What will impact on domestic energy costs?

10 Mar 2010Archived News Energetics in the News

PUBLISHED: Business Spectator by Keith Orchison; Grant Raja, Client Services Manager, Energetics Pty Ltd, is quoted on factors that will impact on domestic energy costs and gives advice on ways in which businesses can reduce their exposure to rising prices.

Large corporate consumers of electricity are in a rising state of anxiety over the outlook for their power bills, but they also have opportunities to do more to lower the pressure.

Grant Raja, client services manager at Energetics, a management consultancy focused on energy efficiency and carbon abatement strategies, is adding to business people’s concerns this week while also pointing to ways they can reduce their firms’ exposure to rising prices.

Raja recites a catalogue of factors that will impact on domestic energy costs. They include the now well-known flow-through to consumers of network charges as a result of the massive capital outlays approved by regulators – with the wires costs making up almost 50 per cent of their final bill.

He also warns that volatility in the wholesale price of electricity – what the generators get from the market for their product – and of natural gas is increasing risk and costs for energy retailers and they are passing this on to end-users through higher margins. “The problem,” says Raja, “can only worsen as the market participants amalgamate and retail competition declines.”

The Rudd government’s RET and a plethora of State-based renewable schemes, he claims, is now adding about 10 per cent to the delivered cost of electricity.

While the government’s ETS is blocked in the Senate, Raja says carbon pricing is seeping in to large users’ long-term contracts. Businesses signing agreements to buy power beyond 2012 are having to accept estimated costs for carbon and a pass-through clause. He thinks this reflects energy industry belief that there will be a carbon price of more than $20 per tonne beyond 2012.

While the gas industry would dispute it, Raja also foresees higher costs emerging domestically as more gas-fuelled generation is built and east coast LNG developments from coal seam methane are pursued. Australia, he argues, is going to be exposed increasingly to international gas price dynamics, which in turn are being influenced by tighter long-term global availability of oil.

He claims that there is already curtailment of the availability of gas for New South Wales business customers at peak times and this is impacting on prices.

In the face of these developments, he says, businesses must change the ways they procure and manage the use of energy. This includes “pro-active” contract management – in other words, don’t leave cutting deals until the last minute – and getting tougher about negotiating pass-through clauses on carbon and other environmental costs. Boards and senior executives need to show strong leadership on the issue.

Energetics is pushing corporate clients to look more closely at the benefits of embracing combined heat and power technology both as a long-term cost saver and to contribute to greenhouse gas abatement.

A “trigeneration” system, it says, adding an absorption chiller to a conventional cogeneration plant, could provide large commercial customers with an estimated annual average energy saving of $250,000 over two decades. Installing 640 trigeneration plants across Australia would enable annual abatement of a million tonnes of carbon dioxide and gross savings of $160 million a year.

There is capacity in Canberra alone, Energetics claims, to install 40 such plants to deal with hot summers and cold winters.

Taking early action on energy efficiency measures, it argues, will enable large businesses to reduce their exposure to volatile energy markets this decade and to the price shocks that lie ahead.

Many Australian businesses, it says, can cut their energy bills by about 20 percent with the right investments.

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