YEAR IN REVIEW: Emissions still going up, now demand is too



With this issue of Cedex® Update we reach the first anniversary of the abolition of the carbon price and also the third anniversary of the launch of the Update, which coincided with the introduction of the carbon price. To mark the event, we have added vertical lines to Figure 1, to show the beginning and end of the carbon price period.

These make clear what we have been reporting for most of the three years: that the carbon price had very little direct effect on demand for electricity, but a very big effect on emissions from the generators supplying demand. The removal of the price, however, may be, with a slight delay, one of the factors supporting a return to increasing demand.

The lack of energy efficiency policy ambition would also be a factor. A stall commenced under the previous federal government, then policy effectiveness was deliberately reduced under the current federal and several state governments with the ending of several programs.



FIGURE 1

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We have also added vertical lines to Figure 2, which make it easier to see that 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, as discussed in previous editions of Cedex® Update.

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.

FIGURE 2

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Overall, in the year to June 2015, compared with the year to June 2014, total electricity emissions in the NEM increased by 6.4 Mt CO2-e, equivalent to 4.3% (and a little over 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 2015 was 75.8%, well above its share of 72.7% in the year to June 2014, 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. 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 over the past two years (it is about the 18-month anniversary of the announcement by the current Australian Government of the RET review).

FIGURE 3

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It also seems likely that demand growth will provide a further stimulus to coal generation. The changes in demand totals for each state shown in Figure 3 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 AEMO’s recently published 2015 National Electricity Forecasting Report, indicate that general business and residential demand in each of 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 new trend of slow growth in this demand to continue, and we see no reason to disagree with this assessment. In summary, therefore, it seems as if the historically unprecedented era of falling electricity demand is, having lasted for four and a half years, now coming to an end.

These figures understate the rebound in what AEMO calls “underlying consumption” of electricity, because they do 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. According to AEMO’s figures, underlying consumption in the NEM fell by five years in a row, from 2009-10 to 2013-14, the last year by 2.1%, but 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 the Queensland LNG industry. This demand will be entirely associated with gathering and transporting coal seam gas 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 AEMO numbers indicate that the new large demand in Queensland, starting last October and discussed in previous Updates, 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.

In its Medium forecasting scenario, AEMO projects that total electricity demand from the LNG industry will increase to 9.4TWh in 2018-19. This is equivalent to about 5% of current total NEM demand. All of this extra electricity will, in effect, come from Queensland black coal generators, meaning that it will add about 8.5 Mt CO2-e to Australia’s greenhouse gas emissions, equivalent to about 1.5% of current total national emissions.

Data analysis, text and graphs by pitt&sherry's Hugh Saddler, and Elena Tinch and Mark Johnston