Ever felt ripped off after being served up a beer with more head than you can shake a stick at? Then take a moment to consider how power wastage from your business’ equipment is as useless as the froth on your over-fizzed brew.
But what on earth has power factor got to do with beer I hear you say? And more importantly, what even is it?
Power factor in a nutshell… or a pint glass
Power factor is basically a measure of how efficiently your business sites use power supplied by your network distributor. Poor power factor = poor power efficiency and increased charges.
But for a more detailed, um, ‘scientific’ explanation, let’s get back to that beer:
Beer = active power (kW) – the useful power, or the liquid beer is the energy doing the good work.
Foam = reactive power (kVAR). This is wasted or lost power. It’s the energy being produced that isn’t doing any work and is annoyingly inefficient.
The mug = apparent power (kVA). This is the demand power, or the power being delivered by the utility.
So, the more ‘foam’ on your power factor, the more power wastage and the higher your inefficiency. Poor power factor is bad news for your business, your carbon footprint, and the environment.
Power factor is expressed as a percentage – the lower the percentage, the less efficient your power usage.
For example, equipment with a power factor of 1 is using all the power supplied to it. Big tick. Generally, a power factor of 0.8 or above is considered good.
However, if your power factor is lower than 0.8, it should be corrected to save on consumption and comply with the requirements of the electricity network operator.
Paying hand over fist for power
Total Utilities Director Chris Hargreaves explains, “Your power supplier provides electricity to meet your demands. Therefore, if your apparent power needs are high in order to compensate for poor power factor, you – the customer – will end up paying through the nose for it.
“For some larger customers, power suppliers might even take the largest peak and apply it across the full billing period. So you’re paying a very high price indeed for that froth on your beer!
“Poor power factor can also cost your business through direct penalty charges applied by many electricity distributors in New Zealand. This combined with charges for apparent rather than actual power can result in sky-high utility bills – particularly in this current climate where the cost of power is going through the roof.
“Conversely, by reducing the amount of energy your site requires at any one time, you reduce demand and the cost of supplying energy to your site.”
So, how do I get a handle on my business’ power factor?
Before you start to tackle a power factor problem, it’s important to get a measure of how efficient your current equipment actually is.
Total Utilities provides power factor audits – complete health checks of the overall quality of your electrical network. Our power factor audits identify problem areas and suggest opportunities for improvement in order to maximise your energy savings, mitigate faults and increase system reliability and efficiency.
Total Utilities can save you money with power factor correction
If a problem is identified during our audit, installing power factor correction is a great option to reduce your demand charges.
Total Utilities works with Rotorua based power factor correction specialists KVAr Correct, to provide complete, custom, and ready-to-go power factor correction solutions, plus ongoing monitoring and maintenance. These modular systems are custom designed to meet each customer’s need, ensuring the best return and no wasted capacity.
So, if you’re looking to reduce costs and increase energy efficiency (and let’s face it, who isn’t?), maybe now’s the time to look into your power factor? Use less. Pay less. Reduce your carbon footprint.
It’s a win-win for your business, your bottom line and the planet.
Contact Total Utilities to find out more about our power factor audits, services and solutions.
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Discover how Total Utilities helped New Zealand schools harness real-time energy insights to identify energy waste, explore solar power viability, and drive significant reductions in carbon emissions.
With over 1,500 Panoramic Power sensors installed across 50+ schools, we identified energy wastage and demonstrated the cost-saving potential of solar power. Schools are now making smarter, data-driven decisions to cut costs and reduce emissions.
Learn more about how energy efficiency and solar can drive sustainability in our full case study!
New Zealand Aluminium Smelters has struck a new deal with Meridian Energy which means the smelter will remain open until at least Decemeber 2024. We don’t yet know the prices that Rio Tinto has agreed with Meridian, but Forsyth Barr estimates that Rio will be paying a contract price of 3.5c/kWh. Compare that with large energy users across the country, who are paying over 11c/kWh.
Last week, the news pushed already elevated ASX energy futures higher. Customers leaving contracts on or around a raw energy price of 8.5c/kWh struck 3 years ago are now facing, on average, raw contract pricing of 13-14c/kWh — an increase of 65% or more.
Is pricing sustainable for large users?
ASX Energy Futures climb higher and higher
In July 2020, when the market was expecting a full exit from Tiwai by the end of 2021, pricing fell significantly. South Island consumers were especially fortunate — Total Utilities helped customers negotiate raw energy pricing around 6c/kWh. North Island pricing also fell from around 12c/kWh to 9c/kWh.
New Zealand’s large commercial businesses are paying a premium for the smelters continued electricity supply in the current electricity market. And it’s not just electricity pricing that has increased, but gas too, with prices moving from around $5.50/GJ to over $9/GJ in the last three years.
Transmission pricing hasn’t changed. Yet. But it is almost certain that Tiwai will see transmission costs reduce, while the rest of the country is left to pick up the upgrade bill when Manapouri gets connected to the Clutha Upper Waitaki network.
Additional energy and gas costs cannot just be absorbed by consumers, particularly in the primary and food production/storage sectors where energy-intensive operations exist. The cost of living will continue to inflate, while income increases will struggle to keep up.
