financial benefits which the carbon price is delivering to Hydro Tasmania. The introduction of the price has seen a rise in the average level of wholesale prices across the NEM, roughly equal to the weighted average cost of emissions to NEM generators. This delivers increased profits to hydro generators, which have no emissions liability.
As anticipated in the last Update, although wind generation fell slightly in the month, on an annualised basis it reached its highest ever level of generation, 7.05 TWh, equal to 3.8 per cent of NEM generation measured on a sent out basis. Coal at 74.8 per cent fell to its lowest ever level, while total renewables (wind plus hydro) reached 12.5 per cent. Gas supplied the remaining 12.7 per cent.
In the last Update we emphasised that falling demand is the most important driver of the changes in generation shares and consequent falling emissions intensity of the NEM. In the last few weeks, Origin Energy and EnergyAustralia, two of the big three retailers in the NEM, have both announced big drops in revenue as a result of falling sales, brining the issue of falling demand to wider public attention.
Figure 4 shows how the total quantities of electrical energy supplied by the NEM (termed regional demand in NEM-speak) have been falling steadily in every state for over two years. The graph shows relative changes, so that all states are on the same basis, but also shows the consequent total electrical energy for the whole NEM. Figure 5, not included in previous Updates, shows seasonal peak demand in the four states with strong seasonal peaks.
It is pretty clear that falling energy demand is contributing to falling peaks: the key summer peaks have fallen for each of the past four years in Victoria, the past three in Queensland, and the past two in NSW and SA. Obviously, this has important implications for future spending on network upgrades which, as everyone now knows, has been the main driver of electricity price rises over the past four or five years.
Significantly, these dramatic changes in electricity demand are not unique to Australia.
Similar trends are evident, for example, in the USA, the UK and New Zealand. None of these countries has experienced the large price increases seen in Australia, so it is unlikely that is the main explanation for the changes. More fundamental processes, beyond price effects, seem to be at work. Rooftop PV is obviously part of the story, but cannot explain New Zealand or the UK.
Are regulatory energy efficiency programs, so often condemned as “green tape”, actually helping consumers to use less electricity and Australia to start reducing its emissions?