Falling electricity demand: Has it changed the game on emissions?

It seems that not a week goes by without seeing another report of falling electricity consumption. For instance, Mike Sandiford described “The great de-electrification” on 4 August, 2013. This raises the question about the impact of falling electricity demand on national greenhouse gas emissions. In particular, is the changing character of electricity demand reason to revise the forecasts of national greenhouse gas emissions out to 2020?

Why 2020? Australia has committed to reduce national greenhouse emissions by at least 5 per cent below 2000 levels by 2020. When forecasts were developed back in 2012 by the (then) Department of Climate Change and Energy Efficiency (DCCEE) using 2010 data, the gap to achieve a 5% reduction from 2000 emissions levels was calculated to be 162 Mt CO2-e, with a cumulative gap relative to our target in the years out to 2020 of 786 Mt CO2-e.

However, the falling demand for electricity is just one of several factors that are impacting national greenhouse gas emissions. In these changing times, Energetics has reviewed the 2012 DCCEE findings to show that Australia’s emissions have altered significantly from the original forecast.

By 2020, Energetics’ re-forecast shows that a saving of 93 Mt CO2-e in emissions will be needed to achieve a 5% target, with the cumulative saving required between 2012 and 2020 estimated to be 275 Mt CO2-e.

The gap to our target has been reduced partly as a result of new greenhouse gas accounting rules governing the international agreements to limit greenhouse gas emissions. This saw the inclusion of emissions from forest management activities in the national inventory. Further, the Australian government decided to broaden coverage of the land sector to include net emissions from cropland management, grazing land management and revegetation activities within the 2020 target. The gap out to 2020 is also reduced by the carryover from the first Kyoto commitment period of 2008 to 2012 when Australia exceeded its target by 96 Mt CO2-e.

But most significant of all the changes has been the impact of lower electricity consumption. This is seen in both lower emissions in 2011 and 2012 compared to the forecast and also in lower growth compared to the DCCEE forecast.

The reasons behind Australia’s falling demand for grid electricity include:

1. High power prices. While electricity demand isn’t perfectly responsive to price increases, it is arguably affected by the recent and anticipated price rises.

2. Rooftop solar has curbed demand and this effect will continue as more solar panels are installed across the country. Additional solar PV will constrain the growth of grid electricity. The latest statistics are compelling and even the latest forecast from AEMO arguably underestimated the growth in solar PV – all at a time when feed-in tariffs have been removed or lowered. The Australian Photovoltaic Association stated in a report released in May this year that 70% of all generation capacity installed nationally over 2012, was solar, contributing more than 1GW in energy. The costs to install have also fallen dramatically, from $12 per watt in 2008, to $4 per watt in 2012. Australia’s energy mix is undergoing a transformation.

3. Manufacturing weakness. External pressures on the manufacturing sector remain. Australia has several very large electricity users, aluminium and other metal smelters. Once attracted to Australia by our comparatively low electricity prices, Australia now has relatively high power prices and the smelters face an uncertain future. With gas prices set to double on Australia’s east coast, more cost pressures will be brought to bear on our manufacturers.

4. Government programs are doing their job. We are particularly seeing improvements in energy efficiency and this will further reduce demand in the lead up to 2020, as will the building of new houses that have better insulation and more energy efficient features.

The figure below shows the relationship between the DCCEE 2012 forecast, the actual emissions to 2012, our forecast of the trend to 2020 and the national reduction target.

A range of uncertainties remain, which could see emissions above or below the forecast. Rapidly escalating electricity prices contributed to the decline in electricity use and therefore emissions. Yet electricity use may rebound, even without the price changing, as businesses and households become accustomed to the higher prices.

Natural gas pricing is another major variable. Gas prices are expected to rise significantly in the next three years as world parity pricing impacts Australia’s eastern markets. Impacts could include both a decline in gas intensive manufacturing in the east, which would reduce emissions in Australia, yet on the other hand replacement of natural gas with coal for intermediate power generation would increase national emissions.

And importantly, changes in the local and global economy could affect domestic energy use in several ways. In particular a fall in the Australia dollar could result in a rebound in manufacturing activity. And a general slowdown in national economic activity could see emissions fall further.

The Energetics study can be found here.

Gordon Weiss is Principal Consultant – Process Efficiency at Energetics Pty Ltd