The Audit found that, in 2011, Victoria had an installed electricity generation capacity of 10,765 MW. Transmission peak demand was 9,982 MW and distribution peak demand was 8,836 MW. Electricity generation in Victoria in 2011 was 55,050 GWh with end-use demand being 43,319 GWh.
The DEC from electricity infrastructure in 2011 was approximately $3.1 billion. This was made up of $1.2 billion from generation, $0.4 billion from transmission and $1.4 billion from distribution.
The Audit forecasts a 47 per cent increase in electricity use from 2011 to 2031. This equates to 82,911 GWh for generation, 77,042 GWh for transmission and 63,847 GWh for distribution by 2031. Based on these forecasts, the Audit projects an increase electricity infrastructure DEC from $3.1 billion to $4.7 billion. This 53 per cent rise is slower than forecast state-wide economic growth of 76 per cent over the same period.
The Australian Energy Market Operator (AEMO) forecasts335 declining electricity consumption in Victoria, from 47,319 GWh in 2011 to 45,342 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 0.5-1.0 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.
Victoria is part of the National Electricity Market (NEM) which also includes NSW, SA, Queensland and Tasmania. Electricity consumption and demand has fallen in 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.
There is likely to be little need for additional investment in generation capacity in Victoria over the next 15 years based on existing and projected levels of supply and demand.
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 Victoria, solar PV output increased from 25 GWh at the start of 2010 to 731 GWh in 2013-14. In its most recent forecast AEMO predicted an increase to 5,154 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 2014,336 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. Since 2005, significant generation of capacity has been 'mothballed' or retired in the NEM. Most recently, Victoria has seen the withdrawal of the Energy Brix power station in 2012. In addition, a number of generators in Victoria could withdraw in the near future in response to surplus capacity, the government's carbon reduction policy, and the approaching end of their useful life.
For the network sector, the decline in demand has diminished the need for augmentation investment. AEMO has pointed out that several transmission network service providers have delayed or cancelled a number of major network upgrades. For example, the proposed Geelong-Moorabool 220 kV line upgrade has been deferred beyond the 10-year planning horizon, mainly due to the closure of the Point Henry aluminium smelter. Lower levels of demand growth may reduce the need for expenditure to replace existing assets.
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335. Australian Energy Market Operator (2014a)
336. Australian Energy Market Commission (2014)