Businesses face power price hikes of up to 200 per cent
Author: SMH Date Posted:17 January 2018
Based in the outer Melbourne suburb of Bayside, ANCA is one of an increasingly rare cohort of Australian manufacturers.
The precision tool manufacturer employs more than 1000 staff globally, with 450 in Australia, and turned over $180 million last year, but when its power supply contracts were up for renewal co-founder Pat Boland was in for a nasty shock.
"Like all other companies we were faced with our existing contract coming to an end for power, and initial quotes were coming in with a 200 per cent increase," says Mr Boland.
ANCA was spending $460,000 a year on power but its existing provider, Alinta, quoted an increase to $1 million a year while competing provider Resolve Energy quoted $1.4 million.
"We are operating an international business and Australia is a very high cost place to do business, it puts another nail in the coffin," says Mr Boland.
ANCA's situation is not uncommon, with energy consultants saying businesses coming to the end of a three-year agreement will face price increases of more than 100 per cent.
Moving to renewables
In order to combat surging power prices ANCA has signed a deal with energy provider Flow Power to source renewable energy from Ararat Wind Farm, allowing the manufacturer direct access to long-term energy at wholesale prices.
ANCA is one of the first small businesses to access a corporate renewable power purchase agreement, with Flow Power also signing up almond giant Olam Orchards Australia and wine producer Idyll Wine.
Under the agreement ANCA buys a fixed percentage of wind and solar power directly from the renewable generator in real time, calculated at 30-minute intervals under a "take or pay" arrangement, meaning that the manufacturer will pay only for what it uses.
ANCA's yearly cost is $700,000 for the 10- year deal, which still represents a 50 per cent increase.
"The big benefit is it's really a substantially lower cost than our initial quote," says Mr Boland. "It's also a win-win. It's about playing our part as a member of a community and bringing down greenhouse gases."
​Mathew van der Linden, the managing director of Flow Power, says wholesale electricity is a "game changer" for businesses.
"Our renewable corporate PPAs will open up the market to more Australian businesses and allow them to access lower power prices through agreements that have only previously been available to big corporations with the scale to negotiate one-to-one with large renewable plants."
Flow Power employs more than 50 staff and turns over $100 million but Mr van der Linden says at the moment renewables make up only a "small percentage" of Flow Power's business.
"At the moment we are a niche retailer," he says. "Our goal is to become a significant retailer. Our vision is for 20 per cent of the market to buy wholesale. I am very optimistic that we will sell thousands of megawatts of this in the marketplace. I expect going forward it will be almost all of our business."
Prices will continue to rise
Andrew Reuss is the founder and managing director of Sustainable Energy Solutions, a consulting firm that specialises in buying energy.
He says many businesses are scrambling for alternatives as energy prices continue to rise.
"Any business coming to the end of a three-year agreement is looking at increases of over 100 per cent on their overall bill," he says. "Victoria and NSW have been hit the hardest with the closure of Hazelwood in April 2016. In the short term, there are no strong signals that indicate that energy prices will drop back to where they were 18 months ago. The government is talking about a National Energy Guarantee to bring stability back to generation, but that's a long-term view."
Mr Reuss says progressive purchasing of energy is one alternative strategy for medium and large businesses looking to control energy costs.
However, he warns that buying directly from the wholesale market can lead to price fluctuations.
"On the wholesale market, energy prices change every half an hour. By contrast you can secure a fixed contract with a retailer for one to four years and have financial certainty." he says.
"If the wholesale market doubles, your energy prices double. Buying off the wholesale market is one strategy for the big end of town who are used to trading other commodities for their business."
Mr Reuss says businesses need to understand the various platforms available and hedge their risk.
"Energy cost is only one aspect of taking control of your energy spend," he says. "Increasingly we are helping clients to take control by looking at solar power, LED lighting and other energy cost reduction initiatives and leveraging government grants and incentives."
