Electricity forecasting – what a difference a year makes!

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The Australian Energy Market Operator’s (AEMO) 2012 Electricity Statement of Opportunities (ESOO) represents the first demand and supply forecast under AEMO’s National Energy Forecasting Report (NEFR). And what a difference a year, and greater independence, makes.

Figure 1 compares the AEMO’s forecast Low Reserve Condition (LRC) for each National Electricity Market (NEM) region between the independent market operator’s 2011 and 2012 forecasts.

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Figure 1: AEMO’s 2012 and 2011 ESOO LRC Forecasts by State

These results are significantly different.  New approaches to forecasting reflect a growing realisation that ‘flat’ energy demand can no longer be considered as simply the result of a series of events (e.g. weather, economic activity) over recent years.

The AEMO ESOO is used by participants in the broader energy market as ‘official’ forecasts. The majority of market participants, from generators, retailers, networks, energy derivative providers, and suppliers to these businesses (including domestic and international financiers) often start with AEMO’s forecast, and build from there.

Market forecasting houses use the AEMO ESOO as the basis for their detailed and sophisticated wholesale electricity market models in:

  • Identifying wholesale pool price outcomes
  • Expected capacity factors for power generators
  • Determining likely gross margin performance.

In short, the results of the 2012 ESOO should generate significant activity as participants respond to the official outlook for electricity demand, supply, prices, and investment need.

The difference between 2011 and 2012 forecasts can be attributed to many drivers; however, we should expect future ESOO forecasts to reflect the initial trend from the new approach. Moreover, we also expect that, with TNSPs having to align Annual Planning Reports with AEMO’s National Transmission Development Plan, AEMO ESOO demand forecasts will eventually make their way into TNSP’s future demand forecasts, estimates of future capital expenditure, and their forthcoming revenue proposals to the AER.

We also observe that energy demand, as assessed in the ESOO, ‘stops at the meter’ … Will there be a time when the ESOO looks at the actual energy demand in the NEM, inclusive of the portion customers provide for themselves?  The gap between energy moved through the NEM and the actual energy customers are using is growing, with parties other than market participants dominating this segment.