by RichardGardiner | Feb 20, 2017 | Energy
I formed our company in 1999, with the energy part of our business covering both procurement (a commercial focus) and energy use optimization (a technical focus). Both are designed to minimize the expenditure of our business clients.
The energy sector where we operate has been significantly affected by the climate change debate. Knock-on effects of which have included the introduction of the Emissions Trading Scheme (a significant new tax) and the closure of various fossil fuel-based power stations in North Island.
The purpose of this blog is to step back from some of the partisan attitudes on this issue and hopefully take a balanced pragmatic view.
The Weather Machine
Let me emphasise from the outset that I have a background in economics and energy – not climatology. Climatology has however interested me since reading Nigel Calder’s book, The Weather Machine, in 1974. It is a subject that all of us should be concerned about for a raft of very obvious reasons.
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by chris | Feb 13, 2017 | Energy
For many businesses, energy can make up a large portion of the cost of doing business however in many cases it is not subjected the same level of scrutiny that other expense areas do. Often getting a better price through procurement is seen as good enough or all that can really be done when it comes to managing energy as businesses are so focused on their core purpose or there is not an available resource to execute an energy management plan.
Retail pricing is increasing
Over the last 12 months or so we have seen over the counter retail pricing slowly increasing. The 15-20% energy savings of 2 or 3 years ago are now a distant memory however customers are still able to contract similar or slightly improved pricing compared with their expiring agreements.
What can be done? It’s like the old saying, give a person a fish and eat for a day, teach a person to fish and they can eat for a lifetime.
Long-term energy savings
Energy management can be seen in the same way, getting a better “deal” is only a short-term fix and should be part of a much wider strategy. Understanding how and where energy is being consumed, measuring and reporting on energy, understanding how energy use is impacted by changes in production and or environmental conditions can lead businesses to make informed strategic decisions about their longer-term goals so that these align with their wider business plans.
In our experience, customers who understand and measure where energy is being used to instigate change can achieve savings of 10% or more.
More detailed analysis can be done that will identify cost-effective savings in the range of 20-25%, and total savings of up to 40% including large capital measures. Once implemented, these savings can be forever rather than just for a 2 or 3-year energy retail contract term.
Measurable energy efficiency drives results
While many businesses track their site level energy costs and kWh volume, and have a fair idea about what systems are the most energy hungry, many customers cannot point to concrete data that underpins their view.
In a recent survey conducted by IPSOS on behalf of EECA, respondent businesses stated that energy efficiency is not seen as a top priority, however I would ask, what risk are you taking if the competition takes a different view?
The top 6 priorities were listed as:
- Employee Safety
- Longevity
- Achieving Growth
- Brand Development
- Employee Relations
- Productivity
Around 50% of respondents said that improving energy efficiency would have a direct impact on the above.
If we apply the principle of Moore’s law (computer chips will run twice as fast and halve in price every eighteen months) to energy, technological advances will bring product efficiencies in time but at this stage replacing a HVAC system or production line like we would replace our iPhone every couple of years remains out of the question. But that’s changing fast.
Smart energy monitoring is here!
The Internet of Things gives us the ability to assign a unique internet identifier to a virtually unlimited number of devices anywhere in the world. That means we can monitor the performance, or activity, on a unit by unit basis: collecting device-level energy data is much easier and more affordable.
Smart energy metering has now mostly been rolled out in New Zealand so customers can access half hour meter reads. While this provides a plot summary it cannot deliver the whole story.
A common barrier for businesses implementing an energy management strategy is that measuring consumption behind the revenue meter and at a high level of granularity has in the past been expensive and relatively difficult.
With the Internet of Things beginning to enter the large commercial and industrial space this is a thing of the past. Total Utilities can provide Panoramic Power’s nonintrusive, cost effective, and scalable metering solution along with a range of consulting services based on an OPEX pricing model.
Safer, cheaper, better — with the Internet of Things
Gaining visibility of device level behaviour leads to a better understanding of usage cycles and patterns. It can also change the way in which regular maintenance is carried out. While the change to preventative maintenance is a huge improvement on responsive maintenance this still leaves a lot to be desired in terms of cost management and efficiency.
Benchmarking similar pieces of equipment, systems or comparable locations can be a good way to understand when maintenance should be carried out however a device level data lead model of predictive maintenance can be adopted if customers can measure granular energy usage and operational up / down time.
A data-led energy strategy may lead to;
- Real and measurable long term energy savings.
- Improved environmental conditions.
- Increased staff productivity.
- Improvements in health and safety through predictive maintenance.
- Reductions in insurance premiums by monitoring energy intensive equipment that stores perishable or fragile products.
- Marketing value for green credentials.
Having an energy management strategy could be the difference in making more profits than your competitors, winning more competitive contracts, or securing longer term tenants through a lower delivery cost, a more productive work force or a more comfortable environment.
So, what can you do?
