rss
8

Electricity industry in chaos. Has death spiral begun?

Print Friendly

The Conversation

death spiralIf you wonder why the antipathy towards the RET from the electricity utilities, all you need to do is look at what is happening to demand for poles and wires electricity.

Across the eastern seaboard served by the National Electricity Market (NEM) demand is collapsing and heading towards territory not seen since the last millenium. Another few years on current trend and the industry will be in chaos. The last thing utilities want now is new capacity enforced by government regulation into an already grossly oversupplied market.

 

Average electricity demand on the mainland sector of the NEM, expressed in gigawatts by financial year. Red circles are historical demand data. Grey squares are trend projections for the death spiral scenario (demand collapses to zero in 10 years). Blue circles are 3% p.a. decline on 2014 levels. Image by Mike Sandiford. Data from AEMO 30-minute aggregated price and demand datasets.

The 2013-14 financial year is the fifth consecutive year to see negative demand growth on the NEM. And the problem for the electricity utilities is that the demand is falling more sharply with each passing year. In 2013-14 demand fell almost 3%. The trend is really quite alarming.

Annual percentage change in electricity demand on the mainland sector of the NEM. By financial year. Image by Mike Sandiford. Data from AEMO 30-minute aggregated price and demand datasets.

Predicting energy demand is proving to be a mug’s game. Just ask the Australian Energy Market Operator (AEMO).

As recently as 6 years ago, growth in demand for poles and wires electricity could be counted on with certainty. Then demand grew at an average of a touch over 2% each year, varying between 1 and 3.5% depending on the economic cycle and seasonal weather variability.

Projected demand scenarios for the mainland sector of the NEM, expressed in gigawatts by financial year. Brown – 2.2% annual growth on 2000 to 2007 levels. Red – 2.2% annual growth on 2014 levels. Green – 0.5% annual growth on 2014 levels as assumed in the RET review analysis by ACIL Allen. Blue – 3% annual decline. Black – on trend death spiral scenario. Image by Mike Sandiford. Data from AEMO 30-minute aggregated price and demand datasets.

It all made sense. With an implicit assumption that demand for electricity is inelastic, in an expanding economy, with a rising population, it has been a given for industry and government that demand must rise. And since poles and wires electricity seemed the only way of servicing that demand, growth was assured.

But since the GFC, the growth in demand has collapsed, initially flat lining before falling into negative territory where it has been for the last five years. In fact, compared to the forward projections of 2007, when 2.2 % annual growth seemed assured, demand is now down some 6 gigagwatts, or almost 25%.

Projected demand scenarios for the mainland sector of the NEM, expressed as percentage departure on the 2.2% annual growth from 2000 to 2007 levels. Red – 2.2% annual growth on 2014 levels. Green – 0.5% annual growth on 2014 levels as assumed in the RET review analysis by ACIL Allen. Blue – 3% annual decline. Black – on trend death spiral scenario. Image by Mike Sandiford. Data from AEMO 30-minute aggregated price and demand datasets.

Since the GFC many things have changed. The take-up of distributed technologies have greatly reduced demand for poles and wires electricity. And poles and wires electricity is no longer the only game in town due to the phenomenal cost reductions in solar photovoltaic. Contrary to perceived wisdom, electricity demand has proved to be anything but inelastic.

The reduction in demand has clearly blindsided both industry and government, which continue to operate as though demand growth must inevitably return. Even the market operator, AEMO, has found the downturn difficult to comprehend. Each year for several years in a row, AEMO has been forced to revise down its electricity demand forecast.

In fact, the idea that energy demand growth is essential for a growing economy is so ingrained in industry and government thinking, that we might question their collective sanity. The idea that Australia might be in for a sustained period of falling consumption for poles and wires electricity seems almost impossible for industry and government to comprehend. In the recent RET review, ACIL-Allen assume long-term growth of 0.5% per annum.

In face of the current trend, this seems to be delusional at best, utter madness at worst. A more sensible assumption might be to presume that demand for poles and wires electricity will continue to decline. A more pertinent question might be “when will we no longer need transmission?”. On current trend, we might be guessing that could be frighteningly soon.

With average demand dropping almost 600 megawatts in the last financial year, and large electricity consumers such as the aluminium sector already exiting the industry, it is hard to imagine anything but further reductions.

And that will put upward pressure on costs of distributing poles and wires electricity, which in turn will further encourage energy efficiency measures and distributed generation.

It makes for challenging times for our energy utilities, who continue to want to operate a business model that involves servicing our need for the benefits of energy (heating cooling, lighting, communication etc.) by supplying more and more energy across the grid.

