Driving down the cost of energy

07 Sep 2011Archived News Climate Change Matters

In the past, a major competitive advantage for Australian industry has been the availability of cheap, abundant energy. As a consequence, Australian businesses are not nearly as energy efficient as their counterparts in other world economies. We now have an opportunity to drive new efficiencies which will lower costs, reduce emissions and help secure future local energy supplies.

With the (Clean Energy Future) bill likely to be introduced into parliament next Tuesday, businesses are focusing on the impact of a carbon price. The reality though is that while the impact of a carbon price on energy costs will be significant, it will be considerably less than the effect of electricity price escalation resulting from distribution industry investments and the Renewable Energy Target.

Furthermore, the government’s package is far more than an energy price. Business has a great opportunity to gain funding support for investments in energy efficiency and ‘clean’ energy supply. Some of this funding may be accessible as early as March next year.

Energy costs: what to expect

  • Carbon trading in Australia will create a substantial increase in the cost of energy: electricity prices, gas prices and diesel prices.
  • Electricity prices will rise as generators start to pay for the carbon emissions of the fuel they use to make electricity.
  • We expect wholesale electricity prices to rise by around 50% to 100%. Customer-delivered energy prices are likely to increase by around 10% to 30% depending on where you are located.
  • Gas prices will rise as gas suppliers add the cost of carbon emission to gas bills. At the wholesale price level this change is very substantial adding as much as a third to the cost of gas. Customers can expect to see their delivered price increase by around 15% to 20%.
  • Diesel prices will rise for large users and mining companies as the fuel tax credit is reduced by an amount equivalent to the carbon cost. Diesel prices for these large users are expected to increase by around 5c to 7c per litre.

This creates challenges:

Australian business has enjoyed the benefits of low cost energy for many years. Australian energy prices have historically been some of the lowest in the world. As energy price rise up towards world levels, one of our long term competitive advantages erodes.

Australian business will need to find a new way to secure the underlying business in a world of higher energy prices.

This creates opportunities:

Low energy prices for many years means that many of the clever energy savings and energy efficiency opportunities that world companies have taken advantage of have not been well explored here in Australia.

Rising energy prices means that these opportunities now come to the fore and leading companies are taking advantage of them today.

The new paradigm: companies improving their energy productivity by 50% and more

Forget the idea that energy management is about making 5-10% easy savings and harvesting 'low hanging fruit'.

Dramatic savings are being achieved through continuous improvement programs, and investments in energy efficient plant and equipment over the long term. Additionally, by making investments in cogeneration or on-site wind, these companies are obtaining even greater reductions in their carbon emissions.

Common program features

The cases summarised in the table below have many common features:

  • CEO sustainability vision linked to the core mission of the business.
  • Stretch targets for savings.
  • Business systems support continuous improvement in energy management.
  • Effective measurement and reporting systems – invest in metering and monitoring.
  • Clear accountabilities for line managers to deliver outcomes.
  • Engage staff – efficiency culture which hates waste – owned by everyone.
  • Return On Investment hurdle encourages efficiency – eg 15% ROI/ 6 year payback, not 24 months.
  • Competitive – continuous benchmarking of performance.
  • Measurement and verification of results – including 3rd party verification.
  • Effective communication of the program

Case examples of success: joining the 50% club = 50% reduction in energy intensity

There are some key steps in establishing an effective energy management program:

  • Conduct a comprehensive assessment of energy and carbon savings opportunities out to 2020 and beyond
  • Set targets
  • Design and implement management systems to support continuous improvement
  • Access government and utility funding
  • Design the savings implementation program including a monitoring and verification process.

For further information on how your company can develop an energy management program, contact your Energetics account manager or one of our experts.

 

 

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