Five Years of Declining Annual Consumption of Grid-Supplied Electricity in Eastern Australia: Causes and Consequences For decades, consumption of grid-supplied electricity increased in line with a growing economy. In the five years since 2009, however, annual consumption in eastern Australia declined by 7 percent, even while the Australian economy grew by 13 percent. Declining consumption was not forecast by the planning authority nor by market participants. The authors review reasons for declining consumption, the failure of planning authorities to Mike Sandiford is Director of the Melbourne Energy Institute, based at forecast this structural change, and ongoing the School of Earth Sciences at the consequences. Fuel switching from oil and gas offers one University of Melbourne in Australia. means of partly arresting the rapidly declining use of electricity grid infrastructure. Tim Forcey is an energy advisor to the Melbourne Energy Institute. Mike Sandiford, Tim Forcey, Alan Pears and Dylan McConnell Alan Pears is Senior Lecturer at RMIT University in Melbourne, Australia. Dylan McConnell is Research I. Introduction economic output) (BP Energy Fellow at the Melbourne Energy Outlook 2035, 2014). In Australia, Institute. Since the oil crises of the 1970s, energy intensity has steadily global economies have been able declined since the 1990s (Energy to reduce their energy intensity in Australia, 2014). Nevertheless (the use of energy per unit of until recently, absolute energy 96 1040-6190/# 2015 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2015.07.007 The Electricity Journal consumption across all sectors of decades Australian electricity consumption will not exceed the the Australian economy consumption generally increased level seen in FY 2008-09 until continued to grow (Energy in from year to year in line with the sometime beyond 2035. In this Australia, 2014). In the decade growing Australian economy. article, we review some of the preceding the 2008 global The lower-than-average growth reasons for this structural change financial crisis (GFC), grid- in annual electricity consumption including: energy efficiency supplied electricity consumption in FY 2008-09 followed by programs, consumer response to in eastern Australia grew at an declining consumption in FY dramatically rising retail average rate of approximately 2 2009-10 was initially credited to electricity prices, the widespread percent per year (Australian temporary factors such as the deployment of rooftop solar Energy Statistics, 2014). GFC. In August 2011 following photovoltaic (PV) systems, owever, consumption of the post-GFC recovery of the specific facility closures in the H grid-supplied electricity in Australian economy, AEMO larger-industrial sector, and other developed economies globally is factors. We describe some now undergoing unprecedented consequences of declining annual and rapid change. In Australia Consequences of consumption and forecasting and elsewhere (Today in Energy, declining annual failures. These include 2013; UK Department of Energy & consumption and overbuilding of electricity Climate Change, 2014; PLATTS, infrastructure and declining use 2013), electricity markets are forecasting failures of this infrastructure. experiencing sustained declining include overbuilding of Furthermore, overbuilding and consumption. This presents electricity infrastructure declining consumption has challenges to industry and declining use of this driven some industry incumbents incumbents, market operators, to support reversal of energy regulators, and governments. In infrastructure. efficiency, renewable energy, and this article, we describe how in the climate change mitigation Australian financial year (FY) programs. We present a scenario ending Jun. 30, 2009 (FY 2008-09), forecast that annual electricity illustrating to what extent the electricity supplied by the eastern consumption would reach annual consumption of grid- Australian grid (known as the 215 TWh by FY 2013-14 and supplied electricity could National Electricity Market, or 248 TWh by FY 2020-21. continue to decline over the next NEM) reached an all-time high of Experience shows that the 10 years. Finally we describe 195.0 TWh. Then, over the forecast for FY 2013-14 was high opportunities to increase following five years while the by approximately 18 percent. electricity consumption while Australian economy grew by Rather than the consumption decreasing the use of oil and gas. approximately 13 percent, annual decline of FY 2008-09 and 2009-10 electricity consumption in eastern being a temporary aberration, it Australia declined by 7 percent to presaged a fundamental shift in II. Eastern Australia’s reach 181.2 TWh in FY 2013-14. the Australian electricity