Overcapacity of generation must be built between now and 2030, while an increase in gas-fired peaking plants is needed to ensure a secure supply.
Future path requires significant investment in new wind and solar generation
In the current market, there is no incentive for an oversupply of energy production. Instead, due to basic supply and demand principles, constrained generation allows producers to make tremendous profits.
In large part, the Government has ignored the 2019 report and instead focused on the proposed pumped hydro scheme at Lake Onslow. This multi-billion-dollar project won’t be commissioned in the short-term and is located well away from high energy demand areas. The government would gain faster traction if they subsidised microgeneration and battery storage.
Gas production is still a major and immediate concern, with New Zealand’s largest gas more or less 35% down on expected volumes. Remedial work and new drilling projects are unlikely to start until early 2022, so it’ll be some time before gas supplies return to “normal” levels.
Generators have various projects to increase renewables-based generation. These will not likely come into service until after 2024, though. A lack of clear market strategy means timing and development have been poorly managed. The “just” transition to renewables is underway, but who exactly is it “just” for?
A window into the future
On 31st January, 2021 He Pou a Rangi/Climate Change Commission released a 2021 draft advice for consultation report. This report delivers more focused advice that the government would be wise to follow to stand a chance of reaching our country’s zero emissions target.
The energy prices that businesses are paying now is a result of uncertainty and not having enough renewables-based generation to meet dry year demand when gas supplies are constrained. This is not sustainable.
From page 81 of the report: “Future electricity prices are uncertain due to a range of factors, such as the weather, gas availability, future infrastructure requirements and pricing structures.”
The report clearly shows that we need more energy generation, that we should accelerate and incentivise the move to electric vehicles, that we need to make the transition affordable and attractive to businesses and families, and that natural gas plays a role in helping us get there. And it asks if we should do what we can to retain and retrain the incredible talent that exists in the natural gas sector instead of losing them to offshore contracts.
Building more wind and solar generators is money and time well spent, as this will increase energy supply, and translate to lower energy prices. That’s why new renewables-based generation needs to be built and fast, otherwise energy pricing will only remain high and increase further as we decarbonise the economy.
As page 112 of the report so clearly puts it, “For consumers and industry to invest and convert to electrification, they need to have confidence that electricity will be available, affordable and reliable.”
What can you do?
The harsh reality is that the cost of energy is going up. Without significant new generation being commissioned and the ongoing gas supply issues, costs are unlikely to fall again in the next four years.
That’s why we recommend you review your pricing and go to market early, as prices are front end loaded. You could potentially get a better price well in advance of your contract end date and lock it in. Alternatively, having a second round is always an option closer to contract-end.
We’ve given a considered view of where pricing is heading in this blog, but it could be conservative. In any case, budget for a serious increase in costs.
If you want to mitigate rising costs, the best thing you can do is reduce the amount of energy you consume from the grid. You can achieve this by understanding what you consume and optimising your consumption and generating your energy onsite (through solar panels or similar renewable sources).
With increased energy pricing on the cards, now’s the time that you get significantly more bang for your buck when you invest in energy and carbon reduction projects. That’s why the team at Total Utilities are here to help you achieve energy efficiencies and, when you’re ready, guide you through the switch to solar and other renewable sources.
The retail price of energy for large commercial customers in New Zealand will remain elevated in 2020-21. So what are you going to do about it?
New Zealand’s large commercial market for electricity and natural gas has been on a roller coaster ride for the last 2 years, the likes of which have not been seen before.
There are numerous drivers that influence market movements. Fundamentally though it comes down to the balance between availability of supply and user demand.
Oil, gas, thermal and hydro
The Government’s decision to ban future offshore oil and gas drilling put an end date on New Zealand being able to meet all of its natural gas requirements. The closer we get to the end of current supply the higher the price will climb.
Supply issues with our largest field, Pohokura during 2018/19 and reduced gas production overall has more than doubled gas spot pricing from 2016/17.
In dry years, the electricity system relies on natural gas and coal to provide security of supply. This is for both base load and peaking generation.
With little to no new renewable base load generation planned in the immediate future, the market price is largely driven by the use of thermal based generation.
As consumers of electricity and natural gas, we have no control over the market. However here are a few prudent measures that can be taken to mitigate cost increases in a rising market.
Strike while the iron is hot
Electricity and Gas procurement should not be a once in a 2- or 3-year event. Leaving purchasing decisions to the last minute can have significant negative consequences.
You may only have limited options, having to accept what the market is offering or move to expensive default rates. If there are short term constraints in the market, then pricing may have been more cost effective 3-6 months ago.
Aligning your procurement strategy with a specialist energy consultant provides independent advice and a view of wider market considerations. This is particularly important when setting budgets for the following year.
Have I got a deal for you?
Incumbent retailers will at times be proactive in offering “deals”. However, this is usually from their view of the world and can be part of a defence strategy to sidestep customers reviewing the wider market.
In a rising market, we typically see a significant accordion effect. This is where the difference in prices offered can range more than 20%, even among the large generator retailers.
