The Audit found that, in 2011, SA had an installed electricity generation capacity of 4,438 MW. Transmission peak demand was 3,477 MW and distribution peak demand was 3,031 MW. The utilisation of electricity in SA in 2011 was 12,960 GWh for generation, 13,045 GWh for transmission and 11,093 GWh for distribution.
The DEC of electricity infrastructure in 2011 was $990 million. This was made up of $194 million from generation, $246 million from transmission and $550 million from distribution.
The Audit forecasts a 42 per cent increase in the use of electricity from 2011 to 2031. This equates to 18,564 GWh for generation, 18,517 GWh for transmission and 15,642 GWh for distribution by 2031. Based on these forecasts, the Audit projects an increase of $581 million (59 per cent) in the DEC of electricity infrastructure to $1.57 billion. This rise is made up of $117 million from generation, $145 million from transmission and $139 million from distribution.
Conversely, the Australian Energy Market Operator (AEMO) forecasts declining electricity consumption in SA, from 13,725 GWh in 2011 to 12,074 GWh in 2031.448 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 (GWh), whereas DEC is a measure of the value-add provided by electricity infrastructure, expressed in dollar terms. The two are not necessarily perfectly correlated.
SA is part of the National Electricity Market (NEM) which also includes NSW, Victoria, 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 2013-14.449
In 2008 and 2009, SA experienced high power prices that exceeded the levels required to support new entry. Coupled with the abundant renewable resources that exist in SA, these high prices supported the entry of large quantities of renewable energy generation in the form of wind farms. Together with falling demand, this has led to a surplus of generation capacity. AEMO has indicated that no new generation capacity is required in SA to maintain supply adequacy over the next 10 years, due to the decline in consumption under high, medium, and low growth scenarios.
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. SA has a high wind farm capacity of 1,473 MW.450 A recent example of new wind farm investment is the Snowtown wind farm expansion, completed in 2014.
The Small-scale Renewable Energy Scheme, feed-in tariffs, and other solar photovoltaic (PV) subsidies have led to a significant increase in the penetration of solar PV systems in the last five years. In SA, the capacity of installed solar PV has increased from 21 MW at the start of 2010 to 558 MW as of October 2014. In the National Electricity Forecasting Report, AEMO forecast an increase in solar PV to 2,425 GWh by 2031.451
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 2014,452 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 sub-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 capacity has been 'mothballed' or retired in the NEM. Most recently, SA has seen AGL withdraw the Torrens Island A power station (a 480 MW Open Cycle Gas Turbine plant) from operation, with plans to close it permanently in 2017. In addition, a number of other generators have already changed their operational profile or have been removed from service.
For the network sector, the decline in demand has diminished the need for augmentation investment. Nevertheless, the high penetration of wind farms in SA has created the need to increase inter-connector capacity with Victoria to ensure reliable supply when wind output is low. As a result, the Heywood interconnector upgrade was approved in 2013 with an expected commission date of 2016.
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448. Australian Energy Market Operator (2014a)
449. Australian Energy Market Operator (2014a)
450. South Australian Department of State Development (2014)
451. Australian Energy Market Operator (2014a)
452. Australian Energy Market Commission (2014)