The Audit found that, in 2011, NSW had an installed electricity generation capacity of 16,654 MW. Transmission peak demand was 13,563 MW and distribution peak demand was 12,291 MW. The utilisation of electricity in NSW in 2011 was 67,611 GWh for generation, 71,827 GWh for transmission and 61,797 GWh for distribution.
The DEC of electricity infrastructure in 2011 was approximately $5.3 billion. This was made up of $1.3 billion from generation, $0.8 billion from transmission and $3.2 billion from distribution.
The Audit forecasts a 48 per cent increase in the use of electricity from 2011 to 2031. This equates to 100,016 GWh for generation, 106,559 GWh for transmission and 91,554 GWh for distribution by 2031. Based on these forecasts, the Audit projects an increase of $3 billion in the DEC of electricity infrastructure - made up of $0.7 billion from generation, $0.5 billion from transmission and $1.8 billion from distribution.
Conversely, the Australian Energy Market Operator293 (AEMO) forecasts declining electricity consumption in NSW, from 73,755 GWh in 2011 to 70,444 GWh in 2031. AEMO attributes the decline to reduced large industrial consumption, reduced residential and commercial consumption from increased rooftop photovoltaic (PV) output, increasing energy efficiency, and response to high electricity prices.
There are several reasons for caution in directly comparing AEMO's forecasts and the Audit projections for the DEC of electricity infrastructure. The Audit assumes an energy efficiency improvement rate of 1.5 per cent per year (compared to a historic rate of 0.5 to 1.0 per cent), whereas AEMO assumes much faster rates, exceeding 20 per cent in some years. Consequently the electricity use underlying the Audit's DEC measure is considerably higher than that for AEMO's forecast.
Additionally, AEMO reports and forecasts unit electricity consumption in gigawatt-hours, whereas DEC is a measure of the value-add provided by electricity infrastructure, expressed in dollar terms. The two are not necessarily perfectly correlated.
NSW is part of the NEM which also includes Victoria, SA, Queensland and Tasmania. Declining electricity demand has been an ongoing feature of the NEM in recent years. Annual energy sent out across the NEM fell seven per cent from 194.9 TWh in 2009-10 to 181.2 TWh in 2013-14.294
Based on existing and projected levels of supply and demand, coupled with the ongoing increase in supply available from renewable sources, there is likely to be little need for additional investment in generation capacity in NSW over the next 15 years.
The Large-scale Renewable Energy Target (and the previous Renewable Energy Target) have led to a substantial increase in the penetration of wind farms across the NEM. In NSW, the installed capacity of wind increased from zero in 2005 to 431 MW in 2013. At the same time, the Small-scale Renewable Energy Scheme, feed-in tariffs and other solar PV subsidies have led to a significant increase in the penetration of solar PV systems in the last five years. In NSW, installed solar PVs have increased from 26 MW at the start of 2010 to 776 MW as of October 2014. In its National Electricity Forecasting Report, AEMO forecast an increase in solar PV from 109 GWh in 2011 to 5154 GWh by 2031.
The combination of an unanticipated decline in demand and rising penetration of renewables has led to an ongoing structural change in the wholesale sector.
At the same time, there have been considerable rises in network charges across the NEM, due to a range of factors. The rising network charges have in turn influenced retail prices, creating an impetus for regulators to investigate options that may diminish, or delay, further expansion of the network. Consequently, the Australian Energy Market Commission (AEMC), on 27 November 2014,295 made a new rule that establishes a new pricing objective and new pricing principles for electricity distribution businesses that will require that network prices reflect the efficient costs of providing network services. Distribution network prices will reflect the costs of providing the electricity to consumers with different patterns of consumption which has the potential to reduce demand during peak periods, and consequently also reduce future network infrastructure investment.
The implications of surplus capacity differ by sector. For the generation sector, surplus capacity and renewable policy settings are likely to result in the withdrawal of thermal generation assets. Indeed, since 2005, significant generation capacity has been 'mothballed' or retired in the NEM. Most recently, NSW has seen the mothballing of the Wallerawang power station (1000 MW coal-fired plant) and the shutdown of Redbank power station (150 MW coal-fired plant).
For the network sector, the decline in demand has diminished the need for augmentation investment. Indeed, AEMO has pointed out that several transmission network service providers have delayed or cancelled a number of proposed major network upgrades. For example, Transgrid has deferred the NSW to Queensland transmission capacity upgrade.
Lower levels of demand growth may reduce the need for expenditure to replace existing assets, although this depends on the profile of demand within a distribution network. Under the current regulatory framework, network companies are not required to seek AER approval to undertake investment in replacement assets. Network businesses therefore currently have an incentive to undertake investment, regardless of whether the replacement is justified.
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293. Australian Energy Market Operator (2014a)
294. Australian Energy Market Operator (2014a)
295. Australian Energy Market Commission (2014)