market. Electricity Supply This ongoing multi-year decline t is now clear that annual System was not anticipated by market I consumption of grid-supplied participants nor by the planning electricity in Australia no longer The eastern Australian authority, the Australian Energy tracks economic growth. In June electricity transmission grid Market Operator (AEMO). In 2014 AEMO forecast that in a serves approximately 21 million part, this was because for many ‘‘medium scenario’’ annual people (90 percent of Australians) Aug./Sept. 2015, Vol. 28, Issue 7 1040-6190/# 2015 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2015.07.007 97 in Queensland, New South Wales, state of Tasmania, maximum half-hour for each of the five the Australian Capital Territory, demand occurs in late afternoon regions of the NEM. AEMO settles the financial transactions for all of Victoria, Tasmania, and South and early evening during summer the electricity traded on the NEM Australia. It is one of the longest heat waves that drive the use of on the basis of these spot prices. transmission grids in the world air-conditioners. As a result, the Generators and retailers often stretching across 5,000 kilometers. electricity supply system is sized protect themselves from move- Electricity transmission to meet maximum demand that ments in the spot price by entering into hedge contracts. interconnections – with limited may occur only for a few hours capacity – connect Queensland per year, if at all. Annual electricity consumption with New South Wales, New he National Electricity in eastern Australia can be South Wales with Victoria, T Market has operated across divided into three sectors. AEMO Victoria with Tasmania (via a the eastern Australian states since provides data describing the subsea connection), and Victoria 1998, with Tasmania joining in ‘‘larger-industrial’’ sector (22 with South Australia. Western percent of total consumption) Australia and the Northern based on direct meter readings Territory have no physical Eastern Australia’s (National Electricity Forecast connections to and remain electricity Report, 2014). The subsequent separate from the eastern generation and division of the ‘‘residential’’ Australian system. (This article sector (28 percent of describes activities in eastern transmission consumption) versus the Australia only.) Population and system has been remaining ‘‘smaller-industrial- electricity consumption is one of the most and-commercial’’ sector (SI&C, 50 generally concentrated around reliable in percent of total consumption) the capital city of each eastern must be estimated (Saddler, 2013). Australian state or territory. the world. The wholesale sales value Regional areas in between are (turnover) of grid-supplied much more lightly populated. electricity in eastern astern Australia’s electricity 2005. Australian Energy Market Australia has ranged from $A 6 to E generation and transmission Commission describes the 12 billion in recent years with system has been one of the most operation of the NEM as follows electricity production in the range reliable in the world with (National Electricity Market, of 180 to 195 terawatt-hours performance generally exceeding 2014): (TWh). the 99.998 percent availability The Australian Energy Market Traditionally, NEM electricity target (corresponding to un- Operator (AEMO) operates the was generated from brown and served energy of 0.002 percent or NEM. The NEM is an energy-only black coal (27 GW of generation approximately 10 minutes per gross pool with mandatory par- capacity now installed), gas year) (Australian Energy ticipation. Generators sell all of (12 GW), and hydroelectricity their electricity through the NEM Regulator, 2013). Maximum where supply and demand are (8 GW). The average age of (instantaneous) demand for matched instantaneously. From Australia’s coal power station electricity is the critical parameter the generators’ offers, the market fleet is over 30 years with some 50- that determines the required size determines the combination of year-old facilities still in service of electricity-supply generation to meet demand in the (Stock, 2014). Over the last most cost-efficient way. AEMO infrastructure. In all eastern then issues dispatch instructions to decade, more than three GW of Australian states with the these generators. The market wind generation was installed. exception of the southern island determines a spot price every Total larger-scale generation 98 1040-6190/# 2015 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2015.07.007 The Electricity Journal capacity in the NEM now stands consumption of grid-supplied years, increasing numbers of at approximately 50 GW. electricity increased nearly each Australian homes were fitted with