The Audit found that, in 2011, Tasmania had an installed electricity generation capacity of 2,601 MW. Transmission peak demand was 1,771 MW and distribution peak demand was 1,055 MW. The utilisation of electricity in Tasmania in 2011 was 10,863 GWh for generation, 10,585 GWh for transmission and 4,619 GWh for distribution.
The DEC from electricity infrastructure in 2011 was $824 million. This was made up of $393 million from generation, $204 million from transmission and $227 million from distribution.
The Audit forecasts a 14 per cent increase in the use of electricity from 2011 to 2031. This equates to 12,379 GWh for generation, 11,933 GWh for transmission and 5,271 GWh for distribution by 2031. Based on these forecasts, the Audit projects an increase of $115 million (14 per cent) in the DEC of electricity infrastructure - made up of $58 million from generation, $26 million from transmission and $32 million from distribution - to over $939 million in 2031.
The Australian Energy Market Operator481 (AEMO) forecasts declining electricity consumption in Tasmania, from 10,425 GWh in 2011 to 9,065 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. 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.
Tasmania is part of the National Electricity Market (NEM) which also includes NSW, Victoria, Queensland and SA. 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.
Declining demand has not caused significant disruption in Tasmania, since lower demand growth had been forecast for the state for longer than the other eastern states. Tasmania is reliant on hydro generation plants. The Basslink cable allows Tasmania to export electricity to Victoria when Victorian prices are higher than Tasmanian prices, and to import electricity when Tasmanian prices are higher.
Tasmania currently has sufficient generation assets, both in terms of capacity and energy, but is energy constrained, with hydro generation constrained by water availability in storages. However, the presence of Basslink and gas fired generation capabilities means that Tasmanian energy demand can be met. Coupled with the ongoing increase in supply available from renewable sources, there will be little need to build new generation capacity in the foreseeable future, with any electricity shortfalls met by importing from Victoria based on existing supply and demand conditions.
Government policies aimed at reducing carbon emissions, and uncertainty around carbon pricing, have made new investment in emissions intensive assets unviable. Tasmania has ample renewable energy and limited coal resources.
Policies to reduce carbon have increased the relative competiveness of hydro power generation. However, hydroelectric plants are output constrained because their production is a function of water inflows, which are determined by rainfall. Consequently, a carbon price would not influence the output of existing hydroelectric plants in the long-term.
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. Tasmania generates around 308 MW of wind power, which represents around 12 per cent of installed capacity. The Musselroe wind farm commenced operation in 2013 and has 168 MW of installed capacity.
The Small-scale Renewable Energy Scheme, feed-in tariffs and other solar PV subsidies led to a significant increase in the penetration of solar PV systems in the last five years. In Tasmania, the capacity of installed solar PV has increased from 2 MW at the start of 2010 to 78 MW as of October 2014. In its latest forecasts, AEMO predicted an increase in solar PV to 473 GWh by 2031.
Renewable energy is now able to supply the majority of generation in Tasmania. In 2013, thermal generation accounted for 13 per cent of installed capacity, but it is mostly used as a contingency.482
The combination of an unanticipated decline in demand and rising penetration of renewables has led to an ongoing structural change in the wholesale sector.
The Tasmanian Government is developing an Energy Strategy to identify ways in which energy can be used as a key economic driver for Tasmania. Its Draft Tasmanian Energy Strategy,483 which has an overarching vision of restoring Tasmania's energy advantage, has three key themes:
■ making energy work for people;
■ reducing the cost of delivering energy; and
■ positioning Tasmania for the future.
Underpinning this are a suite of action items, which outline how the Tasmanian Government will respond in the short to medium term to deliver on these three themes.
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, a substantial amount of capacity has been 'mothballed' or retired in the NEM.
For the network sector, the decline in demand has diminished the need for augmentation investment. There is likely to be little need for significant network upgrades in Tasmania in the near future.
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481. Australian Energy Market Operator (2014a)
482. Office of the Tasmanian Economic Regulator (2014)
483. Tasmanian Department of State Growth (2014)