1. 1 Office of the Chief Economist Electricity demand in the National Electricity Market Resources and Energy Economics Branch Office of the Chief Economist November 2015 Arif Syed Manager, Energy Futures Section

2. 2 Introduction Importance of the study Policy and planning electricity supply Anticipation of electricity demand growth: investment of $7 billion in electricity transmission and $36 billion in electricity distribution since 2008 (AER 2013, p. 72)

3. 3 Objectives of the study 1. To investigate the electricity demand trends at a disaggregated sectoral level 2. To evaluate the impact of different factors on electricity demand Findings Overall, the economic activity has the most significant effect on each sector’s demand for electricity Changes in the electricity and natural gas prices and energy efficiency measures are also the main determinants of electricity demand in all the three sectors Though, solar PV generation has exerted a statistically significant impact on the electricity consumption of the residential and commercial sectors, its impact on the industrial sector is not statistically significant

4. 4 Collaboration Energy Division, Department of Industry, Innovation and Science Energy Change Institute, ANU Crawford School of Public Policy, ANU Australian Energy Market Operator Energy Supply Association of Australia

5. 5 Overview of Australia’s electricity sector Electricity in Australia is supplied by a number of different grids: National Electricity Market (NEM) 85 per cent of electricity supply SWIS 10 per cent of electricity supply NWIS, DKIS, etc. 5 per cent of electricity supply

6. 6 Change in electricity consumption in the NEM in recent years This figure illustrates the decline in electricity consumption in the NEM in recent years Per cent change from the base year in electricity demand in the National Electricity Market (NEM) Source: Australian Energy Market Operator (2014) NEM QLD TAS NSW SA / VIC

7. 7 Review of literature on electricity demand drivers Three groups of electricity users Two economic perspectives The main influences on electricity demand include: Electricity prices Technology growth Weather characteristics Income Public policy Appliance energy efficiency Alternative energy prices Household Solar rooftop PV

8. 8 Household appliance efficiency Appliances have become more efficient over time Index of dishwasher energy use and sales Source: Department of Industry, Innovation and Science (2014) Total sales units (units) Sales weighed energy use (kWh/unit/year) Index 2000=1

9. 9 Impact of weather variability Index of heating degree days (Sydney) and winter electricity generation Overall, correlation is weak between cooling degree days, heating degree days and electricity generation in Australia Source: Bureau of Meteorology and Australian Energy Market Operator (2013) HDD Electricity generation (TWh) Index 2000=1

10. 10 Modelling electricity demand We have used a model, which is consistent with the existing standard representation of the demand for electricity in the literature, subject to data constraints. The panel data has a total of 260 observations and 5 cross-sections. Source: ABS, AEMO, Department of Industry, Innovation and Science mainly (various years)

11. 11 Results and implications Table A: Estimates of the long-run elasticities based on quarterly panel data 2000–01 to 2012–13 Models / Regressor Income0.572*** 0.625***1.481*** Electricity price -0.203***-0.070*** -0.263*** Gas price0.115*** 0.070***0.362 Energy efficiency measures index -0.133*** -0.008*** -0.249*** Solar rooftop PV -0.002-0.011* Heating and cooling degree days 0.015** 0.025* Constant 0.495** -3.158*** -7.897*** Source: Resources and Energy Branch analysis (2015) Notes:*** significant at the 99 per cent confidence level ** significant at the 95 per cent confidence level * significant at the 90 per cent confidence level

12. 12 Table B: Decomposition of the reduced demand, in per cent Residential SectorCommercial SectorIndustry Sector Energy efficiency effect19.310.47.8 Price effect34.614.725.9 Income effect39.844.866.3 Solar roof top PV effect5.628.90.0 Weather effect0.71.20.0 TOTAL100 Results and implications Source: Resources and Energy Branch analysis (2015)

13. industry.gov.au Further information Contact details Arif Syed Manager, Energy Futures Section Resources and Energy Economics Branch Economic and Analytical Services Division Phone:02 6243 7504 Email:arif.syed@industry.gov.au