2016 What's in Store for Energy Users?
Hi Folks, Welcome to 2016. Whether you got 12 hours or 12 days break, we trust you enjoyed some R&R with family and friends. The 2014/15 Financial year was fairly benign for energy users but late 2015 saw several significant changes. Irrespective of your contracted energy position, at least some of these issues will flow through to your bottom line in 2016. To ensure you can hit the ground running, here's our summary, "The 2016 Essential Energy Manager Update".
The Basslink fault on 20 December saw Quarter 1, 2016 Flat Swap prices spike by 76%, from $63.66/MWh on 16th Dec to $111.93 on 29 Dec. Until Basslink get a ship into position, raise the cable and find the fault, we can only speculate on repair times. Faults on undersea (HVDC) cables are considered "Credible" events and therefore contingency plans are standard industry practice. With only 22.5% of Hydro Energy in Storage (at 4/1/16), the Supply Demand balance is increasingly tight, even if the 208MW Tamar Valley Power Station (CCGT) is returned to service this month, the question of rain inflows remains an important wild-card. In summary, we need several factors to unfold in our favour and will be keeping a close eye on Basslink, Hydro and AEMO announcements over the coming weeks, as events unfold.
Battery Storage & Electric Vehicles: There is no doubt that 2016 will mark the year that Electric Vehicles and Battery Technology took centre stage in the hearts and minds of energy consumers, energy industry executives and governments. OK, I'm not expecting actual take up to be significant, (even Solar PV is still only at 9% in Tassie) but the advances in technology and media attention, will see policy makers and network owners scrambling to keep pace. Our analysis of the present day costs of residential battery storage systems and local tariffs still show payback periods in excess of 10 years (outside of the effective life of some batteries). However, that 1% of "Innovators" are unlikely to touch a calculator before they commit to the latest status symbol and must-have fashion accessory. This, at first modest technology uptake, will drive down the cost curve, probably by around 2020 value conscious consumers will start to see a price signal for adoption. As Mobile Phones have done to Fixed Lines, Portable Power is here and, despite what your calculator app may say today, the disruption to the traditional electricity supply chain has commenced.
Electricity Network Tariffs: These now make up around 60% of your total delivered cost of electricity. Network Tariffs are regulated and if your site spends over $30,000 per annum, they are totally independent of your energy contract. Most business users have a choice of up to three options and you can nominate a different one every 12 months (more often where you make operational changes). Indicative increases from 1 July 2016 are as follows, Small Low Voltage up 0.5%, Large Low Voltage up 4%, High Voltage users up 8.5% and Irrigation is the only winner, with an anticipated 14% reduction. Goanna recommend "Optimising" your Network tariff every June/July when the new Financial Year rates are confirmed, email John@goannaenergy.com.au to find out more.
Electricity Contracting: "Contestable" Energy costs now make up around 30% of your total cost. The Forward Wholesale Market for Fin Year 2016/17 set a bottom point in March 2014 at around 4.2c/kWh. Since this time Wholesale (Flat) prices have risen some 31% to around 5.5c/kWh, so depending on when you last contracted, it is likely that your next contract will be at higher rates. Goanna experience shows that running a competitive tender process will usually yield the best results. Be aware that Peak/Off Peak rate definitions, Public Holidays, Environmental charges, metering costs and your service requirements, all need to be modelled to ensure you can make a legitimate "Apples to Apples" comparison, (as highlighted in the following item) e-mail firstname.lastname@example.org for more info.
Environmental Charges: Are also a "Contestable" cost and last year the Federal Mandatory Renewable Energy Target (LGC's & STC's) probably made up around 5% of your total electricity costs. Based on current market conditions, when you next tender out your electricity supply, the LGC component of your contract may have doubled in price. Over the last 6 months, several Goanna tenders have been awarded not because of different energy rates but due to differences in LGC rates offered.
Natural Gas: 1 January 2016 saw Aurora Energy take an unprecedented price leadership position by holding their published Residential and Small Business Natural Gas Tariffs at, or close to their 2015 rates. In contrast, Tas Gas increased their 2016 energy rates by over 7% for small businesses and around 13% for residential consumers. There have also been some encouraging signs for larger gas users (>$35,000 pa) in terms of market competition, with Goanna seeing an increase in the competitive dynamics of our tender outcomes over the past several months. The TSBC Gas Survey is still open at https://www.surveymonkey.com/r/TRTMMZ7 and we would welcome your input. For more information on your gas tender and alternatives, including LPG, contact our Russell Reid on 0419 360 403 or e-mail Russell@goannaenergy.com.au
Solar PV: Whilst the cost of Solar PV Systems has continued to decrease, payback periods for commercial scale systems (>30KW) still vary markedly. Goanna's independent renewable energy business case verification services still show a wide distribution of outcomes from as little as 5 years to as long as 12 years. In addition to siting and orientation, customer load profiles and network tariff optimisation continue to play a major role in the economics of individual circumstances. Battery storage technologies will add both opportunity and complexity to this. For impartial and unbiased commercial advice, including NPV and "Value at Risk" assessments, contact Marc on 6223 7253.
