The Audit found that, in 2011, the ACT did not have any installed electricity generation capacity. Transmission and distribution peak demands were 620 MW. The utilisation of electricity in the ACT in 2011 was 3,062 GWh for transmission and distribution.
The DEC from electricity infrastructure in 2011 was $168 million. This was made up of $28 million from transmission and $140 million from distribution.
The Audit forecasts a 38 per cent increase in the use of electricity from 2011 to 2031. This equates to 4,231 GWh for transmission and distribution by 2031. Based on these forecasts, the Audit projects a 47 per cent increase in the DEC of electricity infrastructure to $246 million. The $78 million increase is made up of $13 million from transmission and $65 million from distribution.
The ACT is part of the NSW region in the national electricity market (NEM). 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.
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.
The Large-scale Renewable Energy Target (and the previous Renewable Energy Target), and 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 wind farms and solar PV systems in the last five years in the NEM. In 2013,508 the ACT Government legislated a 90 per cent renewable energy target by 2020,509 mainly though solar and wind generation, although much of this will be purchased from other jurisdictions in the NEM.
In 2012, the ACT Government commissioned 40 MW of large-scale solar generation capacity. A 20 MW solar farm opened in 2014510 and by 2031 there is expected to be 90 MW of large scale solar generation. Additionally there is an estimated 40 MW of roof-top generation. The surplus in capacity in the NSW NEM region means there is little need for additional investment in capacity over the next 15 years based on existing demand and supply conditions.
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 2014,511 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. However, the majority of thermal generation in the NSW NEM region is not located within the ACT area.
For the network sector, the decline in demand has diminished the need for augmentation investment. Indeed, the AEMO has pointed out that several transmission network service providers have delayed or cancelled a number of proposed major network upgrades.
Lower levels of demand growth could also be expected to 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 a replacement is justified.
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508. Australian Capital Territory Government Legislation Register (2013)
509. Australian Capital Territory Government Environment and Sustainable Development Directorate (2013)
510. Australian Capital Territory Government Environment and Planning Directorate (2014a)
511. Australian Energy Market Commission (2014)