Dealing With Electricity Bill Shock Post July 1
Electricity prices spiked on July 1st 2017. The average NSW business is now paying 19% more for their electricity. Predictably, there have been a flurry of articles in mainstream media claiming that people will die as a result, blaming renewable energy for the problem, attacking the greedy power retailers, criticising the gold plating of Australia’s electricity grid and suggesting tactics for bargaining with your retailer to bring down the price you pay. For the average business, there’s not much value in complaining about the ethics of the power retailers. That energy is better spent in dealing with the skyrocketing costs. The question is – is it worth haggling with AGL/Origin to chip a few cents/kWh off the bill? Discounts are certainly available if you ask so you’d be remiss to not get on the blower to your friendly customer service agent. However, the reality is that if you’re using more than 160 MWh/year, even a 20% discount on consumption charges isn’t going to do that much for your bottom line because capacity charges and time of use tariffs likely dominate your bill. To achieve significant savings, you need to decouple revenue growth from energy demand.
Decoupling Revenue Growth From Energy Demand
To scale a business you need to nail two things: get an increasing number of customers in the door and make sure your unit economics get better the bigger you are. If you’re servicing 150 customers a day with an average order size of $50 and want to double your daily revenue from $7500 to $15000, you’d hope that with the increase in revenue base that your costs would go down. After all, with a smaller number of customers, your fixed costs will make up a comparatively large proportion of your cost of goods sold (COGS). When you double the number of customers you serve, you don’t have to switch on 150 new light bulbs in your head office.
It doesn’t always work out that way though. Growth can bring with it growing pains. You start making snap decisions to fight fires and embrace opportunities. You neglect preventive maintenance. You stick with outdated equipment. You buy a cheap A/C unit because cashflow is tight that month and neglect to consider the flow on ramifications. And then you wind up in a position where your operational expenses are eating you alive.
Nip Those Operating Expenses in the Bud
The start of a new financial year is an excellent time to review the line items in your OpEx ledger. Rather than blaming the big gentailers and electricity distributors for milking you for all you’re worth, it’s time to get proactive and look at what you can do to reduce your electricity consumption. Definitely pick that low hanging fruit – call your retailer and ask for a discount. But to achieve real savings, you need to look deeper. Are your operational hours optimal? Perhaps your staff leave the lights on overnight a few days per week. Maybe you’ve got the A/C running so cold that people are plugging in heaters at their desks to stay warm during the winter months. Have you looked at voltage optimisation and power factor correction? Do you regularly audit the total cost of ownership of your current equipment fleet? Efficiency standards mean that appliances purchased more than five years ago may be more costly to run than it would be to replace them with a modern 5-6 star unit. If you’re leasing office space, did you choose a building with a NABERS rating of 5 stars or above? Are you monitoring your capacity charges? If you flick all the lights on, put the heater on full bore when you first arrive and turn on the instaboil hot water system, you might be causing such a high spike in demand that you’re paying much more in capacity charges than you need to.
Don’t Beat Them, Join Them
If you’ve done all of the above, there’s something else you can do. Lock in power prices by generating your own electricity. It doesn’t have to be on site – you can enter into power purchase agreements where you can contribute to solar/wind farms and pay it off through your electricity bill, locking in a rate for years to come. The Sonnen CEO reckons you can essentially have free power following this model. On top of that, you can draw inspiration from South Australia and whack a few batteries in your basement. Not only is this a sound disaster management strategy, but it also sets you up to participate in demand response programs where you can get paid to temporarily remove yourself from the grid during periods of high demand.
How Do 20% Savings Sound to You?
At EnergyLink, we’ve helped hundreds of businesses implement the strategies above. Most of our clients are able to achieve demand reductions of at least 20%. That’s on top of any discounts you’re able to negotiate with your retailer. Plus you get the added insights that an energy management system gives to your business. Want to know how you compare to other businesses in your industry? You can see anonymised benchmarking data that shows how energy efficient you are compared to your competitors. To learn more, drop us a line.