Total Utilities can be your virtual energy manager providing a pragmatic and full end to end approach in helping your business transform energy from just a cost of doing business to a strategic and competitive advantage.
For more information on the services that we provide, click the links below:
Energy Monitoring and Targeting
Energy Management and Strategy
Energy Procurement
Energy Audits and Feasibility Studies
NABERSNZ ratings
To discuss your specific requirements and how we might assist your business please contact me on 021 650 336, [email protected] or Pushkar Kulkarni on 021 273 4337, [email protected]
by DavidSpratt | Dec 13, 2016 | ICT
After a busy year trying to make sense of the changing ICT landscape I’m winding down for Christmas by attending as many customer and supplier events as possible. The prospect of free wine and food, stimulating conversations and standard speeches by sales managers delivers a mix of pleasure and pain.
I’ve also delighted in compiling my 2016 awards list of companies and individuals that have taken on the IT challenge and made a difference, one way or another.
The IT challenge awards go to:
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by chris | Nov 7, 2016 | Energy
Unfair contract terms provisions were introduced in March 2015 as part of changes to the Fair Trading Act. The provisions are designed to protect consumers from contract terms that create a significant imbalance of rights or obligations between the company and the consumer.
Energy Contracts in New Zealand
The Commerce Commission has now completed its review of retail energy contracts (including retailer feedback) to ensure that they meet minimum standards required by the fair trading act. While focused heavily around the consumer market the results of the review will have an impact on commercial customers.
This is mainly in the area of liability and automatic renewals with opt out clauses along with contract termination fees that are applied to auto renewed contract terms. A review of these clauses has been long overdue, as an adviser and consultant this is an area that we have always held a negative view and retailers have been at times very stubborn when proposed changes are requested. For our customers, clauses such as this have always been highlighted and further contextual information requested especially around liability.
Commissioner Anna Rawlings said,
The majority of the nine energy companies included in the review had made real efforts to comply with the provisions before they were introduced. However, we did identify 59 terms that we considered potentially unfair. Many of the terms were common across the contracts, particularly those that limited the liability of the company, allowed the company to unilaterally vary the contract or automatically renewed fixed term contracts unless the customer opted out.
The commission ruled on these areas as follows:
- Liability needs to be balanced between the retailer, customer and distribution provider.
- “Opt Out” contract renewals are not unfair per se but the commission does not look fondly on them.
- Termination fees cannot be charged on auto renewal agreements given that the customers have not signed a new contract term.
Of the retailers that had auto renewal terms in their small commercial contracts, some have dispensed with opt out renewals completely whereas others have agreed not charge termination fees.
Regarding the wider terms that were highlighted, in some instances the companies were able to provide information to the Commission to show that the term was necessary to protect the legitimate business interests of the company. In all other cases, the companies accepted the Commission view and have amended or agreed to amend the terms concerned.
Rawlings further commented,
We are pleased that the energy retail companies constructively engaged with us and were receptive to our concerns, avoiding the need for the Commission to consider court action. Most New Zealanders have a standard form consumer contract with an energy retail company or live in a house that is covered by one. Our review covered 90% of the energy retail market in New Zealand and New Zealanders can now be more confident about the fairness of those contracts, which is a great outcome.
With the review of telecommunication contracts in February and energy contracts now complete, the commission is now investigating gym membership and credit contracts.
Total Utilities reviews all contract terms and conditions prior to submission of recommended contracts to customers, this includes comments where applicable around required quantities, assignment, termination and force majeure along with project-specific needs.
by chris | Oct 25, 2016 | Energy
The MBIE has released their latest update of the Electricity Demand and Generation Scenarios (EDGS) which suggests that prices may remain lower for longer.
New Zealand Electricity Demand and Generation Scenarios
Under the Mixed Renewables projection – which is the base case for the 2016 update – the market would not see average wholesale power prices climb above $100/MWh, measured in 2013 dollars until about 2032. They wouldn’t get above $105 until after 2045. This differs from the 2015 update which projected $100/MW by 2021 and $110/MW after 2035.
Tiwai Turning Off?
Of the most interesting is the “Tiwai off” scenario assuming that the smelter closes at the beginning of 2018 and assuming that oil remains below USD $80/barrel until 2037. The drop in demand would see older thermal based generation such as the TCC and old Huntly units close within 12 months. Some gas-fired peakers would be built in their stead but no further wind capacity would be needed until 2027.
Assuming low GDP growth and demand averages an increase of 0.4% per year, the market would see wholesale prices average $93/MW in 2013 dollars to 2047. In this scenario pre Tiwai off national demand would not recover until 2032.
What you should know about New Zealand Energy Predictions
Other notable projections are:
- 1.35 TWh per year in 2050 coming from the transport sector.
- EV fleet to reach 1.77million by 2040 with 3200GWh of charging demand off set by 1600GWh of solar PV generation.
