804 Shock To The System
804 Shock To The System
804 Shock To The System
This report was written by Tony Wood, Grattan Institute Energy Program
Director, and Lucy Carter, Energy Fellow. Cameron Harrison and James Button
provided extensive research assistance and made substantial contributions to
the report.
We would like to thank the members of Grattan Institutes Energy Reference
Group for their helpful comments, as well as numerous industry participants and
officials for their input.
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Origin Foundation
Senior Affiliates
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Stockland
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Affiliates
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Sinclair Knight Merz
The Scanlon Foundation
Urbis
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This report may be cited as:
Wood, T., Carter, L., and Harrison, C., 2013, Shock to the system: dealing with falling electricity
demand, Grattan Institute
ISBN: 978-1-925015-50-8
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Overview
Electricity use in Australia is falling. From the 1960s to the end of
the 20th century, electricity consumption increased at an average
annual rate of six per cent. Investment in power stations and
electricity networks also rose steadily. Since 2009, however,
eastern states electricity production has fallen and in Western
Australia growth has plateaued since 2011.
Yet this extraordinary fall in demand has not led to a fall in price,
as would occur in a conventional market. Since 2006 the average
household has reduced power use by more than seven per cent.
But in that period the average household power bill has risen
more than 85 per cent: from $890 to $1660 a year. One reason is
that Australians are funding billions of dollars of infrastructure that
falling consumption has made redundant. These price rises are
unsustainable, but who will pay for the correction: power
companies, governments or once again consumers?
Falling consumption has several causes. Customers are
responding to high prices by reducing use or switching to a new
breed of more energy-efficient appliances. The cost of solar
energy has fallen: a million households now have solar PV panels
on their roofs. The economy has become less energy intensive as
the manufacturing sector has declined.
The nature of Australias energy market means that these
changes are not leading to lower prices. Electricity generators
operate in a free market: when consumption falls they must
produce power at a lower price in order to sell it, or reduce
production. But network businesses which carry power from the
Grattan Institute 2013
Table of contents
Overview ............................................................................................ 1
1. Electricity use is declining ............................................................ 3
2. Bad news for power bills ............................................................ 10
3. The problem for networks .......................................................... 14
4. Policy implications ..................................................................... 21
References ...................................................................................... 26
1.
1.1
1.2
AEMO (2013b)
190,000
185,000
180,000
2005
2006
2007
2008
2009
2010
2011
2012
BREE (2013)
3
The decline in total electricity demand exceeds the decline in final
consumption. Electricity demand and final consumption figures may differ due
to transmission and distribution losses and other losses such as the auxiliary
load of power consumed by generators.
4
AEMO (2013b)
Despite this, electricity use in the SWIS has been flat for the past
several years, as Figure 1.3 shows.
ABS (2013a)
GWh
18,500
300 000
18,000
250 000
17,500
200 000
17,000
150 000
16,500
100 000
16,000
15,500
50 000
15,000
14,500
2007
0
1960-61
2008
2009
2010
2011
2012
1970-71
1980-81
1990-91
2000-01
2010-11
2013
Note: BREE estimates of consumption include power supplied through the NEM
and SWIS and from outside these networks. This data provides an indication of
long-term trends in consumption but relies on a number of data sources.
Source: BREE (2013)
15
10
Growth in energy
consumption
5
Linear trend
1971-72
1981-82
1991-92
2001-02
2011-12
Note: BREE estimates of consumption include power supplied through the NEM and SWIS
and from outside these networks. This data provides an indication of long-term trends in
consumption but relies on a number of data sources.
1.3
-5
1961-62
6
7
AEMO (2010)
AEMO (2013a)
ABS (2012)
Equipment Energy Efficiency (2013)
11
Kramer (2010) cited in Kim, et al. (2012)
10
emitting diode) lights use 80 per cent less power than an average
fluorescent lamp.12
Box 1.1: How changes in television technology cut power use
Five years ago, a household buying a new television may have
purchased a plasma screen television. Since that time the far
more energy-efficient LCD (liquid-crystal display) and LED (lightemitting diode) televisions have become increasingly popular.
In 2009, the Commonwealth Government introduced efficiency
and minimum energy performance requirements for televisions.
Over the first 18 months of that program, the energy efficiency of
new products improved by 20 per cent.
About three million televisions are sold in Australia every year. By
2011, the market was dominated by LCD and LED televisions,
with plasma technology making up only 20 per cent of the market.
As households begin to replace their old televisions, they will
make significant energy savings.
Origin has estimated that households can save up to $149 a year
by replacing their two-star rated plasma TV with a five-star rated
LCD television.
For new homes and renovations, more stringent energy efficiency
standards for building have helped to reduce electricity
consumption. Following changes to the National Construction
Code in 2010, state governments introduced mandatory six-star
12
Ibid.
0.25
0.20
0.15
0.10
1971-72
1981-82
1991-92
2001-02
2011-12
19
ABS (2013b)
Minifie, et al. (2013)
21
Orchison (2013)
22
AEMO (2013b)
20
23
24
2.
