Where did electricity demand go?

In our first 'graph of the week', we take a look at how actual energy consumption has come in well short of forecasts. So what does it mean for the planned $40 billion of network upgrades?

At Climate Spectator we usually find ourselves trawling through reports full of wonderful charts and graphs that most people never get to see because they’re hiding somewhere on page 122 of a lengthy report. These can often provide an incredibly compelling or profound insight that hits us like a bolt from the blue.

So we’ve decided to create a page each week dedicated to sharing some of the more compelling graphics that we come across in our travels. Readers should also feel free to bring to our attention (via info@climatespectator.com.au) any graphs, charts or other graphics you feel warrant publishing on Climate Spectator’s Graphic of the Week.

This week we’ve chosen a gem from AEMO illustrating how electricity system planners’ forecasts of electricity consumption have been way off trends in actual electricity demand. The dark orange line is actual annual electricity consumption in the National Energy Market (NEM) and the yellow line is the forecast made in the August 2011 AEMO Statement of Opportunities.

Annual Electricity Consumption in the NEM – Actual and forecast

According to AEMO the reasons behind the drop-off in demand are:

“The changing economic landscape [i.e. structural decline of manufacturing], a more energy conscious public, the impact of rooftop solar photovoltaic installations and milder weather have all contributed to lower than forecast annual energy across Eastern and South Eastern Australia.”

There are considerable implications flowing from this phenomenon.

Firstly, it raises questions about the wisdom of forecasts the network businesses have used to justify over $40 billion of expenditure on networks over the next five years. Investment in networks is driven by peaks in instantaneous demand, not overall annual energy consumption (which is illustrated in the graph above). Yet it makes you wonder, if they can get this forecast so badly wrong, maybe they've done the same with peak demand forecasts as well.

Secondly, it is seriously depressing wholesale electricity prices. This is likely to continue for some time, although there will be some relief from the introduction of the carbon price. This makes it hard to proceed with any large electricity generation project, whether conventional or renewable. Hence why Grant King in a recent KGB interview (KGB: Origin's Grant King, March 2) said he doesn’t see much need for new baseload (combined-cycle gas) power plants up to 2020. It also brings into stark relief just how important the carbon price will be to the achievement of the renewable energy target. The threat to rescind the carbon price will hang around like a bad smell over the next two years, undermining the ability of power plant developers to conclude commercial negotiations.

Thirdly, it suggests that Australia could achieve a more ambitious domestic emission reduction target at lower cost than what many models currently project (often built on assumptions of far faster growth in electricity consumption). Of course this is all a bit academic when international carbon credits are trading at under 5 euros, and can be used without any real restriction (the 50 per cent limit on use of international credits is not a constraint as explained by Frank Jotzo). But it may dawn on government that a carbon trading scheme that barely reduces domestic emissions is a tad unwise.   

Fourthly, this provides an inkling of the potential to reduce emissions through enhanced energy-efficiency, rather than decarbonising the supply of energy. While the surge in solar photovoltaics (decarbonising supply) and reductions in manufacturing output have been important contributors to the result illustrated above, there is a range of important energy efficiency measures implemented in recent times as well.  

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