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AER reports record low electricity demand in Australia

04/12/2024

For more than 15 years the Australian Energy Regulator (AER) has produced an annual State of the energy market report, reviewing the previous 12 months (financial year) across Australian energy markets and for energy consumers.

When this year’s report was released last month, there were a couple of headlines (as usual), but not as much coverage about some of the findings that we found interesting about electricity networks (chapter 3), gas markets in eastern Australia (chapter 4), or retail energy markets (chapter 6).

Here are a few of the things that caught our attention.

Firstly, the main headlines … 

Perhaps the most interesting finding was that consumers have become an even more integral part of the energy transition by continuing to invest in rooftop solar, battery storage, and electric vehicles.

Residential solar in the National Electricity Market (NEM) now exceeds 20 gigawatts, thanks to the addition of around 2.9 gigawatts during the reporting year.

The report highlights that, through 2023-24, the energy price was very volatile. Weather conditions and outages at both generator and network levels during high-demand periods contributed to the volatility (as we’ve seen in NSW over the past couple of weeks). 

Largely because of that contribution from consumers via residential solar, the market experienced record low electricity demand in New South Wales, Victoria, South Australia and Tasmania, however, there was record high demand in Queensland.

Notably, though, while minimum demands were the lowest on record, driving down the averages, maximum demand was also higher than ever. Higher peaks, lower troughs.

Maximum grid demand

In 2023–24, maximum grid demand rose compared with the previous year in Victoria, NSW and Queensland, with Queensland setting a record high.

In most regions, high grid demand usually occurs when temperatures are hot enough to prompt widespread use of air conditioning, particularly after the sun has set and rooftop solar no longer offsets demand.

For all mainland regions, the interval with the highest grid demand for the financial year occurred during the January to March quarter, between 4 and 7 pm. For Tasmania, high demand typically occurs in winter when heating demand is at its greatest.

The National Electricity Market 

The National Electricity Market (NEM) continues to transition from a centralised system of large-scale fossil fuel generation towards an array of smaller-scale, widely dispersed wind and solar generators, hydroelectric generation, grid-scale batteries, and demand response.

While the entry of planned new capacity slowed in 2023–24, as projects were delayed, 2.1 gigawatts of large‑scale generation and storage were commissioned.

However, a substantial amount of the capacity commissioned to enter the market over 2023–24 is now forecast to come online in 2024–25, reaching 6.4 gigawatts at full output.

Meanwhile, record lows in minimum demand were set across all regions except Queensland. Output from rooftop solar continued to increase, further reducing grid demand during the middle of the day.

Sources of generation in the NEM

By the end of 2023–24, total generation capacity measured 81,082 MW. Rooftop solar was the biggest contributor totalling 25% of registered capacity, followed by black coal at 20%.

Renewable technologies (including rooftop solar, solar farms, wind, hydro, and battery) made up 60% of capacity. Capacity for renewable technologies increased from the previous year, while the capacity of fossil fuel generators (black and brown coal and gas) largely remained the same.

Fossil fuel generators produced 61% of electricity, a decrease of 1.5% from the previous year while solar and wind output increased to 31% of total generation.

Coal outages fell in 2023–24 but remain a risk

As coal-fired generators break down more frequently as they age, the NEM’s fleet of aging coal generators is particularly prone to outages. Coal outages pose the greatest risk to reliability during winter, due to seasonally lower renewables output.

Although coal-fired generator outages have increased over time, outages in the 2023–24 financial year decreased compared with the previous year, averaging 2.7 GW per quarter.

While the exit of coal-fired generation is necessary to meet emissions reduction targets and inevitable due to its declining financial viability, disorderly exit poses risks to both reliability and wholesale volatility.

AEMO has forecast reliability gaps over the next 10 years should the rate of investment in firm capacity (that which is dispatchable on command) fail to increase significantly.

Gas markets in eastern Australia

Gas prices stabilised from mid-2023, with milder winter conditions lowering demand and influencing a significant reduction from the unprecedented high prices of mid-2022.

In late 2023, demand for gas reached a record low, alongside lower levels of gas-powered generation. While this continued over the summer, the second quarter of 2024 saw spikes in gas-powered generation output to offset low wind and solar generation.

Concerns about potential gas shortfalls have prompted several market responses, including further gas development, LNG imports, transmission pipeline solutions and demand response.

AEMO’s Gas Statement of Opportunities reports have repeatedly highlighted the risk of both short‑term and long-term shortfalls in the east coast gas markets, particularly due to the depletion of legacy gas fields in Victoria’s offshore Gippsland Basin. However, several projects that could help fill the supply gap have either stalled, been postponed or abandoned.

Electricity networks

In the 12 months to 30 June 2023, electricity network service providers invested $6.8 billion on capital projects, $1.1 billion (20%) more than in the previous year.

Significant investment in the electricity transmission network is expected to continue over the next few years, with early works commencing on the VNI West project between Victoria and NSW and the AER approving a $4 billion cost application for the Humelink project in NSW.

Reliability outcomes continued to improve (compared with historical levels) with electricity consumers experiencing the fewest unplanned interruptions to supply on record.

Retail energy markets

Electricity consumption has increased over the past decade. In 2023–24, 213 TWh of electricity was consumed by energy users in the NEM, a 2 per cent increase from the previous year and the highest level recorded.

Increased consumption has been met by increasing rooftop solar generation, offsetting total grid demand. Residential rooftop solar capacity now exceeds 20 gigawatts (GW), equivalent to 25% of registered generation capacity across the NEM.

In 2023–24, electricity bills increased for customers on both standing and market offers in all NEM regions. Gas bills increased for customers on standing offers in all NEM regions and for customers on market offers in all NEM regions except Queensland.

Security, reliability, and affordability

The report, which runs to 310 pages, contains a great deal of data and analysis (including lots of graphs), much of which is of more interest to businesses involved in the energy market and investors (more so than consumers).

However, we haven’t touched on the sections that cover the potentially conflicting aims of shoring up energy security and reliability of supply while managing affordability, so we’ll do that in the next blog post.

As a “teaser”, this is a highlighted quote (on page 98 of the report):

“AEMO’s 2024 Integrated System Plan appeals for urgent investment in generation, storage and transmission to deliver secure, reliable and affordable electricity through the energy transition.”

By the way, if you’re interested in downloading the report in full, you can do so from the AER website here: State of the energy market 2024.

Filed Under: News

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