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Electricity demand in WA set to fall for first time, AEMO forecasts, as solar power takes over

By Daniel Mercer – ABC News – 23 June 2019

The body that runs the national wholesale electricity market is forecasting demand for electricity from households and businesses in WA will fall for the first time as the extraordinary uptake of solar panels reshapes the power system.

In its latest report on the south-west wholesale electricity market, the Australian Energy Market Operator (AEMO) said it was no longer expecting the use of power drawn from the grid to increase as the state’s population grew.

Instead, AEMO said it was forecasting demand — or “operational consumption” — to fall almost 4 per cent between 2019–20 and 2027–28, bucking long-held assumptions that link power use to an economy’s size.

At the heart of the operator’s latest forecast is the “extraordinary” take-up of rooftop solar power, with more than one in four homes in the south-west grid now having a solar system.

PHOTO: More than 50 per cent of households are expected to have solar power by 2028. (Reuters: Mike Blake)

AEMO said the proportion of households expected to have a solar panel installation would exceed 50 per cent within a decade, while the amount of rooftop solar capacity would rocket from about 1100 megawatts to 2500MW.

This would make rooftop, or distributed, solar the biggest source of capacity in the grid by far when taken in combination.

By contrast, the system’s biggest stand-alone generator, the Muja coal-fired power plant in Collie, has a nameplate capacity of 810MW.

The forecast of a fall in consumption comes after years of softness in demand driven by households and businesses using increasingly efficient appliances and installing solar panels.

AEMO said since 2010–11, “total operational consumption” had risen by an average of just 0.1 per cent.

Crucially, consumption among residential and business customers had been falling over the same period at an annual rate of 1.6 per cent and 1.5 per cent respectively.

The agency said that with demand set to fall among large industrial users — the only segment of the market to have grown over the past eight years — overall consumption would be dragged down.

PHOTO: WA is reaching a power tipping point, with overall consumption forecast to drop for the first time. (ABC News: Ian Cutmore)

Call for shake-up as Synergy ‘caught in a bind’

Scott Davis, who represents electricity generators and retailers as the WA head of the Australian Energy Council (AEC), said the report brought into sharp relief the changing nature of the state’s power system.

Mr Davis said the trend of falling demand for grid-drawn power and the increasing self-reliance of customers with solar panels also served to highlight many of the problems facing state-owned power retailer Synergy.

It emerged last week that Synergy was facing losses of almost $200 million over the next four years, while it would also have to borrow up to $140 million to fund capital spending.

Mr Davis said Synergy was caught in a bind because consumers with solar installations were using less of the power it generated but its costs — for running its plant and accessing the power grid — were high and largely fixed.

“It links into Synergy’s forecast losses,” Mr Davis said.

“Synergy has a whole lot of fixed costs they’re trying to recover from less sales because of rooftop solar.”

Making matters worse for Synergy, Mr Davis said AEMO had consistently underestimated the rate at which solar panels were being added to the mix, suggesting the utility’s revenues were likely to be hollowed out even faster in coming years.

“Forecasters tend to be conservative,” he said.

“If you look at the forecast historically, I think you’ll find they always under-predict the amount of rooftop solar that goes on each year.”

Mr Davis said the system needed to be shaken up to ensure the costs of generating and supplying electricity at any one time were better reflected in the prices people paid for the service.

PHOTO: The shift in power sources is placing pressure on electricity suppliers. (AAP: Joe Castro)

Key to this was better accounting for the costs and the benefits of distributed energy resources (DER) such as solar panels, which Mr Davis said offered significant upside if accommodated properly.

But he said current incentives for solar panels were leading to perverse situations.

Power stations forced to pay to stay online

The most notable incentive was the renewable energy buyback scheme, which was administered by Synergy and regional provider Horizon Power and paid eligible customers 7.13 cents for every surplus unit of electricity their solar panels pumped back into the grid.

Mr Davis said customers were paid the same rate for their surplus power regardless of how much or how little it was needed at various times of the day.

PHOTO: Solar panels are a regular sight at newly established suburbs such as Alkimos Beach in Perth’s north. (ABC News: Briana Shepherd)

An example of where this caused problems was the middle of the day, when solar output was at its highest but demand for electricity was often relatively low, especially in mild and sunny conditions in spring and autumn.

In this scenario, Mr Davis said wholesale electricity prices were sometimes being driven into negative territory, meaning big fossil fuel-fired power stations were having to pay to stay online.

Although he said broader reforms were necessary, Mr Davis suggested the buyback scheme should be overhauled to make sure it aligned with the economic value of any surplus power at the time it was produced.

Such a scenario raised the risk of system reliability and security, he said, given conventional power plants were currently essential to maintaining frequency and voltage levels on the network.

“I think the other interesting thing that ties into this is you’ve still got a lot of subsidies over-incentivising things like rooftop solar,” he said.

“We’re spending a whole lot of money giving these cross-subsidies to solar customers on the demand side and then we’re spending a whole lot of money on the market side to try to change everything to accommodate that.

“Are the signals to DER efficient?

“I think DER does have its place in the market and can add real value to the market, but at the moment I think some of the settings aver over-compensating.”

AEMO confident solutions on the way

AEMO’s executive general manager in WA, Cameron Parrotte, said the rapid pace of change in the state’s biggest grid was creating challenges, but he was more sanguine about dealing with them than he had been in recent years.

He said for all the upheaval being caused in the wholesale market by the boom in renewable energy, WA’s grid had plenty of capacity as a buffer for any supply shocks.

PHOTO: Power companies are working through how to deal with changes the solar uptake has forced on the network. (ABC News: James Carmody)

Underpinning this was the state’s so-called capacity market, which is a form of insurance that pays generators for every megawatt of power that can notionally provide at times of peak demand.

But Mr Parrotte said there was also a growing recognition by the State Government that changes needed to be made to the market’s structure to cope with evolving mix of generation types and demand patterns.

Energy Minister Bill Johnston has outlined the Government’s plans to lay out a roadmap for the industry through the Energy Transformation Taskforce, which aimed to bring together the old and the new strands of electricity generation and use in WA.

“I’m feeling a lot more confident in terms of the state’s ability to work through this,” Mr Parrotte said.

“They’re not small changes but I’ve got a lot of faith that the technical solutions — if we don’t already have them then we’ll get them.

“What we’ve got to work through is how to do we optimise that so that we actually can incentivise the investments in the right things that ultimately result in the lowest cost outcome for consumers.”

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