The cost of energy to a business is a function of price and volume and a coordinated approach to managing both can deliver significant commercial benefits in a volatile market.
It was only recently that energy retailers around the country sharply increased costs, with businesses and consumers around the country already feeling the effect of bills rising up to 20 per cent.
For Canberra-based businesses, this is certainly the case with major ACT energy retailer ActewAGL lifting overall default electricity prices by 18.95 per cent, which for small and larger businesses alike can equate to a substantial increase in costs. Business customers coming off a market-based contract have seen prices increase between 60-80 per cent nationally and 100 per cent for natural gas contracts.
A similar situation is being experienced in the natural gas market, where on July 1 ActewAGL lifted gas process by 17.3 per cent. This has compounded cost pressures for businesses, where a dearth of domestic supply continues to buoy prices, and ultimately led to the Turnbull Government announcing a move to place restrictions on gas exports.
Crucially, Canberra-based businesses need to be aware that they have the power to choose where they buy energy. Regardless of whether this is through ActewAGL or other sources, there is no difference in terms of the connectivity, reliability and security of supply as the distribution business is ring-fenced from the Retail business.
The network is indifferent as to who supplies the electricity or gas, therefore businesses can shop around and chose from the many registered suppliers in the ACT. The same applies across the border in NSW.
For electricity, the public conversation around rising prices has focused almost entirely on supply constraints. The catalyst was the closure of the 1600 megawatt Hazelwood Power Station in Victoria which removed over 5 per cent of electricity supply into the National Electricity Market (NEM).
In an effort to address supply-side issues and pricing volatility, a meeting of the Council of Australian Governments resulted in an agreement to implement 49 of the 50 Finkel Review recommendations.
However, an agreement on the Clean Energy Target (CET) has been delayed with the ACT, SA, QLD and VIC also asking the Australian Energy Market Commission to investigate state-based implementation.
Despite these developments, price volatility in electricity and gas markets continues to firm its place as the new norm, and uncertainty coupled with the impact of ongoing cost increases is having a significant impact on business planning and investment.
Price: rates and proactive contract management
For many ACT businesses, there is a tendency to take a more passive approach to their energy purchasing requirements, often just accepting the rates that are on offer from retailers.
As a result, Energy Action has advised a number of businesses that hadn’t realised that renegotiating their contract, moving from default pricing or generally changing their procurement strategy, could dramatically reduce the cost of energy to their business, especially businesses sitting on a default electricity price.
Businesses are also often on the wrong network tariff – further exacerbating the situation. Energy Action will procure the best deal and make sure the business is on the right network tariff and validate their bills once they come in.
Additionally, looking at securing energy contracts over the longer term can also present substantial benefits. In a recent national Energy Action survey of commercial energy users, we saw that 86 per cent of businesses nation-wide expect that electricity and gas prices will rise further, yet less than half were locking in contracts over the longer term (to 2019) to better manage costs.
Volume: reducing demand and raising efficiency
The other area within business’ control is to reduce usage and manage demand-side factors. This can take a number of forms – from looking at generating their own energy through the installation of microgrids or embedded networks, through to simple measures to reduce consumption such as high-efficiency lighting, adjusting their heating and cooling systems and upgrading and refurbishing outdated equipment.
With the commercial office market in Canberra representing a large proportion of business-related energy usage, there is significant opportunity to reduce usage and drive down related costs in the sector.
For example, we have seen building owners reduce up to 50 per cent of their energy consumption through retrofitting the right equipment, installing LED lighting systems, and other tuning and mechanical upgrades.
Energy Action’s Projects and Advisory Services division supports our clients in this area, and we continue to build on our local team of 15 engineers in the Canberra market. We have also recently appointed Theo Dimarhos who is a very well-known businessman in the Canberra market as our senior business consultant to provide direct service to business and government clients in the ACT & NSW market. Theo can be contacted on 0487 444 930 or via email at email@example.com
In some cases, the installation of rooftop solar arrays on commercial office buildings can reduce energy consumption by a further 20 per cent. Beyond reducing demand, these upgrades can also raise the building’s NABERS ratings and positively impact overall property values.
First and foremost, ACT businesses need to leverage the power of choice and look closely at their existing energy contracts to identify immediate cost savings – we have seen this deliver savings of up to 27 per cent on a business energy bill.
From there, gaining a better understanding how and when they consume energy will give businesses more control over usage, and in turn, more control over associated costs.
Ivan Slavich is the chief executive officer of energy management firm Energy Action