Managing energy costs

01 Dec 2008Archived News Energetics in the News

By Grant Raja, Client Services Manager and Elizabeth Sciberras, Principal Consultant, Strategic Energy Procurement. The market drivers for energy costs are changing dramatically. This is creating a need for businesses to develop new strategies for managing long term energy costs.


The market drivers for energy costs are changing dramatically. This is creating a need for businesses to develop new strategies for managing long term energy costs.

The first fundamental change is that the rising cost of fossil fuels, water and carbon are making existing generators more costly. The second factor is that constraints in the capital markets are restricting the access of funds that are needed to invest in lower emission energy sources. The combination of these factors together creates a high risk scenario for end users. If the current conditions are prolonged as the economy goes into a slow down, we may see little structural change and a continuation of high prices.

To minimise the impact of continued price volatility, many businesses are now taking the higher energy price signals to invest in energy efficiency and lower emission sources within their own business. Furthermore, businesses are taking another look at energy purchasing strategies to maximise the cost benefits to this area of controllable costs by buying smarter.

Recent studies with a number of our clients show that there are savings opportunities in the immediate and long term.

Case study one – immediate savings

One client who was seeking to lower costs immediately sought assistance with a whole of business strategy review. This focused on the procurement opportunities and was able to identify a 7% reduction in energy costs from 2007. This was achieved through a range of measures from:

  • Improving contracted rates for some sites;
  • Moving some sites onto a contract; and
  • Selecting better network tariffs and demand levels.

The key point from this project was that even when retail prices are fixed and negotiated there are still opportunities to improve contract performance over the life of the period and improving bill checking procedures can help to capture real cost savings.

Case study two – minimise energy import requirements

To manage longer term risks, businesses are also re-examining their energy use and dependence on fossil fuel. All of the opportunities include fairly standard energy efficiency opportunities with focus on demand levels and load shifting. Fuel switching to lower emission sources are also being reconsidered in the current energy market cost scenarios.

Recently, Energetics has provided clients with a forecast of energy prices to prepare budgets and identify pay backs on new projects. This has identified a number of new initiatives such as:

  • The introduction of small scale on-site generation on new projects; and
  • Upgrades to new equipment and plants.

Case study three – forward purchasing strategy

To lock in savings many businesses are also developing a longer term purchasing strategy and using streamlined energy purchasing processes to capture energy prices at the bottom of price cycles. Energetics has now partnered with a number of clients to implement processes that enable customers to prepare for future negotiations for contracting post 2010.

Experience shows that those who plan early and prepare for market downturns can capture mitigated cost savings. Energetics has seen customers save more than $2/MWh on the retail price through good timing and fast effective tender processes, for instance, a $2/MWh saving on a 50 GWh per annum load is worth $100,000 per annum.

In summary the changes in the market fundamentals are driving business to manage their energy exposure and for those that take early action there is a range of new opportunities in terms of direct and mitigated savings.

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