400
300
CPI, All
groups
200
100
0
1980
1984
1988
1992
1996
2000
2004
2008
2012
Figure 2.2 shows how household power bills in both the NEM and
the SWIS have continued to grow at an average rate of more than
nine per cent a year, even as households have progressively
used less power.
25
Wood (2012)
10
1,800
1,500
4,000
1,200
3,000
900
2,000
600
1,000
300
0
2006 2007 2008 2009 2010 2011 2012 2013
2.1
26
27
Pitt&Sherry (2013)
Macquarie Generation (2009)
11
400
350
Network revenue per unit sold
300
250
200
Real wholesale prices*
150
100
50
NEM consumption
-0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Note: *Real wholesale prices are adjusted for the carbon price in 2012-13
Source: Grattan Analysis based on AEMO (1998-2013) and regulatory
determinations.
28
AGL (2013)
12
2013
NSW
Vic
Qld
WA
SA
Tas
Note: Caution should be taken when interpreting changes in Tasmania. Due to data
limitations we have assumed constant revenue for Aurora Energy.
Source: Grattan Analysis based on AEMO (1998-2013), IMO (2013) and regulatory
determinations (see References for regulatory determinations)
Wood (2012)
13
3.
3.1
Vic
Qld
SA
Tas
WA
-2
-4
-6
-8
-10
Per cent
15
31
16
3.2
SP AusNet (2012)
Australian Associated Press (2011)
3.3
35
34
CEDA (2012)
36
EnergyConsult (2010)
Energy Efcient Strategies (2008)
18
160
140
120
2009
100
80
2010
2011
60
40
2012
20
22:00
18:00
16:00
14:00
12:00
10:00
8:00
6:00
4:00
2:00
0:00
20:00
Time of day
2013
Note: The current on this electrical line was measured each year for five consecutive years
on the second Tuesday in October.
Source: Energex (2013)
Yet the network businesses costs will not fall because the peak
demand level has not changed. In fact, the costs to service this
area may actually increase as infrastructure upgrades may be
required to accommodate the flow of electricity from solar systems
back onto the network.
In this case, the network business is still able to recover its costs
under existing regulatory arrangements. But someone must pay.
Power prices will go up to account for the fall in total energy
consumption and cover the cost of required network upgrades.
3.4
In the short run, power users have limited capacity to reduce their
consumption. A household can buy more efficient appliances and
use them less often. A business can adopt best practice
approaches to reducing power use. But beyond these measures,
it is difficult to reduce consumption further with current technology.
Over the longer term, the rising cost of electricity and expectation
of even higher prices in future will drive more consumers to buy
more energy efficient televisions, refrigerators or air conditioners
when their appliances need to be replaced, or to install home
19
Some large industrial users are also consuming less energy. The
closure of large industrial plants the Kurri Kurri aluminium
smelter in 2012, for example means that other users must pay
more in power charges to allow network businesses to earn their
revenue.
For residential customers, rapid uptake of air conditioners has
increased peak load on the network and pushed up prices for
other users. By allowing some users to reduce the amount they
pay in network charges without reducing the costs they impose on
the network, rooftop solar has also pushed up prices.
37
Garnaut (2011)
38
20
4.
Policy implications
4.1
For consumers, network costs have been the major cause of high
electricity bills. A death spiral could lead to even higher electricity
bills in the short term as the fixed cost of the network is spread
among fewer users. In the longer term, large-scale disconnections
from the network could lock in a higher overall cost for electricity
than could be supplied through an efficient network.
Wood (2012)
21
4.2
AEMC (2013)
Australian Associated Press (2013)
22
A simpler alternative, which reflects but does not fully capture the
costs of peak demand, would be to charge users based on their
own peak level of energy use.
A move to demand-based tariffs would be a big change for
consumers. Those who installed rooftop solar systems or large air
conditioners may regard such tariffs as unfair because they would
lead respectively to either lower savings or higher bills. Yet this is
the inevitable and correct answer to the current subsidy problem.
Clearly, demand-based tariffs will require electricity meters that
can measure a households peak demand.
Network charges geared to peak demand would also reduce the
incentive for customers to reduce their overall power consumption
during non-peak periods. This could encourage customers to use
more power, and slow the trend of falling electricity demand. As a
consequence, this could increase carbon emissions from the
electricity sector, which have been declining since 2009.42
However, high electricity prices are a blunt tool for reducing
carbon emissions. A more efficient strategy for managing
emissions is through a carbon price that encourages lower
emission electricity generation and the adoption of less
emission-intensive industry practices.
Increased use of location-based pricing
The value of certain types of technologies may be greater in
different locations. Consider a household in a growing suburb
42
CCA (2013)
23
4.3
Keeping down network costs will help to keep electricity prices low
and improve the competitiveness of electricity supplied through
power networks against technologies that could allow consumers
to bypass the network. Making tariffs reflect the cost of peak
demand would provide the right pricing signals for consumers to
change their electricity consumption.
However, these measures may not be enough.
The amount consumers are charged for using Australias
regulated power networks reflects the cost of previous
investments. At present, consumers have no choice but to pay for
these assets. However, in future they may have means to avoid
doing so through disconnecting from the network and installing
Grattan Institute 2013
25
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