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Energy Insights

Top Tactics to Manage Business Energy Costs

For Australian businesses, electricity and gas costs seem to rise ceaselessly. Extreme wholesale price swings over the past year have added a new level of unpredictability. Savvy energy management is now crucial to control expenses amid the volatility. This guide shares expert-recommended tactics to monitor and manage usage, choose competitive plans, and maximise flexibility to keep business energy costs affordable.

10 Ways Businesses Can Manage Fluctuating Energy Costs

Here are the 10 tips expanded with more details:

1. Track Usage Data

  • Install smart meters or advanced metering to collect interval-level usage data across facilities.
  • Use energy management software to generate reports pinpointing usage peaks, trends, and anomalies.
  • Analyse usage profiles to right-size supply contracts and identify efficiency opportunities.
  • Share data with staff to engage them in conservation initiatives.

2. Forecast Pricing

  • Use predictive data models and professional consultants to anticipate price movements in wholesale markets.
  • Plan energy procurement and hedging strategies accordingly to mitigate risk. Lock in rates when forward prices decline.
  • Build flexibility into contracts to capitalise on better pricing if significant swings occur.

3. Run Competitive Tenders

  • Before renewing contracts, tender through multiple retailers to stimulate competition.
  • Provide usage data for precise custom quotes reflecting your needs.
  • Objectively compare pricing on a like-for-like basis including incentives.
  • Manage contract renewal timing across accounts to consistently test the market.

4. Consider Fixed Price Plans

  • Weigh longer-term 1-3 year fixed price plans to ride out periods of extreme volatility.
  • Understand termination fees if wanting to switch early due to drastic rate declines.
  • Add contract terms allowing you to switch between indexed and fixed pricing if needed.

5. Negotiate for Flexibility

  • Include clauses in contracts to change plans or providers if variable rates spike significantly higher.
  • Negotiate mutual termination agreements without penalties for extreme circumstances.
  • Push for shorter 6-12 month contract terms until some market stabilisation occurs.

6. Add Onsite Generation

  • Install solar PV, batteries, cogeneration or gas-fired generation to reduce consumption from the volatile grid.
  • Right-size systems to provide a substantial hedge against purchased power costs.
  • For solar, maximise self-consumption with batteries or adjust usage to align with solar output.

7. Improve Efficiency

  • Reduce overall energy needs through upgrades to lighting, HVAC, building envelope and equipment.
  • Optimise building and production schedules to eliminate waste from idle runtimes.
  • Engage staff in conservation initiatives like computer shutdowns and zonal resource optimisation.

8. Curtail Peaks

  • Temporarily reduce non-essential loads during periods when time-of-use pricing peaks or demand charges apply.
  • Sequence high energy processes like production batch runs to avoid coincident demand spikes.
  • Pre-cool spaces before peak hours to minimise HVAC load when prices are highest.

9. Participate in Demand Response

  • Enroll in utility and third-party programs providing incentives to curtail electricity usage on request during peak events.
  • Automate load shedding using building management systems and Internet-of-Things controls.
  • Meet your contractual load reduction commitments to maximise earnings – payments are based on metered performance.

10. Leverage Consultants

  • Engage specialised energy consultants to provide market monitoring, data analysis, procurement strategy, and contract optimisation.
  • Their expertise in fluctuating markets is key to identifying and capitalising on savings opportunities.

Why Business Energy Costs Fluctuate

Multiple complex factors cause volatility in Australian natural gas and electricity prices:

  • Global demand and supply dynamics like LNG exports
  • Local supply disruptions like generator outages
  • Weather impacts on renewable output and heating/cooling demand
  • Carbon pricing and clean energy policy changes
  • Infrastructure constraints causing transmission congestion

Price swings of 100% in months are not uncommon. Savvy management is key to affordability.

Key Steps for Monitoring Energy Usage

Better visibility enables targeted reduction initiatives:

  • Install smart meters or advanced metering infrastructure to collect granular interval usage data.
  • Use energy management systems to consolidate meter information across facilities.
  • Generate reports pinpointing usage peaks, trends and anomalies.
  • Identify your operations' flexible vs. baseload energy demand.
  • Engage staff with usage dashboards to foster energy awareness.

Procurement Strategies to Control Costs

How you buy energy determines pricing:

  • Leverage consultants to time fixed price lock-ins when forward prices dip.
  • Add escalation clauses if accepting floating rates.
  • Use embedded wholesale price triggers to limit rate hike exposure.
  • Negotiate ceiling prices or rate increase caps.
  • Include flexible terms to switch between plans or providers.
  • Enter shorter 6-12 month contracts until market stabilises.

Conclusion

With expertise, technology and creativity, businesses can manage the volatility of business energy costs. Monitor usage patterns, adopt efficiency initiatives, tap newer purchasing strategies and optimise energy flexibility. The energy transition brings complex challenges but also new opportunities to take control.

FAQs

What causes energy prices to fluctuate so drastically?

Wholesale energy is a globally traded commodity. Prices swing based on factors like fuel costs, weather events, supply infrastructure, and regulations. Local conditions amplify global volatility.

How much warning do businesses get regarding pricing changes?

Retailers usually provide 30 days notice before rate changes per contracts. But unexpected public wholesale price spikes flow through rapidly. Consultants can provide market monitoring.

What percentage cost swing is typical year-over-year?

Annual electricity and gas price fluctuations of 20-50% have become common in Australia due to growing volatility factors. Spikes well over 100% occur during extreme weather or supply events.

Which pricing model is least risky - fixed, variable or hybrid?

Fixed price contracts avoid volatility but may cost more long-term. Variable rates offer short-term savings but involve risk. Hybrids with price caps, collars or triggers balance risk.

What software tools can help businesses analyse energy usage?

Solutions like Utilibox provide energy reporting, forecasting, analytics and management.

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