Energy is, for many businesses, a significant operating expense – but, often, not one that’s actively managed or optimised.
In this article, we’ll make the case for why energy management is crucial for mid-sized and large businesses, and why leading organisations have chosen Negawatt to help them negotiate more than $2 billion in energy contracts.
Why Energy Management Matters
Energy is like any other resource. Acquiring it has a cost – and, once an organisation scales past a certain size, actively managing it can deliver significant savings. That’s especially true for businesses with high energy usage, like manufacturing and resources firms, where a cost reduction of as little as 1 or 2 percentage points can have a big impact on bottom-line savings.
But most businesses don’t have an energy management system in place. In fact, the extent of most C-suite leaders’ energy awareness is sustainability-related – like switching to greener lightbulbs or getting HVAC equipment serviced more regularly. Energy itself is viewed largely as a fixed-price commodity with minimal opportunity for savings.
And that’s a problem, because businesses don’t need to be enterprise-sized to benefit from an energy management strategy. Renewing an energy contract during a market trough, for example, can help you lock in prices that are often 10–20% lower than they would be at a market peak. (For context, a 10% reduction in energy costs can lead to a 1.5% increase in net operating income.)
Energy management can also help you reduce your energy usage by identifying inefficiencies (such as leakage and redundant usage) and installing higher-efficiency systems and equipment. These kinds of optimisations tend to have ancillary benefits too – for example, regular appliance servicing can reduce energy consumption and extend the product’s effectiveness and lifespan.
In some scenarios, your energy use can actually be converted from a liability to an asset. Think about carbon neutrality. It’s something that both customers and shareholders care about – and is especially meaningful in saturated markets where differentiation is difficult.
Renewable energy sources can also positively impact revenue, although in a slightly different way. There’s the associated uptick in brand affinity that comes with any green initiative – and, of course, the ability to subsidise your existing energy usage – but LGCs and STCs can also be sold on the carbon market to offset installation costs.
How We’ve Negotiated $2+ Billion in Energy Contracts
Since Negawatt was established in 1996, we’ve helped dozens of leading public- and private-sector organisations manage their energy portfolios, negotiating more than $2 billion in electricity and gas contracts. Those firms have chosen to partner with us for 4 key reasons: our fixed-fee service, our holistic approach to energy, our tender analysis methodology, and our provision of actionable market intelligence.
1. Fixed-Fee Service
A critical part of energy management is procuring the most competitive electricity contract possible. That aspect can sometimes result in a misperception – that our role is equivalent to a broker’s, where we choose from a pre-selected panel of retailers with whom we have commission agreements.
In reality, Negawatt functions as a wholly independent analysis partner. We don’t receive commission or any other form of compensation from retailers, and we don’t have a relationship – beyond standard commercial interactions – with any retailer, vendor, reseller or consultant in the energy industry.
We’re paid solely by you, on an annual fixed-fee basis, and, unlike brokers, we don’t provide recommendations. Instead, we build consumption and load profiles for each site in your portfolio, issue tenders based on those profiles to an appropriate pool of retailers, and then analyse their responses, giving you and other stakeholders the ability to make an informed decision.
Once a supply partner has been selected, we’ll help execute and administer the contracts, which includes invoice auditing and market-related reporting. In the 12 months prior to your contracts expiring, we’ll present a proposal to issue a new round of tenders in line with market movements.
The result is an objective, highly informed opinion about energy procurement – one that you can rely on to reduce your energy-related expenditure.
2. Holistic Approach
Procurement is a significant part of energy management, and, for many companies, it’s the aspect that matters most. Increasingly, though, reducing demand and staying compliant are concerns too, especially when they lead to some of the ancillary benefits we discussed earlier.
As a holistic energy management partner, our approach spans the full energy lifecycle – from improving procurement to meeting CER obligations. It’s one reason why our clients choose to work with us. Even if their in-house teams had the expertise to time the energy market, analyse tender responses, and effectively administer contracts, the other non-procurement aspects are typically too specialised.
Servicing RET liabilities, for example, requires an up-to-date understanding of the carbon market and energy certificates. Peak avoidance strategies – which can have a substantial impact on demand-side costs – can be equally complex, involving everything from peak shaving via on-site batteries to moving energy-intensive operations to non-peak times.
Instead of building those capabilities internally, it’s typically easier and more cost-effective to work with a specialist energy partner like us.
3. Market-Tested Analysis Methodology
Tender responses are not easy to interpret. Even a well-drafted energy procurement tender won’t produce apples-to-apples comparisons between retailers.
Instead, each response needs to be individually analysed for hidden costs. These can include:
- compliance-related charges
- metering fees
- retail service charges
- loss factors
- CPI escalation
- load variance penalties
- environmental charges.
Potential market changes also need to be factored in. Network tariff changes are one common variable cost; tariffs are set annually by distributors in coordination with the AER and then passed onto retailers and customers. Changes to tariff structures and values can be predicted, to an extent, by analysing distributors’ tariff structure statements, which provide directional guidance for each 5-year regulatory period (the current period is 2024–2029).
Cost pass-through events are another common market change. Pass-through events are costs that are beyond a distributor’s reasonable control, and include events like:
- natural disasters
- regulatory changes
- tax changes
- retailer insolvencies
- extreme demand events
While some pass-through events are genuinely unforeseeable, we do include consideration of relevant proposed and draft legislation in our analyses.
Following an analysis of each retailer’s response, we prepare an easy-to-understand report explaining our findings. You and other stakeholders then have the ability to make an informed decision – all offers are presented on an equal, like-for-like footing.
4. Proprietary Market Intelligence
Unlike property investment, where time in the market matters more than timing the market, renewing your energy contract at market troughs (or as close to troughs as possible) can have a big impact on total energy costs. Consequently, a critical part of energy procurement is forecasting market movements – and timing a renewal to be as cost-effective as possible.
Our market intelligence infrastructure includes an extensive historical database that we use to identify causative events. Those events’ impact on supply, demand, and pricing, is then analysed, which we use to forecast peaks and troughs in retail energy prices based on future known events.
While past performance is never a guarantee of future results, increasingly sophisticated modelling technology and nearly 30 years’ worth of proprietary data mean that we have – and continue to – predict market movements with a high degree of accuracy.
Next Steps
Energy management is too complex to be undertaken solely by in-house teams. Instead, you need a specialist partner that understands the technical aspects of procurement and demand-side optimisation, and has the capabilities to help you reduce your energy costs.
Negawatt has been that partner for some of Australia’s largest organisations, including leading manufacturers and resources companies. To find out more about how we can help you – including an estimate of your savings through an active procurement process – schedule a consultation.