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Is Your Business Prepared for the Coming Energy Crisis?
There’s a looming energy crisis about to hit Australian businesses right where it hurts the most – their bottom line. You might have heard some snippets on the news about energy problems in South Australia, but it seems that most businesses really have no idea about the freight train of rising energy costs that’s bearing down on us across the nation. It’s critical to be informed about the problem and take some action to minimise the fallout.
Electrical energy is simply Power multiplied by Time – it’s commonly measured in kilowatt hours (kWh) or megawatt hours (MWh), e.g. if a generator has a power rating of 4MWh and it runs for 4 hours, the total energy produced would be 4MWh x 4 hours = 16MWh.
The Australian Energy Market
The Australian Energy Market Operator (AEMO) is a company that operates Australia’s National Electricity Market (NEM) and other energy markets around the country. Wholesale electricity is traded on an exchange much like shares on the Australian Stock Exchange. Buyers and sellers trade electricity for immediate use at the “spot price” and for future use on the Futures market. Energy companies buy their energy on the wholesale market and then sell it on to their customers at the retail rate.
The major concern for businesses is what’s happening right now to the wholesale price of electricity on the Futures market – it has gone through the roof! The following graph from ASX Energy shows the Australian Power Index (National), which averages out the electricity pricing across the country:
What this graph shows is a juggernaut of high electricity prices that in the months to come will impact heavily on businesses around the country, with the average national price in 12 months-time being almost double what it is today. In some States, the increases are even worse, e.g. in April 2016 in Victoria the wholesale electricity price for use in April 2017 was $0.43 per MWh. In April 2017, the wholesale price for use in April 2018 was $1.12 per MWh – that’s an increase of 260%!
So, what does all this mean for business? The answer is not completely clear at this stage, because an energy bill includes costs other than the actual usage of electricity, such as network and supply charges. This means your total electricity bill won’t necessarily increase by the same rate as the wholesale price of electricity, but inevitably the increase in wholesale costs will be passed on to the consumer. This means dramatic increases in energy costs for business, which could have a major impact on their profitability and indeed their very survival, particularly those with high energy consumption.
Energy specialist Phil Goodfellow of Out Performers works with Australia’s largest energy users to implement energy efficient systems and reduce their energy costs and is intimately involved with the trading of renewable energy certificates. Mr. Goodfellow is already seeing the impact of the energy crisis on businesses through his extensive work in South Australia, which has been hardest hit with the highest energy prices across the country. Mr. Goodfellow says:
High energy costs will have a major impact on business and the economy over the next three years. Wholesale energy prices have more than doubled across NSW/VIC/QLD since the closure announcement of Hazelwood last year. Increased pricing of retail energy will hit clients hard as three year contracts start to expire commencing June 2017. Companies urgently need to reduce demand charges and drop base load, utilising smart controls and efficient program scheduling. Carbon offsets are another great tool to assist with lowering costs and improving payback periods, as are all forms of energy conservation measures.
What can businesses do to prepare for the looming energy crisis?
Innovative Australian company Choice Energy provides energy consultancy services to over 3,500 businesses to help them reduce their energy consumption and to pay less for the energy they use. Director Alan Gill says:
It’s vital that businesses prepare themselves for the looming energy crisis by engaging an energy expert to fully assess their current energy position and deliver cost reducing strategies for how they can shrink their operational expenditure. Ensure you engage an end-to-end consultancy, not just a broker or a solar company. You really need to have an ongoing relationship with a business partner who has every incentive to keep adding value back to your business.
Prepare your business for what’s coming
They say the first step to recovery is admitting you have a problem. The best thing you can do is educate yourself on the coming energy crisis and determine your exposure. Then develop an action plan to control your energy use and lock in the best electricity deal possible as soon as you can. Consulting an energy expert could assist greatly in developing your knowledge and coming up with viable solutions.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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