Recently, the Energy Minister discussed the benefits of innovative energy contracts in helping businesses better manage energy costs. There are a range of options for commercial users to secure energy differently and we look at just some of these options.
During a recent tour of Melbourne manufacturing business ANCA last month, Federal Minister for Energy, Angus Taylor, said that businesses seeking to reduce their energy costs should look to innovative contracts. ANCA had experienced a sharp rise in their energy bill before looking at alternatives and entering into a corporate power purchase agreement (PPA) last year.
While the tour was an opportunity to discuss the Government’s renewables firming initiatives and Tasmanian battery storage project, the comments during the site visit highlighted that there is no one-size-fits-all approach to securing supply while managing energy costs.
While striking up a PPA - a contract between the user and generator at a pre-agreed price and term - may be suitable for a larger scale energy user like ANCA, businesses should consider options that fit their size, consumption profile, physical footprint or on-site facilities.
The wisdom of the crowd
Smaller businesses without the same purchasing power as higher volume consumers can consider banding together to achieve collective economies of scale in their energy procurement. Memberships with industry associations or organisations such as Supply Clusters can deliver significant savings through leveraging group buying to drive down per unit energy costs.
In-market at the right time
Rather than just entering into a fixed contract over many years, some businesses may be eligible to procure energy progressively under a structured purchasing arrangement. It’s not suitable for everyone (consumption thresholds currently apply), but this strategy affords the flexibility to quickly adapt to prevailing price trends. In a scenario where prices are increasing – as is the case today – informed businesses can be more agile in response and move quickly to lock in more attractive rates. Although this can be a high risk method for energy procurement, if done correctly, the rewards outweigh the risk. Having an AFSL accredited advisor at the forefront of the market movements is key to the success of this innovative emerging procurement strategy.
Having retailers bid for your business
For larger businesses and higher volume energy users, competitive tension is crucial to secure energy at the right price and on the best terms. Technology-enabled solutions such as Energy Action’s ‘reverse auction’ platform, the Australian Energy Exchange, can facilitate bids from a range of retailers based on specific requirements and terms. Therein, competitive pressure can lead to more favourable outcomes when securing an energy deal. Key benefits is the speed to market, with contracts being able to be secured far quicker than most traditional tender approaches. The results speak for themselves with the process driving the price down by an average of 6.8% from first to last bid!
Decentralised power systems
For landlords with multiple tenancies such as shopping centre owners, microgrids and embedded networks (also referred to as local power systems), can assist to partially or fully disconnect from the main power grid and offers benefits from security of supply and lower cost energy which can be passed on to tenants. Today, a range of technologies are supporting the increasing efficiency of microgrids, from distributed generation to battery storage - making them an even more attractive proposition.
While these factors deal principally with supply factors, managing demand and lowering consumption is crucial in the pursuit of reducing energy costs. Moreover, this area - which includes energy efficient equipment and lighting - is equally as fertile ground for innovation.