The latest carbon emissions index (Cedex®) Update by pitt&sherry has revealed that the carbon price had very little direct effect on demand for electricity, but a very big effect on emissions from the generators supplying demand. However, removal of the carbon price may be one factor supporting a return to increasing demand, for the first time in five years.
According to Dr Hugh Saddler, Principal Consultant, Energy Strategies at pitt&sherry, “Demand now seems almost certainly heading upwards again and that for at least the next couple of years all the growth in demand will be supplied by coal. Looking back it is now clear the carbon price had a big effect on emissions, via its effect on the generation mix, but no effect on demand for electricity, which is driven by other factors.”
“The emissions reduction during the carbon price period was mainly caused by the interchange between hydro generation and brown coal generation, and was driven by the commercial strategies of Hydro Tasmania and Snowy Hydro,” Dr Saddler explained on the first anniversary of the abolition of the carbon price.
“Changes in black coal generation have been mainly caused by the large fall in demand in NSW plus the ‘knock on’ effect of steadily growing wind generation, mainly from SA and Victoria, impacting on the high marginal cost NSW coal generators. The carbon price was at no time high enough to eliminate the cost difference between coal and gas generation. Changes in gas generation over the past three years have mostly been caused by changes in the wholesale gas market driven by the requirements of LNG producers,” Dr Saddler said.
“The share of gas generation fell slightly over the year to 11.9%, and seems almost certain to fall further. Hydro of course fell very significantly over the past year, while wind generation increased steadily by 0.5 percentage points, to 5.4%. Over the next year coal seems certain to increase its share at the expense of gas, while wind generation will inevitably stagnate because of the lack of new construction because of the policy turmoil over the past two years.” Dr Saddler said.
“It also seems likely that demand growth will provide a further stimulus to coal generation. The changes in demand totals for each state do not, of course, distinguish between demand from large individual users, such as aluminium smelters, and demand from the great mass of less electricity intensive business and residential consumers,” Dr Saddler explained.