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Reduced demand is powering a deepening electricity surplus across Australia

The continued slide in electricity demand, which is expected to extend for at least three or four years, will deepen the glut of power generation capacity in the national electricity market to a point where it will not be absorbed for at least the next decade.

The latest forecast from the Australian Energy Market Operator, which manages the national electricity market, has spelt out the surplus that will probably keep wholesale electricity prices under pressure, barring a surge in coal or gas prices.

There are billions of dollars invested in power generators that are surplus to demand, with almost 20 per cent of the installed capacity not needed.

Falling industrial demand, due to the closure of large users such as aluminium smelters in NSW and Victoria, along with the planned shutdown of Australia's car production, which is centred on Victoria and South Australia, will keep demand under pressure until at least mid-2017.

The only boost to underlying power demand will flow from the planned launch of a series of gas export projects in Queensland over the next 18 months. These will boost demand by 0.4 per cent a year over the three years to 2016-17.

Electricity supplied through the national electricity market – which excludes Western Australia and the Northern Territory – has been declining since at least 2009-10, reflecting the impact of rising power prices along with the sharp decline in the cost of solar photovoltaic systems that, together with government subsidies, has led to a surge in installations.


Between 2009-10 and 2013-14, electricity consumption in the national electricity market fell by 1.8 per cent a year, which the operator forecasts will decline by a further 1.1 per cent a year until 2016-17, if the Queensland demand for its gas processing plants is put to one side.

As a result, no new baseload coal or gas-fired power stations will be needed for at least a decade, according to the forecast.

It estimates the present capacity surplus is 8950 megawatts, which is equal to about 90 per cent of the coal-fired power stations in NSW, or all of Victoria's brown coal and gas-fired power stations.

''More than 7500 megawatts of generation capacity would be needed to be removed from the market to affect supply adequacy in 2014-15,'' AEMO chief executive Matt Zema said. Typically, it seeks a ''reserve margin'' of 15 to 20 per cent to ensure power supplies are not interrupted because of generator failures.

''Electricity consumption from the grid has continued to decline in 2013-14, and this has contributed to an oversupply of generation capacity in the NEM (national electricity market),'' Mr Zema said.

Even with a decade of consumption growth, by 2023-24 as much as 3100 megawatts of generation capacity could be withdrawn from NSW, Victoria and Queensland without putting power supplies at risk, it noted.

Along with soft demand from industry, demand for electricity from power stations has also been hit by the surge in output from rooftop solar systems.

AEMO said electricity generated from solar systems has risen by an average 23.6 per cent, which helped to reduce electricity consumed from the grid by 2.9 per cent in 2013-14 alone.