Without context, pre-emptive renewal offers can at times be viewed with suspicion. A specialist energy consultant can vet such offers quickly.
Understanding the market means pricing is checked against offers they are currently seeing. Advice can then be provided whether to accept the offer or go to market.
The mystic art of Power Factor
Often missed on large commercial invoices are power factor related penalty charges. These are billed by the electricity retailer on behalf of the local network distribution company.
Not all networks charge large commercial customers for poor power factor, but when they do the related charges can be avoided with correction equipment. (See: what is a power factor correction unit?)
There are a multitude of off the shelf solutions out there, however employing a specialist power factor company that designs solutions specific to requirements ensures you get the best bang for buck on your investment.
If correction equipment is already installed, make sure that this is added to your maintenance plan. If well looked after, correction units should last 10 years or more. They are susceptible to heat degradation. A quick check to make sure that air extraction fans on the units are work correctly and filters are kept clean can extend the life of the unit.
Rectifying power factor related issues can also help reduce peak KVA demand and associated costs if these are being billed by the local network company.
The secret life of kilowatts
Do you know how much energy your business uses when you are not there?
Energy monitoring combined with energy data analytics will help you identify energy wastage. Monitoring electricity use with real time energy analytics can also alert you to potential issues during operational hours.
This will allow you to act immediately rather than just seeing the impact on the monthly invoice the following month. With the rapid evolution of the internet of things, energy monitoring as a service is more cost effective than ever.
Are the good times over?
Unless there are structural changes in the market, Total Utilities does not see the retail price of energy for large commercial customers doing anything but remaining elevated (+/- 25% higher for electricity and +/- 45% for natural gas) compared to the 2013-2018 period.
A combination of dry weather, growth in the New Zealand population, general growth in usage and Government policy have put this in place.
Having an Energy Strategy that aligns with your business strategy and planning ahead, being proactive in minimising wastage and understanding where savings can be made will minimise the impact of rising prices.
Create a sustainable energy strategy, and build a competitive advantage with powerful energy insights that provide complete visibility of your energy footprint.
Now more than ever businesses globally are looking for wastage and holding utility costs to account by requiring detailed operational reports.
As the owner of your energy strategy, it is imperative that you have end-to-end visibility of your energy footprint. Obtaining this level of visibility will provide you with energy intelligence around consumption and performance of on-site assets. These energy insights will give your business the ability to:
Understand how energy is being used across your entire footprint
Identify processes and specific devices where energy is being wasted
Manage risks and opportunities in real-time to ensure performance of assets
Manage all your data in a single energy management system
Having a centralised view of your entire energy footprint and device-level data eliminates the time and complexity involved with managing energy data in multiple platforms. A single platform that integrates with other systems creates a holistic view of your energy infrastructure that can be used to inform a single, full report.
In addition, using a single platform to manage your energy data means you always know that you’re looking at real-time, accurate intelligence. This can help you make data-driven decisions about your energy strategy that are based on the most up-to-date energy data displayed in the energy management platform.
The granular level of intelligence provided by device-level data will provide you with a deeper understanding of your energy use and help to accurately form your energy strategy. This information can be used to identify ways to future-proof your strategy to:
Improve operational efficiency
Uncover growth opportunities
Unlock new revenue streams
Identify new energy technologies
Use Energy Insights data to improve operational efficiency
Data can help your business analyse capital equipment to identify inefficiencies and determine when equipment should be replaced or requires maintenance. By keeping equipment working efficiently and performing at its optimum level, you can avoid costly downtime and reduce business risk.
Use data to uncover growth opportunities
Better energy insights can free up resources to support growth initiatives, turning energy from a commodity cost to a value-adding resource. Growth opportunities can also be achieved when your strategy successfully lowers the costs associated with energy.
Use data to unlock new revenue streams
The information gathered through end-to-end visibility can help your business leverage its energy use, flexibility and existing assets. This opportunity unlocks new revenue streams for your business by allowing you to curtail energy use or sell surplus energy back to the grid through Demand Response (DR), demand management and asset optimisation.
Use data to identify new energy technologies
End-to-end visibility of your energy footprint can help to inform decisions on using new technologies such as solar and battery storage, back-up power generation, or cogeneration (also known as Combined Heat and Power or CHP) to help drive energy optimisation and improve resilience.
The visibility of your energy footprint will grow as you adopt new technologies, but by using a centralised system to holistically monitor and manage your data, this should not add any extra complexity. In fact, your energy management system can provide you with the data you need to justify your investments in on-site energy generation.
Why businesses need to choose the right platform and provider
It is imperative that businesses partner with a provider that has the right energy insight tools and a platform that collects and centralises granular, device-level data.
Working with Total Utilities, businesses can be sure that they’ll benefit from experience and expertise. We are the New Zealand providers of Centrica’s Energy Insight solution and integrated energy management platform, PowerRadar®. These tools are generating new opportunities across all types of industry, giving organisations the ability to manage real-time, device-level energy intelligence in a single, holistic view.
Contact our experts to find out how we can help you obtain real-time visibility of your energy performance and develop a strategy that turns your energy into a competitive asset.
