Next Step for Smart Grid in Australia

By David.Dawson | Published Fri, 29 January 2016 | Topic Market Reform

The overwhelming majority of Australians are able to enjoy a consistently reliable and safe source of electricity, whether they be consuming at day or at night, at home or at work. The importance of ensuring that the supply of electricity remains robust and secure cannot be overstated; Australia’s economic growth and its desire to encourage innovative technology and manufacturing industries is largely dependent on it.

Prior to 2010, the National Electricity Network (NEM) experienced steady growth in peak demand and energy consumption. The strain set to be placed on the network by the forecasted increase in peak demand and energy consumption, warranted continual high growth in capital expenditure, not only on the repair and maintenance of existing infrastructure, but also on the expansion of network capacity in growth areas to meet anticipated peak demand growth.

In addition, license conditions set by state and national regulators were raised to higher standards of safety and reliability over the same period, particularly in NSW. As such, capital investment was required to not only meet the needs of a growing population but also the increasingly rigorous license standards. These additional capital costs were paid for by consumers through significantly more expensive electricity bills. This in turn opened consumer’s eyes to the costs they were supporting for the provision of electricity services. The negative price-elasticity of demand kicked in, as consumers became more cost conscious, driving usage efficiency measures and exploration of alternative technologies.

The growth in electricity peak demand and energy consumption by consumers has tapered over the last 4-5 years after this prolonged period of growth. The fall resulted from a perfect storm of:

  • the adoption of more efficient home appliances and lighting;
  • widespread insulation and rooftop PV installation;
  • improved heating, cooling and water efficiency in new homes;
  • in-home demand-side management systems, and;
  • a shift in the broader economy from manufacturing to service industries.

The tapering of current and forecasted consumer electricity demand has allowed network service providers to delay augmentation capital investment that was scheduled for the tail end of the recent regulatory period, and reduce augmentation for the following regulatory period. However, the requirements of maintaining and replacing elements of an ageing network subject to higher risks of failure remains, even as the number of consumers continues to grow while average consumption reduces.

The fact that consumers have become more sensitive to prices and price elasticity in this utility sector does matter. In addition, as competitive alternatives to network delivery of electricity have become more affordable (i.e. distributed generation from PV on households and small businesses), and consumer uptake of efficient appliances increases, continued downwards pressure on network energy throughput appears more likely.