Falling electricity demand makes solar uptake more noticeable

August 12th, 2014, Published in Articles: Energize

 

The long-held belief that electricity consumption would continue to grow is being challenged in a number of mature economies in the past few years. Since WWII, electricity demand growth has persistently fallen relative to growth rate of GDP in nearly all mature economies.

Fig. 1 illustrates the negative growth in electricity use in the United States [1]. Similar patterns can be observed across the world’s rich economies. These are those countries which have signed the Convention on the Organisation for Economic Co-operation and Development (OECD), and which are often referred to as OECD countries or OECD economies. In most cases, the drop in consumption can be blamed on the 2008 global financial crisis and lower industrial demand. But even as most economies gradually recover, demand growth does not appear to be returning to its historical norms.

Fig. 1: US electricity use growth, 1950 to 2040 (Source: Annual Energy Outlook, 2014 [1]).

Fig. 1: US electricity use growth, 1950 to 2040 (Source: Annual Energy Outlook, 2014 [1]).

An Australian perspective

In case of Australia, however, there was no financial crisis to speak of, although the demand for commodities exported from Australia to major markets, especially China, has dropped off since 2008. So how does one explain the falling demand (Fig. 2), which coincidentally started in 2008? Can it be blamed on loss of heavy industry or the drop in export-driven mining sector, on rising retail tariffs causing consumers to tighten their belts and/or invest in more efficient lighting and appliances, rapid uptake of rooftop solar PVs or a combination of these?

Fig. 2: Australia’s falling demand (Source: Clean Energy Australia Report, 2013 [2]).

Fig. 2: Australia’s falling demand (Source: Clean Energy Australia Report, 2013 [2]).

Hugh Saddler of Pitt and Sherry a consultancy based in Canberra, Australia, who has been studying the matter believes that Australia’s current consumption is 8,7 TWh below where the historical trend line would have been in 2014, i.e., today’s consumption is 26% below the business-as-usual target [2]. He believes that there are numerous contributing factors as shown in Table 1.

Table 1

Table 1: Saddler’s analysis of factors contributing to the decline since 2006.

Saddler says, “One could not say that either the income effect or the lack of growth in large industrial users contribute to the absolute decline, only the decline from historic trend. But the other 81% all contributed to both.”

The uptake of PVs, nearly all in the residential sector, has no doubt played a role. Australia, which had virtually no solar capacity to speak of as late as 2008, had over 1,2-million rooftop solar PVs by the end of 2013, totaling 3270 MW, according to the Clean Energy Council’s (CEC’s) latest report.

By most accounts, Australia has the highest concentration of solar PVs in the world, with South Australia and Queensland boasting 20% penetration rates, over 10% for Australia as a whole. If the US had that level of solar penetration, it would have 13-million solar homes, roughly 50 times the current number – although the penetration figures vary widely from state to state in the US as they do in Australia.

Carbon and Energy Markets Director, Bruce Mountain, predicts that around 160 000 new rooftop PV systems will be installed in Australia in 2014. This despite the virtual phase out of generous feed-in-tariffs. If Mountain’s forecast materialises, it will take the country’s rooftop PV total to 4 GW or 1,5-million, roughly 16% of Australia’s households. These rooftop systems will produce around 6 TWh or 3% of Australia’s centrally-dispatched electricity – an impressive number by international standards.

Renewables collectively account for nearly 15% of Australia’s generation, according to CEC. More than half, however, come from large hydro resources, with wind and solar growing in recent years.

On most networks, the growth of small-scale rooftop solar PVs is not monitored or reported to the grid operator. The only indication of its presence is the impact of solar generation on the net load. The grid operator can only guess the contribution of small-scale solar PVs by the observed difference between what the full load on the network would have been had it not been for the contribution of PVs. The contribution of large wind and utility-scale solar, by contrast, are directly observable by the grid operator.

With the phase out of generous feed-in-tariffs in a number of Australian states, the future uptake of solar is expected to be less spectacular than it has been since 2008 (Fig. 3)[2].

Fig. 3: Installed capacity of small-scale solar power systems – cumulative (Source: Clean Energy Australia Report, 2013 [2]).

Fig. 3: Installed capacity of small-scale solar power systems – cumulative (Source: Clean Energy Australia Report, 2013 [2]).

The other important variable, of course, is the retail tariffs. According to Fair Pricing for Power, a recently published report by the Grattan Institute [3], the average Australian household’s power bill has risen 85% since 2006, from AUS$890 to $1660 a year (US$836 to $1560), mostly due to rapid rise of network charges – which now compromise roughly 43% of what the average Australian household pays for power each year (Fig. 4). That kind of price increase, no doubt, has contributed to the drop in demand.

Fig. 4: Fair pricing for power (Source: Fair pricing for power [3]).

Fig. 4: Fair pricing for power (Source: Fair pricing for power [3]).

Connecting the dots, it is not clear if the historical trend line is likely to be experienced ever again, and if so, it may take a while longer. Saddler believes that prices are more likely to fall than rise from now on, but that many of the other factors will continue to impact on demand. For example, another of the older aluminum smelters will close next month and stock turnover will continue to increase the efficiency of appliances, equipment and buildings, Saddler says.

Acknowledgement

This article was originally published in EEnergy Informer, August 2014, as is republished here with permission.

References

[1]. J Conti: “Annual Energy Outlook, 2014”, US Energy Information Administration, 2014.

[2]. D Green: “Clean Energy Australia Report, 2013”, Clean Energy Council, 2014.

[3]. T Wood and L Carter: “Fair pricing for power”, Grattan Institute, 2014.

Contact Fereidoon Sioshansi, EEnergy Informer, fpsioshansi@aol.com

 

 

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