The recent closure of several major power stations and generation plants across the nation has seen a spike in wholesale electricity prices due to supply shortages, wholesaler uncertainty, and in increase in demand from households, businesses, and other operators throughout Australia. As a result of these market conditions and supply shortages, price increases are being passed on to consumers and businesses.
Uncertainty in the energy market and the rising cost of gas has restricted producers from investing in more gas-powered generation facilities, creating supply shocks and wholesale price fluctuations that have been passed to consumers. However, the continuous growth in demand for electricity has led to an increase in generation capacity. Because of this increase in supply capacity, wholesale and consumer prices are expected to ease over the next five years, providing some relief to businesses.
The lack of energy generation capacity in Australia is often blamed for high electricity prices, however, generation costs only accounts for approximately 35% of the consumer price. The main cost driver is network maintenance, which makes up over 40% of the price. The third cost component is the retail costs and margins, which contribute to approximately 12% of the electricity price.
While the cost of household electricity is more often in the media, businesses will be most impacted by the market volatility and price as they are responsible for 70% of Australia’s electricity consumption. Despite the forecast easing of prices, there are actions businesses can take to reduce their energy consumption. The falling price and increasing efficiency of solar technology can make solar power a viable investment option for businesses. While smaller firms can invest in energy saving devices to reduce costs, large scale or remote operations can look to petroleum-based generators which can offer savings over traditional electricity suppliers. Business should also put in place company policies and procedures around lights, air conditioning, and so on to reduce electricity consumption.
Electricity pricing and supply contracts for business are complex, and typically require the services of electricity market specialists to assist with buying strategies to deliver low cost electricity.
