Powering down - has Australian electricity consumption hit its peak?

Australia’s switching off, but for how long? Andrew Huff/Flickr

A number of recent reports have documented an unprecedented decline in electricity consumption. The Australian Bureau of Agricultural and Research Economics, in its 2011 Energy Update, shows a decline of 5.4% in 2008-09, followed by a 1.2% decline in 2009-10.

Ausgrid has reported ongoing declines in NSW electricity consumption.

A blip or a trend?

What is driving this recent trend? And is it likely to continue, or is it just a short term blip?

No-one really knows. Unlike most industries, the electricity industry knows surprisingly little about what drives demand for its product.

The fragmentation of the industry through energy reform, and the intense competition, means information is mostly confidential and held by different organisations.

Demand is also driven by factors that are diverse and poorly documented: we don’t know the average efficiency of new TVs sold, or the levels of energy-related activity in specific industries.

And the industry has built its culture on a long history of growing demand. So there has been confidence that growth will always return to generate revenue.

Importantly, we are beginning to see the early effects of a diverse range of government policies and programs, as well as outcomes of technological and structural change.

To my knowledge, no-one has a model that can provide comprehensive bottom-up economy-wide forecasts of future demand in this time of rapid change. Past use of top-down economic indicators based on historical trends can no longer be relied upon.

What could be pushing power use down?

Efficient commercial buildings: The commercial building sector has adopted rating schemes such as NABERS and Green Star, as well as the 2006 and (much more stringent) 2010 building energy regulations. These have driven rapid technological change, which is flowing into existing buildings.

Consumer demand for more efficient buildings has grown, with some governments requiring high performance buildings for new leases. A five star NABERS building uses less than half as much energy as a 2.5 star one – based on real energy consumption data.

Also, the easiest way to improve a NABERS rating is to switch everything off outside working hours – not great for base load power demand.

Online shopping: The retail sector consumes around 40% of commercial sector electricity. The growth of online shopping may, over time, reduce demand for retail floor area and apply stronger pressure to cut operating costs such as energy use.

Efficient homes: Residential building energy regulation has also become more stringent. From May this year, it includes limits on lighting energy efficiency and effectively bans off-peak electric hot water services in new homes (there goes more base load).

Household appliances are also improving in efficiency. Total energy consumption of products carrying energy labels (excluding air conditioners) seems to have peaked around 2005 and is now declining.

Over the past two years, flat screen TVs have radically improved, with the best 8-star models using much less power than smaller traditional cathode ray TVs. The best new air conditioners use two-thirds less power than many older models. And lighting energy use is being transformed by compact fluorescent and LED lighting.

Reduced hot water use: From 2012, if your off-peak electric hot water system fails,you will have to replace it with a low emission alternative. And the spread of water-efficient shower heads and appliances is reducing hot water consumption.

Smaller houses with more people: New home size seems to have finally peaked. As it declines, new homes will use less energy for lighting and comfort.

Population growth has slowed, and average household size has begun to rise for the first time in many decades.

Making your own energy: Over the past 18 months, Australians have installed around 650 megawatts of solar cells on their roofs – a large proportion of recent peak demand growth.

These effectively reduce the visible electricity consumption by replacing grid electricity on-site and in the local network. They work well to offset the commercial sector peak day demand profile, and undermine demand at the most profitable times for the electricity industry – hot sunny days.

Industries and commercial buildings are showing increasing interest in installing on-site low emission electricity generation, such as cogeneration and trigeneration. Like solar cells, this will reduce the amount of electricity drawn from the grid.

Better street lights: Increasing numbers of local councils are replacing inefficient street lights with much more efficient ones, reducing off peak power demand.

Higher prices: Recent electricity price increases have focused many households and businesses on saving electricity through more careful management of equipment and insulating themselves against expected ongoing price increases.

The high Australian dollar has put pressure on manufacturing and services sectors. Activity in some areas has declined, and there may be a long term trend towards relocation overseas – due to forces much more powerful than a carbon price. At the same time, industry is feeling increasing pressure to cut energy use to save money and avoid carbon costs.

The GFC: Then there is the impact of the global financial crisis – this is the only factor described here that could be called a potentially transient effect. But it may also be the “straw that breaks the camel’s back” for some industries, driving them offshore or out of business and reducing Australia’s electricity consumption.

How will power companies cope?

Importantly, many of these trends can grow rapidly. Installed Australian solar PV capacity tripled in 2010. Halogen lamps last only 2,000 hours or so, so LED lamps could replace almost all energy guzzling halogens over a few years as their lighting performance improves and costs come down. This could save 80% or more of the electricity now being used by halogens.

Better metering and monitoring is improving our ability to identify faulty equipment, or see if equipment has been accidentally left on.

At the same time, the traditional electricity industry will face increasing uncertainty and risk of building assets that may no longer be needed in a few years. Costly decisions could be made, as large power stations and powerlines take years to plan and build, and a long time to recover their costs.

If they try to pass these costs onto customers, they will simply accelerate investment in energy efficiency, renewable energy and smart energy management. And if they fail to deliver reliable supply, they will face criticism and pressure from government, business and the public. They will lose more demand to alternatives that allow business and households to insulate themselves from lack of reliability.

We live in interesting times.