Energy prices trending up again on power plant outages
Highlighting the sensitivity of the energy market in Australia was the recent news that the Mortlake Power Station in Victoria suffered an explosion in early July. The Mortlake Power Station is Victoria’s largest gas-fired power station. This was on the back of a separate outage at AGL’s Loy Yang plant.
While there was no threat to immediate power supplies, the energy futures market in Victoria jumped sharply on the news. Subsequently, SA futures rose while NSW had a much more muted response.
We live in a market where half of one generation facility can impact prices significantly. The lack of broader national government direction nor a willingness to invest in baseload power can cause massive market ripples.
Irrespective of immediate impact, the market reaction is foreboding for what appears to be another extreme energy demand summer at the end of calendar 2019.
Should the plant be inoperable entering summer, the wholesale energy price will spike markedly. This is pure supply and demand pricing.
Most market analysts are predicting another upward trend for energy prices over the next few years and prices may reach the same peak or go higher than in May 2017.
This rise is being driven by continued pressure on supply and demand as overall consumption increases across Commercial and Industrial and Residential. It is also impacted by higher fuel prices predicted into the future based on increased global demand.
What can you do about it now?
If you are looking at energy contracts falling due at the end of the year, start now. Look toward 24-36 month contracts minimum to secure better pricing into the future. This is always a smart move in an inflationary market and all indications are that the market will continue to move upward.
Many of our members are achieving significant ROI and energy savings through Energy Efficiency and Solar Generation initiatives so far this year. The best bet to avoid future price pressures is to alleviate the need for generated electricity and maximise efficiency in your premises. As we have previously stated the implementation of Solar effectively locks in the pricing of your electrical energy for 10+years. This even works on leased premises as we have demonstrated ourselves.
What to keep in mind ongoing?
Energy prices will continue to rise into the future (and it is hard to foresee a long term trend for the reduction in costs). It is important that you and your company keep the following in mind:
Never let contracts slip. Expired contracts can revert to the market cap rate which for most business premises attracts a considerable premium over negotiated rates. Keeping on top of energy is not a choice from now on. Starting negotiations early can also deliver considerable returns.
Consider efficiency for real returns. Energy efficiency reduces waste in supply as well as usage. This is critical to reducing energy costs into the future and could become a significant competitive advantage. Especially for early movers in reducing costs to market.
Create your own energy. The ROI on self-generation is becoming increasingly attractive as ongoing pressures push prices higher and costs of technology decreases. Now is the time to get a move on and look at your options. It is important when considering ROI against current prices to account for predicted increases over the next 12-24 months.
Rising energy prices will impact every business as the ripple radiates throughout entire supply chains.
A sound strategy is key
For those who want to talk to us, or, hear more about it – you can attend our Annual Conference on August 29 in Sydney. Contact us for a special promotional code and mention this article.
At the conference CEO of Energy Action, John Huggart will talk about what constitutes a sound energy strategy now and into the future. You can also attend a practical, hands-on workshop from Cherry Energy who are delivering excellent ROI and energy savings for our members.