- 580,000 household solar systems installed by 2050. 66% of systems are likely to have batteries by 2040, by which time solar PV costs are expected to be down to $3.16/W for a 3 kW system, while battery costs are down to $167/kWh.
- A high uptake of solar and EV’s may drive average wholesale prices above $109/MW by 2035.
Further reading can be done here.
by chris | Oct 7, 2016 | Energy
Following a recent article on energy advisors published on LinkedIn by Energy Action CEO Scott Wooldridge, similar considerations apply to the New Zealand Market.
Correlations between the Australian and New Zealand energy markets
Similar to Australia, for a number of years now energy retail margins have been squeezed significantly due to increased market participation and retail options, increased fluidity in the ASX market and subdued energy demand leading to a lack of requirement for more generation capacity. Since late 2012 when over the counter retail prices dropped by around 20% to almost the same level as long term average wholesale Spot pricing, 3 year fixed price variable volume (FPVV) contracts have largely been priced at similar levels year on year.
With a large number of new entrant energy retail brands (some with or without ownership of generation assets) competition continues to increase which has assisted in keeping pricing down and keeping the big 5 honest. As energy consultants and advisors it is our job to ensure that customers get visibility of all available and reputable retail options and provide safety in the knowledge that pricing and contract terms / conditions are independently vetted before being accepted.
The energy retail space is not the only part of the market that is facing competition. In New Zealand there are over 30 companies offering procurement services for electricity and gas. The consultant and adviser industry for energy is not regulated, effectively anyone can put up a shingle and start a business that offers procurement services.
Questions to ask potential energy advisors
The quality of service and outcomes varies drastically. If it were my business, there are only a small handful of organisations I would consider using in New Zealand to obtain an energy contracts on my behalf. The following are few questions I would ask before engaging a professional services company to act on my behalf:
1. Does the company you are working with have certification with the Financial Markets Authority.
Post global financial crisis, New Zealand made a number of changes to the Financial Securities Act, this extended to any company offering trading or advisory services around energy futures, derivatives and wholesale market products. To comply with the act, companies must hold accreditation under section 38 as this ensures companies have a high standard of conduct and expertise when advising customers of their options.
2. Does your adviser or Consultant review the entire market?
There are currently 29 energy retail brands in New Zealand, however only around 15 or so can supply business and not all of these can supply all regions in NZ. A smaller number again can supply natural gas and LPG however, many consultants only obtain pricing from favoured retailers meaning customers may only see pricing from 4 or 5 companies. In cases like this the customer may be missing out on the best available pricing and contract terms from reputable retailers due to sub-par market evaluations.
3. So you get a report that only outlines the price of contestable energy…
Around 35% of electricity costs and around 40% of natural gas costs relate to third party charges such as transmission and distribution. While these costs are not contestable charges there may be opportunities to reduce the impact of these charges i.e. aligning capacity so it better matches peak demand or required throughput. Some networks also have the option for customers to move load groups to better suit their energy profile; this can also lead to annual savings. Are these charges being reviewed as part of the procurement process by your consultant or adviser?
4. Energy market intel – what’s happening?
The rate of change in both energy markets is only increasing. While we can’t necessarily predict what will happen, it is still important to keep your finger on the pulse. Does your adviser or consultant track wholesale pricing, the forward ASX curve, industry developments? Do you get regular updates in these areas? Knowing when to go to market and timing it right can have a massive impact on pricing obtained, it should not be a matter of waiting until the end of your contract term before looking at pricing as in most cases this will limit your options as you have to take what the market is offering or risk default business prices.
5. Contractual terms and conditions
While the Commerce Commission recently cleaned up anti-competitive clauses in energy contract, such as automatic renewals, right of renewals and right to match terms, there are still a few gotcha clauses to look out for, such as maximum and minimum quantities, assignment and conditions of force majeure. Does your consultant outline these issues in their procurement process and how they may impact you as a customer in the long term?
6. Large Energy Consultant or Adviser versus small Consultant or Adviser, does it matter?
A better question would be how many procurement exercises does the company you are looking to engage with conduct a year? The energy market is highly dynamic, energy retailers are entering and leaving the market at unprecedented rates and pricing models and practices are changing daily. If the consultant or adviser is not pricing in the market on a regular basis, then you and they are likely to be caught out by the market changes. Look for companies conducting over 100 procurement exercises per year, Total Utilities as an example conducts over 500 procurement exercises per year.
7. Insured or not?
For companies providing professional services, they should hold public liability insurance and professional indemnity insurance of more than $2 million dollars.
So are energy advisors friends or foes?
Energy advisors and consultants should develop a relationship with their customers built on trust. This trust is based on significant market knowledge and intellectual property, creative business problem solving and transparent processes while upholding strong business ethics to ensure sustainable business and commercial outcomes.
This is achieved by market wide reviews, in-depth reports and financial analysis to ensure that all angles are covered and customers get the best possible information to make strategic business decisions.
