We know the two great certainties in life are death and taxes, but
many thought there was a third: the inexorable rise in consumption of
electricity. As the population grew and each of us got a little more
prosperous each year, we'd use more power. The mighty electricity
industry was built on that certainty.
Except that electricity consumption has been falling for the
past four years. To say this has taken the industry by surprise is an
understatement. For well over a century – even during the Great
Depression – the quantity of electricity used in Australia each year was
greater than the year before.
It took the industry and its regulators two or three years to
accept the trend was more than just a hiccup on the ever-upward path,
which delay probably added to the decline.
There are few aspects of the economy – global or national –
where change is more significant, more diverse or more interesting than
energy supply and demand – where energy covers coal, gas (conventional
and unconventional), petroleum, wind, solar and other renewables. Expect
to hear more from me on the topic.
But there are few questions more interesting than exactly why
the unthinkable, a fall in electricity consumption, has come about.
Short answer: a surprisingly large combination of reasons, although Tony
Abbott's crusading against the carbon tax must get some of the credit.
The best attempt to quantify the various factors involved comes from a report
prepared by Dr Hugh Saddler, an energy expert with the Pitt and Sherry
consultancy, for the Australia Institute. Saddler's modelling covers the
years to 2012-13, but we know from reporting this week by Origin Energy
and AGL that the fall continued in 2013-14.
Saddler focuses on energy produced and consumed from the
National Energy Market, which covers the five eastern states and the
ACT, but the decline is occurring also in Western Australia. After
peaking in 2008-09, consumption from the national market in 2012-13 was
down by almost 8 terawatt hours, or 4.3 per cent.
But that's only half the story. Just as important as why
demand has fallen is why it hasn't continued growing, as continued
growth in the population and the economy would lead us to expect.
Saddler estimates that had demand continued growing from 2004 at its
average rate of growth over the previous 20 years (2.5 per cent a year)
it would have been 37 terawatt hours more than it actually was in
2012-13.
This shortfall is equal to the output of almost 5000
megawatts of coal-fired generation capacity, the combined capacity of
the Bayswater and Eraring power stations in NSW, or Loy Yang A and B and
Hazelwood in Victoria.
"All of the decline in consumption has been at the expense of
coal-fired generators, with the result that many are now barely
profitable," Saddler says.
Greenhouse gas emissions fell by 9.2 megatonnes of carbon
dioxide equivalent, about 2 per cent of Australians total annual
emissions.
So what has caused our power consumption to fall rather than
rise? The biggest single reason is the introduction from the late 1990s
of regulations to increase the energy efficiency of refrigerators,
freezers and many other residential and commercial appliances, and to
increase the energy efficiency of new buildings.
Saddler estimates this explains 37 per cent of the 37 terawatt-hour shortfall from what might have been.
The next biggest part of the explanation is structural change
in the economy away from electricity-intensive industries. Over the
year to September 2012, three major NSW industrial power users – Port
Kembla steelworks, Kurri Kurri aluminium smelter and the Clyde oil
refinery – were partly or completely shut down. This explains 10 per
cent of the 37 terawatt-hour shortfall.
The evidence also suggests that power consumption by other
major industrial users has been little changed over the three years to
2012-13. Saddler estimates that this failure to grow explains a further
14 per cent of the shortfall, taking the total contribution from
structural change to almost a quarter.
The next most important part of the explanation is the
response of electricity users, particularly residential users, to the
higher prices they were being charged. Saddler finds that after 2010
there was "an abrupt change in consumer responsiveness to higher
prices".
This was the time when the possible effect of a carbon tax on
electricity became a major political issue thanks to the efforts of
Abbott and his "sceptic" mates. At the time, retail electricity prices
were rising spectacularly, mainly because of a huge increase in spending
on upgrading the transmission and distribution networks (poles and
wires) to cope with an expected ever-rising peak demand on hot summer
afternoons.
Saddler finds evidence to support his argument that all this
carbon-tax-related fuss about the high cost of electricity caused many
households to be a lot more conscious of what was happening to their
power bills and to respond by finding ways to cut their usage – to the
extent that they "have managed to completely offset the effect of higher
prices on their household budgets by reducing consumption".
This highly unusual jump in the short-run "price elasticity" of electricity explains 19 per cent of the shortfall, he estimates.
He further calculates that the growth in output from rooftop
photovoltaic solar and other small, distributed generators accounts for
about 13 per cent of the shortfall. This, of course, is a fall in the
demand for electricity supplied by the major, mainly coal-fired
generators, not a fall in the use of electricity as such.
Saddler notes that for the past three years the annual peak
demand has been falling, not increasing, despite the huge investment to
cope with ever-rising peaks. When will this additional capacity, which
is now built and for which all electricity consumers are paying – and
will continue to pay for some years to come – be required, if ever, he
asks.
Good question.