With the costs of distributing poles and wires electricity consuming a larger and larger proportion of the retail bill, it is time to step back and reconsider what we want from our energy system, and how we get there. With concerns growing over how the bleak demand outlook will impact the viability of the electricity grid, we could do well to ask “why do we continue to promote two energy grids (gas and electricity) to provide essentially the same energy service.”

 

Source: The Conversation. Reproduced with permission.  

RenewEconomy Free Daily Newsletter

Share this:

  • Peter Smith

    In the above plots, is the “demand” the total electricity demand (including that supplied by all renewables), or just the demand seen by the traditional generators?

    I am not sure they even know about the Kwh I generate and use in house.

    • Winston

      NEM “demand” is actually generation, because the NEM is concerned with the generation that is required to meet demand, not the demand itself. Sounds odd, but it includes losses on the transmission lines.

      So they don’t know about the kWh you generate in your house. They do know about the net transport into or out of your house.

      Mike’s use of the phrase “poles and wires electricity” is specific – he’s talking only about the power that is injected into the grid by utility-scale generators.

      His “when will we no longer need transmission” question is disingenuous and misleading. The whole death spiral thing is misleading. A very large part of the decrease in utility generation is due to the installation of enormous amounts of rooftop solar – but the grid cannot absorb further rooftop solar indefinitely, because it destabilises the other things that the grid supplies, such as voltage stability and resistance to faults. Such things are not considered in an energy-only analysis like Mike’s.

      Anyway, not everyone can get solar. And you wouldn’t disconnect from the grid even if you had solar, but no storage, because your solar isn’t 24-hour. We haven’t yet seen an indication that storage will be economically viable, so claims of the death spiral for utilities are a little hysterical at this point.

      This storage system from Tesla http://www.solarcity.com/residential/energy-storage appears to be the state of the art at the moment – it costs in the realm of US$15,000 and you can’t buy it here (yet).

      • Peter Smith

        Thanks, Winston.

        Is it possible to determine the total electricity usage? It would be nice to know how much of the drop in demand is due to efficiencies and reduced manufacturing compared to private domestic production.

        • Winston

          The distributors know (all solar meters should take both import and export readings), but it’s not yet collected in one place as far as I know.

          AEMO need to know it to do proper demand forecasts, and they’re increasing their interface with the distributors with their connection point demand forecast project, so it’s likely to be something to fall out of that process. It’s not coming any time soon.

          To date, demand forecasts essentially assume that solar generation and demand rise or fall in step (they have been getting Monash University to do the hard stuff; you can see an example here: http://www.aemo.com.au/~/media/Files/Other/planning/e400-0004%2520pdf.pdf). They’ve been so wrong because the solar has been rising (precipitously) while demand has been falling (less-so) and their models weren’t geared to track the divergence.

          You can estimate the contribution of rooftop solar to changes in demand if have some data skills. The Bureau of Meteorology will sell you insolation data, and the Clean Energy Regulator publishes installed capacity figures. From that you could come up with a long term average monthly energy production at postcode resolution.

          • Alastair Leith

            low-res Insolation data is available for free from goggle images “insolation map Australia” too.

            Clean Energy Australia Report 2014 has rooftop PV deployment data for last decade (practically all PV is rooftop in Australia at this stage). The data is provided to CEC by a consultant and my understanding is it’s derived from small-scale technology certificates created each year (STCs). This is public domain data provided by the Clean Energy Regulator.

            The STC creation process is somewhat opaque, how many rooftop PV systems operate at less than nameplate capacity due to shading or sub-optimal angles and other system design compromises?

          • Alastair Leith

            your aemo/~/media… link is dead @disqus_bIa6kgrNxl:disqus

      • nakedChimp

        “His “when will we no longer need transmission” question is disingenuous
        and misleading. The whole death spiral thing is misleading. A very large
        part of the decrease in utility generation is due to the installation
        of enormous amounts of rooftop solar – but the grid cannot absorb
        further rooftop solar indefinitely, because it destabilises the other
        things that the grid supplies, such as voltage stability and resistance
        to faults. Such things are not considered in an energy-only analysis
        like Mike’s.”
        True, but the folks in south QLD at some point will need to answer the question if they want keep subsidizing the people in north QLD.
        And if that one comes out with a no, then the people in north QLD will be faced with the decision if they can afford the wires & poles or if it would be cheaper for large areas (4 people per km wire regions) to go it alone. In the end it will probably look pretty similar to the NBN grid.. major hotspots are on the grid and thinly populated areas will be off grid.

  • oakleighpark

    Is anyone following what is happening in WA with respect to the micro grid growth?