Deep dive: pandemic and impacts on the NEM

The coronavirus (COVID-19) pandemic has profoundly changed fundamental aspects of our daily lives. Many of us are working – and kids are studying – from home. At the same time, many services and businesses – for example, restaurants, shops, gyms, libraries - have had to close their doors, at least temporarily. So what is the cumulative impact of all these changes on electricity supply across the National Electricity Market (NEM)?

The supply and demand characteristics of the NEM are extremely dynamic. Unlike markets for other goods and services that operate and fluctuate on a longer-term basis, the supply and demand of electricity across the entire NEM must always balance instantaneously. If there is a break in electricity supply, this can lead to load-shedding or blackouts.

With people at home and already experiencing a lot of change and challenges as a result of the impacts from COVID-19, it is more important than ever that a secure and reliable supply of electricity is maintained.

Reliable supply of electricity

The good news is that there is sufficient available generation available in the NEM at the moment. Typically, infrastructure in the NEM (generators and network poles and wires) is designed to meet peak demand, which in Australia generally occurs on very hot weekdays in summer – because of the amount of air-conditioning which is added at these times to the usual heavy weekday load.

The chart below shows that not only is there enough capacity (ie generation) available in the NEM to meet peak demand, but demand recently (as shown by the orange bar for a seven-day period in April) has been much lower than the peak demand conditions that the NEM can handle.

Source: NEM data, FY15 – FY20 and NEM data 13-20 Apr 2020

As it stands, there should be ample generation available to power the NEM throughout 2020 and, just like every year, AGL and other NEM generators will work with the market operator AEMO to prepare to meet peak demand for next summer.

Changes to underlying demand

As the earlier chart above highlights, overall NEM daily peak demand has been sitting at around 25 GW. That demand is well within the normal range that NEM generation is accustomed to delivering during periods of mild autumn weather. Similarly, overall NEM consumption (the total amount of electricity used per day) has also remained fairly steady over the last month.

Source: NEM data, 4 Mar – 18 Apr 2020

The above chart indicates a small reduction in average NEM consumption throughout March and April. Overall, electricity system demand is marginally reduced but stable, and across the states we have broadly seen a decline of around 5% for March and April.

As consumption is highly dependent on weather, we need to correct for these variables before making any conclusions as to impacts from COVID-19. Weather normalised data suggests that demand has only marginally decreased, around 2-3% less than last year. This contrasts to the experience of other international energy markets, which have seen much larger demand reductions.

What is driving demand?

The key difference with international markets has been Australia maintaining much of its heavy industry, which is responsible for a significant proportion of overall NEM demand.

If we break it down by customer segment, we do see some larger expected movements in commercial demand. There are significant declines in retail, and food and beverage customers; however, there is little observable impact on the manufacturing, mining, and communications sectors.

While it is clear that the impact of COVID-19 restrictions are flowing through to some sectors more than others, even within those sectors there are variances in demand patterns. The relative stability in overall demand patterns does not reflect potentially large variances at a customer level. These individual impacts are likely to be specific to customer circumstances, rather than system-wide, so where those big variances occur – eg with large industrial customers – we are focusing on understanding and responding to these customer needs.

Decreases in commercial demand have also been somewhat offset by increases in residential demand with more people at home.

While increased electricity use from household appliances such as lights, televisions, and computers are likely to have had some impact on these increases, the most significant driver of increased use is likely to be increases from heating appliances, especially in colder southern states. While we are moving into the colder months, we’re also generally spending much more time at home – so we’re using our heaters for longer periods. We will continue to monitor these impacts as winter approaches and seasonal demand changes.

As well as demand increases, we are aware that for some customers they will also be experiencing more difficulty in managing bills as a result of a loss of income or financial stress because of COVID-19. This is where measures like AGL’s app and the Energy Insights service can help customers to monitor their energy consumption, understand what’s driving their energy usage, and help them to reduce their bills.

AGL is working hard to support these customers through a number of additional measures, in particular the COVID-19 Customer Support Program.