Managing the upcoming electricity price increases

01 Dec 2009Archived News Climate Change Matters

In the July 2009 edition of Climate Change Matters, Energetics reported that electricity network prices were set to rise by an average of 23%.

 

The proposed price increases have since been reviewed by the Australian Competition Tribunal and further increases have occurred. The case made by the networks was not without its detractors. Some of the criticism made of the networks was that the emphasis on their need to invest in new infrastructure came at the expense of undertaking greater efficiency measures and demand management across the network.

With the network charge increases, business customers should budget for a significant increase in delivered energy costs in coming years. Further increases are particularly expected over the next four years.

State-by-State. Starting next year businesses can expect:

  • Distribution prices to increase by up to 60% in NSW.
  • Transmission charges to increase by up to 30% in NSW, and by up to 60% in Tasmania over the next four years.
  • Similar increases are proposed for Queensland, South Australia and Victoria.

Network costs are a pass-through cost, therefore the increases will flow through to all customers, even those on long term contracts.

The table below shows some of the increases that are expected next year. The largest increases are in Queensland and NSW. Queensland is currently engaged in their first price determination with the Australian Energy Regulator and, as they have argued for large increases in previous years but not had the requests approved, it is expected that they will again request a large increase. With the NSW determination process as a test case, approval for increases in Queensland is likely to be granted.

Other energy cost increases.

The network cost increases will coincide with other cost increases for electricity customers: Renewable Energy Target (RET) costs, probable gas and coal costs for generators and potential carbon price costs. A recent article in The Financial Review suggested a potential doubling of energy bills by 2015. Source: O’Young, E: “Power prices tipped to double”, The Australian Financial Review, 7.12.2009

What you can do.

The best way to reduce the impact of these cost increases is to re-invigorate your energy savings and energy efficiency program. Any projects that reduce energy consumption will deliver increased benefits (by avoiding higher prices) and provide savings for multiple years. The business case for energy efficiency is significantly increased and previous investigations of efficiency projects should be reconsidered as the payback times may be significantly different in the current environment.

Budget and pass through.

In addition, businesses can budget for substantial energy cost increases. As stated before, network costs are a pass-through cost, and therefore you should ensure that you can pass these increases on to your end customers.

These are substantial increases and it may require more than a business as usual approach to protect your bottom line. Projects such as on-site wind, solar or co-generation may have a better outlook.

What does it mean for your business?

Energetics has a number of energy procurement and energy efficiency experts that can assess the challenges and advise new strategies to minimise the impact of these cost increases on your profits.

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