Author Michael Bosnich
Date December 2016
The complexities of managing a significant energy portfolio have increased markedly in recent years. The financial, operational and reputational impacts on your business of poor energy management practices can be considerable, and can result from small oversights in seemingly straightforward factors.
Conversely significant rewards can be realised by effectively understanding and managing energy policy, supply, contracting and accounting issues. This additional complexity has created a need for Australian business to re-think the way energy is managed.
In response we are now seeing the rise of the ‘energy accountant’. This article discusses the value they deliver.
Nearly fifteen years ago I commenced my role as the energy manager for a significant Australian energy consumer with a substantial number of sites. This role required the transforming of the existing energy data base, literally a box of cards, into a platform to ensure that energy bills were accurate, authorised and paid on time.
At the time this ‘check and authorise’ approach was viewed as progressive and, based on the errors consistently identified in billing from retailers and other energy suppliers, provided significant savings for the organisation.
In truth, at the time, energy was a pretty straightforward management task. Electricity and gas prices were cheap and relatively stable, there were no issues with supply, and we didn’t concern ourselves to manage it efficiently. Typically business engaged in straightforward fixed price contracting with renewal options.
Upheaval in Australia’s energy markets
The task of managing energy costs in large complex businesses has become far more complicated than the traditional ‘check the bill and authorise payment’ model of the past. Australia’s markets for electricity, gas and increasingly renewable energy have become volatile, costly and for business requiring secure, large volume supplies a strategic management approach is critical.
And over the past few years many other things has changed. We currently see:
• Electricity market volatility as evidenced following the Hazelwood closure and the intermittent supply issues (especially in South Australia, but increasingly in New South Wales and Victoria)
• Electricity and gas markets requiring new approaches to procurement including:
- Flexible contracting
- Direct purchasing on the wholesale market
- 'Blend and extend' contracting arrangements
- Management of environmental charges (especially LGCs which are forecast to stay at $85 or higher for the foreseeable future)
• Organisations with significant and public emissions reduction targets and carbon neutrality commitments, leading to issues such as:
- procurement of green, in preference to black, electricity
- evaluation of on-site generation options (especially solar PV)
- consideration of options for energy independence, and into the future more use of storage solutions and decentralised grids
- opportunities for LGC creation and sale
- the need to establish a detailed understanding of energy consumption profiles to rigorously support capital project evaluation and financing
- mandatory and voluntary reporting schemes
- new rigour given growing fiduciary duties in regards to risk management and disclosure to investors
The ratification of the Paris Agreement by the Australian Government requiring Australian companies to:
- clearly understand the potential impact of a 2°C world
- establish “science-based” targets that fairly and transparently reflect the scale of their carbon reduction obligations to keep global temperature increase below 2°C.
Responding to high costs and market volatility
Due to the complexity of Australia’s taxation system many people engage an accountant to manage their financial affairs. Australian businesses employ large financial and accounting teams to manage their day-to-day issues and maximise their commercial position.
It is Energetics’ view that the Australian energy market has become so complex, volatile and expensive that sound energy accounting principles should be applied within all significant energy consuming organisations. The newly emerging field of “energy accounting” is driven by rapid changes across Australia’s energy markets and provides the potential for Australia’s large energy users to extract significant commercial benefit through the application of best practice energy accounting principles.