Energy Action urges businesses to review energy contracts in preparation for the carbon tax
The majority of existing retail electricity contracts do not factor in a cost for carbon, however they do contain clauses that allow for an adjustment to be made in the event of a carbon price being introduced. Energy Action urges businesses to review energy contracts in preparation for the carbon tax.
Energy retailers will most likely process a carbon adjustment by either:
– uplifting contract energy rates, or
– introducing a new line item to your bill.
Val Duncan, CEO at Energy Action said, “The overwhelming majority of energy users in Australia will experience an increase in energy costs after the introduction of a carbon price. The only way to minimise the carbon tax is to emit less carbon in your operations. Understanding the cost exposure is crucial to understanding the investment businesses should be making now to reduce carbon footprint and energy expenditure.
“Victoria will likely see the biggest direct price impact due to the reliance on electricity generated from brown coal, followed by New South Wales and Queensland with a reliance on electricity generated from black coal.”
In spite of the hype about the carbon tax coming out of Canberra, there is a distinct possibility that the impact of the carbon tax (10-20 per cent on the average electricity bill for businesses across the country), will get lost in the noise of other price increases embedded in customer’s energy bills this year. Local network revenue allowance increases, state government imposed efficiency targets, and federal government legislated renewable energy targets all have a price, and this price will be borne across the electricity market by electricity customers.
Val Duncan said, “Due to the lag between energy consumption and bill delivery, business energy customers may just be coming to terms now with their increases from January 1, 2012 related to state and federal efficiency and renewable energy targets. Victorian customers have swallowed additional price increased due to the increase in network costs of between five per cent and 25 per cent at every site. Customers elsewhere across the eastern seaboard will face network price rises of a similar magnitude from July 1.
“If a company simply groups electricity and gas costs into the operating expenditure line on their profit and loss statements, it may be months before they see the impact of these increases at the board level. By then, costs have been absorbed, decisions have been made, and it is very difficult for companies to respond to this changing reality.”
In 2011-12, Energy Action created and conducted a survey*to measure consumer sentiments and understandings of energy related issues. The survey was designed to allow respondents to voice their opinions on a range of topics including the cost of energy, the role of media, energy efficiency projects and the carbon price. The survey was aimed at owners and key decision makers of commercial and industrial businesses.
Participants were asked about the most important considerations when selecting an energy retailer, the overwhelming response was price. Over 87 per cent of respondents ranked price as either extremely or very important when selecting their energy retailer. Factors such as customer service; branding; community partnerships and eco-friendliness are often overlooked if a retailer cannot offer a competitive price.
A concern highlighted, was that only 55 per cent of respondents believed their business’ energy supply was contestable. Contrary to this belief, all jurisdictions expect for small consumers (<50MWh per annum) in Tasmania and Western Australia are contestable. As less than five per cent of respondents were based in these states and over 75 per cent indicated they were large consumers, we would expect that almost all of the respondent’s energy supply would in fact be contestable. This demonstrates a lack of understanding of the consumer’s right to choose an energy supplier meaning that they may be paying default or standard energy rates without properly negotiating their energy contracts.
When negotiating their energy contracts, respondents found shopping around and working with an experienced broker to be the most important things. 69 per cent of respondents ranked working with an experienced energy broker as very or extremely important.
An experienced broker, or energy management company, can develop a customised specification of a business’ energy profile and will advise of a suitable time to “take your contract to market”. They will then distribute it to retailers to price. Once the broker receives the numerous offers, they will then review and analyse the various offers, compiling them into an apples-for-apples comparison. This process can be conducted either via a standard tender approach, or through a reverse auction via Energy Action’s Australian Energy Exchange.
Businesses have the option to start preparing for the carbon tax before it is introduced on July 1. Val Duncan at Energy Action recommends finding an energy management company that you can trust to make your business energy efficient. Ensure that the specialist dives into financing and financial modelling deep enough. Check that they have the relevant credentials and expertise, particularly an Australian Financial Services License (AFSL) if they are providing any financial recommendations or advice.
“Responding to the carbon tax will be a journey and a path of continuous improvement. Perhaps the most important step to take is the first step: do something – anything.
“Taking control of your energy contracts is an obvious starting point, it will give you some control over the numbers involved, and in the current market it may yield immediate cost savings too.”
*The Energy Action Customer Insights Survey ran from October 2011 till January 2012. There were 135 respondents.