Budgeting, Cost at Risk, Monitoring, Reporting and Control: Technology, including Smart Meters, Tablets, Smart Phones and Cloud based computing mean that we can develop your energy budget from the site level up and provide you with 24/7 access to Budget V's Actual performance. This means you can now have daily exception reporting and drill down on any of your sites to identify anomalies and cost drivers, over a range of desk based and mobile mediums. Yes, even on your phone or tablet as your new driverless electric vehicle whisks you silently along the Midland Hwy!
Policy & Regulatory Developments: The Australian Energy Regulator (AER) has commenced its review of TasNetworks' distribution charges for the period 2017-19 by proposing a new framework and approach it intends to use to make its determination. This is shorter than the normal 5 year period used by the AER so as to allow the regulator to align distribution and transmission reviews from 2020 following the merger of TasNetworks. Their proposal is due in January with a decision from the AER before year's end. It will be important for consumers to engage in this process as distribution charges are the single largest component of Tasmanian electricity bills. Goanna has previously assisted clients in this area and has considerable experience at hand. Anyone with an interest in discussing this should contact Roman@goannaenergy.com.au
Appeals on network pricing determinations by the AER were launched by organisations supporting consumers in NSW and SA. These are the first consumer appeals allowed by the Competition Tribunal, which is hearing them. The impact of success in NSW is estimated to save $200 on an average household bill a year and $30 a year in SA. However, in NSW the networks have also appealed, seeking to claw back about $500 a year. One step forward, two and a half steps back perhaps!
The Office of the Tasmanian Economic Regulator (OTTER) has recently released an Issues Paper as part of its review of the Wholesale Contract Regulatory Instrument, which it uses to regulate the wholesale electricity contracts of Hydro Tasmania. Wholesale prices are an important component of retail prices, comprising around one-quarter of total retail charges for most residential and small business customers. OTTER has called for submissions by 22 January 2016 and will consider these in determining whether it should conduct a full investigation. As with the AER review, it is important that consumers take an active interest in OTTER's deliberations and Goanna is working closely with the TSBC to ensure Small Business interests are well represented.
In gas, the ACCC is in the midst of a major inquiry into competition in the eastern Australian gas markets. It is due to complete its review by April. Whilst the review is still underway, its Chairman made it known in a speech back in Sept that "gas user complaints about a dearth of offers for the supply of gas in recent years are largely true."
Meanwhile, the Australian Energy Markets Commission (AEMC) has also been reviewing Eastern wholesale gas markets and pipeline arrangements at the behest of Energy Ministers. It released its second stage draft report in early Dec, which contained recommendations (to be implemented in a staged manner in the period up to 2020 and beyond) covering concentrating gas trading at two hubs in Qld and Vic, complimentary changes to the way pipeline capacity is traded and improved market transparency. One stated aim is to "lower barriers to entry, helping smaller players transact – improving competition so consumers can benefit from prices that better reflect the costs of gas supply."
One risk of all these gas inquiries is that the left hand doesn't know what the right hand is doing but the AEMC will at least finish its review in May, shortly after the ACCC does. Of course, then comes the turn of Governments to decide on what they want to do. Meanwhile, the gas market appears to be moving faster than the policy front, with much lower international oil/gas prices, increased international supply, project cost overruns and a lower $A meaning that supply is not as tight and domestic gas prices are no longer under the same pressure they were a year or so ago.
On the climate change front, just before Christmas the Tasmanian Government released a draft Climate Change action plan for consultation. The plan outlines the Government’s framework for action to deal with climate change through to 2021.The Government will hold public meetings in the South, North and North West of the State in February-March 2016. Written submissions will be accepted until 25 March 2016. More details at http://www.dpac.tas.gov.au/divisions/climatechange/what_the_government_is_doing/tasmanias_climate_change_action_plan
Meanwhile the COAG Energy Council, made up of Federal and State Energy Ministers will be developing a national approach to "connect environmental outcomes and energy policy in the interests of consumers". It has asked officials to prepare advice. It is also reviewing energy regulations to ensure they match the needs of emerging technologies such as battery storage and decentralised energy; and has adopted a National Energy Productivity Plan aiming to increase energy productivity by up to 40% by 2030. The Plan involves a range of initiatives including making consumer energy choices easier, helping business compete and provide more efficient incentives, and more productive energy services.
Keep your Board and Management Team fully informed of the unique circumstances affecting your business, call Marc now on 6223 7253 to arrange your 2016 Executive Energy Update, Risk Management & Strategy Development Program.