How the game has changed: are energy saving projects your hidden opportunities?

08 Nov 2011Archived News Climate Change Matters

We are now in a vastly different financial landscape to 2008.

Companies need to go back to the drawing board, dust off project concepts and find many more that had been dismissed as not viable in the past. Cogeneration projects, more capital intensive energy productivity projects, extensions to heat recovery systems, and other energy savings investments that did not stack up then may well stack up now.

It is your fiduciary duty (and your Board’s) to act on these opportunities.

The market has changed

  • Rapid electricity price escalation, largely due to the recovery of $45 billion in electricity network investments, but also arising from charges associated with the Renewable Energy Target and other environmental schemes. Furthermore, energy costs will continue to increase rapidly well after 2012, as the commodity prices of gas and coal in Australia trend toward export parity pricing.
  • Carbon price of $23/tonne from 1 July 2012.
  • The substantial increase in the value of the Australian dollar compared to the US dollar and other currencies has cut the cost of imported capital equipment. In 2008 the $A was worth 78c US and now is well over $US1.
  • The advent of a range of incentives and financing options for energy efficiency and carbon mitigation including:
    • Clean Technology Investment Program: $1.2B of grant funding will start to become available from March next year, typically funding 25% of the capital cost of projects.
    • Funding through State retailer obligation programs like the NSW Energy Savings Scheme and Victorian Energy Efficiency Target scheme (which is being extended to business measures in the New Year).
    • Finance from a range of sources including Low Carbon Australia and from 2013/14 the Clean Energy Investment Fund.
  • Additional factors like the increase in solid waste disposal charges have made biogas projects even more attractive.

Plan now to take advantage of significantly reduced pay back periods

The attached graphs show the impact of some of these measures on an electricity savings project in NSW. Most companies started assessing their EEO (Energy Efficiency Opportunities Act) savings opportunities in 2008 and were required to find projects with a payback under 4 years.

The graphs show that if your business considered a project in 2008 with an 8-year payback, by factoring in NSW electricity price increases, the same project would have a 4.5 year payback by July 2012. If your business secured access to a 25% Clean Technology Investment Program grant, the payback is further reduced to 3.5 years.

 

If the energy savings equipment was imported from the US, given a change in the exchange rate from 78c to $1.02, the payback period drops to less than 2.5 years! See below.

Projects that would not have even been on the radar with an 8 years payback could now be very attractive.

Forex Impact assumes 100% overseas capital purchase (USD)
 

This may be a short window of opportunity as grant funding is limited and competitive, the exchange rate may well deteriorate in future with reduced interest rates, and for gas consuming projects like cogeneration the era of relatively low and stable price gas may only have a few more years to run.

You can evaluate your options using analytical tools such as Greenhouse Gas Abatement Analysis (to generate 'MAC curves'), which provide a 3, 5 or 10 year+ view of the potential to improve energy efficiency and reduce emissions, and form the basis for target setting, investment planning and management programs. 

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