The firm’s latest Carbon Emissions Index Update (Cedex) revealed the carbon price had very little direct effect on demand for electricity, but a very big effect on emissions from the generators supplying demand.
However, removal of the carbon price may be one factor supporting a return to increasing demand, for the first time in five years.
Pitt&Sherry principal consultant, energy strategies Dr Hugh Saddler said demand seemed “almost certainly” heading upwards again and that for at least the next couple of years all the growth in demand would be supplied by coal.
“Looking back it is now clear the carbon price had a big effect on emissions, via its effect on the generation mix, but no effect on demand for electricity, which is driven by other factors,” he said.
“The emissions reduction during the carbon price period was mainly caused by the interchange between hydro generation and brown coal generation, and was driven by the commercial strategies of Hydro Tasmania and Snowy Hydro.
“Changes in black coal generation have been mainly caused by the large fall in demand in NSW plus the ‘knock on’ effect of steadily growing wind generation, mainly from SA and Victoria, impacting on the high marginal cost NSW coal generators.
“The carbon price was at no time high enough to eliminate the cost difference between coal and gas generation. Changes in gas generation over the past three years have mostly been caused by changes in the wholesale gas market driven by the requirements of LNG producers.”
The Cedex Update found that overall, in the year to June, compared with the previous year, total electricity emissions in the National Electricity Market increased by 6.4 million tonnes of carbon dioxide equivalent, equal to 4.3% – and a little more than 1% of total national emissions.
The black coal share of total sent out generation increased by 1.1 percentage points to 51.5% and the share of brown coal by 2.1 percentage points to 24.3%.
The total coal share in the year to June was 75.8%, well above its share of 72.7% in the year to June last year but below the 78.1% level in the year to June 2012, on the eve of the carbon price.
“The share of gas generation fell slightly over the year to 11.9%, and seems almost certain to fall further,” Saddler said.
“Hydro, of course, fell very significantly over the past year, while wind generation increased steadily by 0.5 percentage points, to 5.4%.
“Over the next year coal seems certain to increase its share at the expense of gas, while wind generation will inevitably stagnate because of the lack of new construction because of the policy turmoil over the past two years.
“It also seems likely that demand growth will provide a further stimulus to coal generation.
“The changes in demand totals for each state do not, of course, distinguish between demand from large individual users, such as aluminium smelters, and demand from the great mass of less electricity intensive business and residential consumers.”
However, the most up to date estimates of demand in the year to June 2015, contained in the Australian Energy Market Operator’s recently published 2015 National Electricity Forecasting Report, indicated that general business and residential demand in Queensland, NSW and Victoria was higher in 2014-15 than in 2013-14, after falling in each of the previous four years in succession.
Total demand from these consumers in these three states equals nearly two thirds of total NEM demand. AEMO expects the trend of slow growth in this demand to continue.
Saddler said it seemed as if the historically unprecedented era of falling electricity demand was, having lasted for four and a half years, coming to an end.’
He said these figures understated the rebound in what AEMO called “underlying consumption” of electricity, because they did not include electricity supplied by embedded generation, most particularly rooftop PV.
“When these figures are added to demand supplied through the NEM, the turnaround in the total quantity of electricity being used by general business and residential consumers becomes sharper,” Saddler said.
According to AEMO’s figures, underlying consumption by residential and general business consumers in the NEM fell for five years in a row, from 2009-10 to 2013-14. In the last year of that range it fell by 2.1%, however, in 2014-15 is estimated by AEMO to have increased by 1.4%.
The AEMO forecasting report also pays particular attention to the expected growth in electricity demand arising from Queensland’s LNG industry.
Saddler said this demand would be entirely associated with gathering and transporting CSG from the coal fields of southern Queensland to the LNG plants at Gladstone.
The LNG plants themselves will generate all their electricity requirements on site from gas, and will not draw on the grid.
“The new large demand in Queensland, starting last October, is almost certainly LNG related – probably the trunk pipeline supplying the first plant to come on-line, which shipped its first LNG cargo in January,” Saddler said.
“In its Medium forecasting scenario, AEMO projects that total electricity demand from the LNG industry will increase to 9.4 terrawatt hours in 2018-19. This is equivalent to about 5% of current total NEM demand.
“All of this electricity will, in effect, come from Queensland black coal generators, meaning that it will add about 8.5Mt CO2-e to Australia’s greenhouse gas emissions, equivalent to about 1.5% of current total emissions.”