Implication Of Global Warming On Electricity Demand In Australia

The increase in temperatures as a result of global warming has serious implications for electricity demand. Global warming, which is an important aspect of climate change, is caused by an increase in greenhouse gases (GHGs) from mostly fuel combustion. As global temperatures increase, there is a paradigm shift in electricity consumption pattern towards cooling demand, while heating demand is expected to decline over the coming years. The demand for cooling is further doubled during summer months and can result in frequent seasonal peak electricity demand. As electricity consumers increase their cooling demand in a bid to attain thermal comfort in their respective homes or buildings, the degree of consumer’s expenditures remains unknown despite climate change adaptation policies.

Further complicating this issue is regional and state-level electricity consumption, which presents some challenges to electricity generation companies. Globally, these challenges are mainly attributed to the differences in climatic patterns across regions and states. In some extreme situations, heatwaves which result from excessive hot weather has led to state-wide blackouts in most countries in the European Union (EU), parts of the United States (US), and Australia in recent times.

Due to the unique nature of regional electricity demand, which is usually influenced by temperatures and socioeconomic factors, it is vital to estimate the influence of global warming on regional electricity demand. Also, it is more important to examine how changes in future climate change conditions will affect monthly peak electricity demand until the end of the century. This will not only help electricity companies and markets with planning and power dispatch operations but enable consumers to know how their consumption pattern is likely to change in the coming years.

These issues led us to conduct our study, “The impact of climate change on electricity demand in Australia,” published in the journal Energy and Environment. Traditional electricity demand forecasting usually ignores the stationarity properties of the variables which can lead to spurious regression problems. Further, short- and long-term seasonal elasticities are important components of electricity demand planning and can be used effectively in demand forecasting. Moreover, the literature has not accounted for policy uncertainties such as technological disruption, market reforms, and adaptation strategies in detail.

To address these shortcomings, we applied an autoregressive distributed lag (ARDL) model to estimate temperature sensitive electricity demand which was used with projected temperatures from Global Climate Models (GCMs) to simulate future electricity demand under climate change scenarios. Four climate change scenarios were examined: Representative Concentration Pathways (RCP) 2.6, 4.5, 6.0, and 8.5. The socioeconomic variables included in our model are gross state product (GSP), population, and electricity prices. We further accounted for uncertainties in forecasting climate-induced electricity demand in relation to energy efficiency improvement, renewable energy adoption, and electricity price volatility. Australia was selected as a case study due to its vulnerability to climate change resulting in frequent blackouts in its states and a high reliance on fossil fuel for electricity generation, despite the country’s commitment to emission reduction under the Paris Agreement.

Our model results showed that electricity consumers response to lower temperatures is higher in states located in southern Australia compared to those in the northern areas. We found that during winter months, a one-unit change in heating demand results in a decrease in electricity demand in the short and long term by, respectively, 0.58% and 0.38% in New South Wales (NSW), 0.28% and 0.17% in Victoria (VIC), 0.34% and 0.21% in South Australia (SA), and 0.84% and 0.70% in Tasmania (TAS). In contrast, the model for summer months showed higher electricity demand in Queensland (QLD) and Northern Territory (NT) compared to other states. Therefore, power companies need to be more concerned about the increase in peak demand for cooling during the summer months in the NT than during other seasons. The differences in seasonal electricity demand across the states may result in a higher export ratio of electricity to QLD during summer from the southern states. Our result also showed that economic activities in Australia have little impact on seasonal electricity demand which can be attributed to substitution effect, efficiency possibilities, and changes in economic activities during a particular season of the year. Other socioeconomic variables such as population and changes in electricity prices were found to have little impact on consumers’ electricity demand.

The simulation of future electricity demand under global warming conditions shows that Australia had upward sloping climate-response functions which result in an increase in electricity demand. This is due to an increase in cooling demand rather than heating demand under all RCP scenarios. Higher monthly peak demand was projected during September in NSW; May in VIC (which changes after March); March and November in QLD; January and February in SA; July and August in Western Australia (WA); June, July, and August in TAS; and January, February, and December in NT. Although the changes in electricity demand varied across RCPs and time periods, the annual increase in electricity demand is projected for all states and territories in Australia.

We further considered how uncertainties may influence the outcome of the projected electricity demand. We found that climate change mitigation strategies such as energy efficiency improvements and the adoption and increased penetration of renewable energy technologies have the potential to reduce future electricity demand because of the increase in cooling requirements up to 2050. More specifically, peak electricity demand due to cooling and heating requirements can be reduced by switching to energy-efficient AC units, while higher electricity prices can induce energy conservation because consumers may move their consumption to off-peak hours. Energy efficiency policies are important complements to the RET because they can prompt cost savings, carbon emission reductions, and decreased peak electricity demand.

The findings from our study are valuable to electricity consumers and power companies in Australia who will be faced with higher expenditures and cost of electricity generations, respectively. Therefore, our study outcome can be effectively used for electricity dispatch planning and energy policy development. We also used the estimates from our model to develop two other papers, “A Techno-Economic and Environmental Assessment of Long-Term Energy Policies and Climate Variability Impact on the Energy System,” and “Are Emission Reduction Policies Effective Under Climate Change Conditions? A Backcasting and Exploratory Scenario Approach Using the LEAP-OSeMOSYS Model,” published in Energy Policy and Applied Energy journals, respectively. We are also using our estimates for other works which will expand our understanding of the dynamic interactions between climate change and the energy sector with a focus on decarbonization.