Author Michael Bosnich
Date January 2017
We are increasingly seeing the emergence of 'energy accounting' for large energy using businesses in response to a range of cost risks and disclosure requirements. In this article we discuss the different aspects of energy and carbon management that can fall under the responsibilities of an energy accountant. Some of these could be considered core services, while others are more advanced and inform broader areas such as your business’ emissions reduction strategy, sophisticated contracting arrangements for energy supply, and the development of business cases for on-site renewable energy projects.
De-risking energy cost management
There are a number of core energy accounting functions that offer large energy-using businesses confidence at a time of high energy costs and close scrutiny of environmental performance – particularly in relation to energy usage and emissions reductions. These core energy accounting services can be categorised as follows.
Bill validation and energy retailer management
Energy accounts can be proactively managed and strong relationships developed with energy retailers. The role of the energy accountant is to contain costs, address billing anomalies and identify energy savings opportunities across your operations. The strength of the relationships formed with retailers can in turn help the business with rapid resolution of problems when they arise, but also inform contracting decisions and the negotiation of terms and conditions when they fall due.
Bill payment files and financial accruals
Like any regular accounting service, energy accountants produce bill payment files for good-to-pay invoices. Typically, bill payment files are produced in formats that can be easily uploaded into accounts payable systems. At the end of the month, a financial accrual file is raised for energy charges incurred to date. There are various methodologies for producing financial accruals with inputs including historical cost and consumptions, allocated budget for an account or, most accurately, accruals based on actual interval data and assigned tariffs.
Thorough and accurate energy data, which is gathered efficiently (and therefore cost effectively), is needed for a range of mandatory and voluntary reports.
Budgeting and forecasting
An energy accountant should draw upon their specialised knowledge to transform your historical energy data into accurate energy budgets and forecasts.
Energy accounting knowledge that unlocks new business opportunities
Advanced energy accounting disciplines are increasingly supporting the delivery of solutions in a range of energy and management areas.
Emissions reduction target setting: Thorough and accurate energy and carbon data is needed as more businesses are developing science-based targets in step with the global climate action framework and national climate goals. With established data sets and clear systems for gathering critical information, businesses can disclosure their progress with greater confidence.
Energy market analysis and procurement: Contracting for electricity and gas supply is increasingly complicated in the face of market volatility and east coast gas supply shortfalls. We’re also seeing a great deal of interest in procuring green power and/or on site renewable generation projects which can also lead to the creation of high value large-scale generation certificates (LGCs). The range of options for managing energy risk has led to sophisticated risk-managed contracting options as fixed price, flexible pricing and blended solutions across a large energy portfolio, which require close management of payments, as well as terms and conditions.
On-site renewable energy generation: Furthermore, as the costs of on-site power swing in favour of renewable energy options, energy accountants can provide critical inputs. With a deep understanding of energy costs, a specialist energy accountant can help size, scope and develop robust business cases and thereby ensure that any investment is backed by sound analysis and delivers broad productivity benefits.
Operational energy monitoring and optimisation: Energy accountants can help your business understand how energy is being used so that you can take corrective actions, identify energy savings opportunities and report with confidence.
Measurement, verification and benchmarking: Energy accountants can work with energy engineers to verify and report savings achieved through energy projects. With this information they can provide insights to evolve strategic energy management programs to ensure that targets are met, risks are managed and costs driven down.
Reporting and disclosure: The disclosure of carbon liabilities and reduction strategies has never been more important with scrutiny growing from the ASX, government, investors and activist groups. An energy accountant ensures that your data set is complete and accurate to give you confidence in the integrity of your reports and to mitigate the risks of misinformation.
Effective energy management in recent years has evolved from ‘payment of accurate bills on time’ to a focused energy accounting approach. This approach, while still ensuring the timely payment of accurate energy bills, must now be expanded to consider strategic, market, operational and compliance imperatives as the management of energy and carbon emissions comes increasingly into view of senior business executives. The financial, operational and reputational impacts on your business of poor energy management practices can be considerable.
An energy accountant's skills can also assist your business in developing its response to energy policy, supply, contracting and accounting issues. Furthermore, most businesses in Australia are yet to unlock the full value that can be found in managing energy proactively. Beyond cost savings, an energy accountant can help identify and quantify the broader productivity gains that can be created for the business.
Please contact one of our experts for further advice.