Publication: Understanding your business electricity costs
This paper on understanding business electricity costs is intended to help corporate and facility building managers better understand how their business and sites are being billed, what electricity costs are composed off. Options to save money on electricity bills is discussed in our paper on reducing electricity costs. This information is for ‘large customers’ on a contestable market contract (e.g. a site in NSW using > 100MWh pa and spend ~>$20k pa) and does not apply to ‘small customers’ on default tariffs or small business contracts.
Electricity bill components
In Australia electricity costs are composed of:
- Retail charges. These are the contestable components of your bill. These charges are set out in your electricity contract. Retail charges are calculated on kWh consumption, and rates typically vary depending on the time of use (peak, shoulder and off-peak).
- Retail service fee. This is a charge from your energy retailer as set out in the contract.
- Network charges. These are passed through costs from the electricity network. These are costs associated with the transmission of electricity from the power station, through to local sub-stations and to your site.
- Environmental charges. There are a range of state and federal government environmental charges. E.g. in NSW there is the NSW Government Energy Saving Scheme (ESS) charge as well as the Australian Government Small-Scale Renewable Energy Target (SRET) and Large-Scale Renewable Energy Target (LRET).
- Carbon tax. This is a charge based on electricity usage related carbon emissions, see below for more information.
- Australian Energy Market Operator (AEMO) charges.
- Metering charge. This is an annual charge for metering services and data collection.
The following figure shows the break up of electricity costs for a medium sized business in Sydney.
In the figure it can be seen that retail costs, the contestable charges tendered for in your electricity contract only account for 24% of total electricity costs. Network costs account for over 50% of total electricity costs.
The access charge alone (a fixed daily charge to connect to the network) accounts for 13% of total costs ($6,000 pa) for the business above. This access charge is dependent on your network tariff. So it is critical to make sure you are on right tariff.
As a large electricity account the site is charged a network capacity charge. This is a charge based on the maximum demand your site places on the electricity network over the past 12-months (during peak periods). Note that this is a kVA charge. For this site the network capacity charge accounts for 16% of total costs, this is quite high and suggests that there may be demand management opportunities such as installing power factor correction, and scheduling major plant equipment. our energy audits assess a range of demand management and reduction opportunities to reduce electricity costs.
Retail charges account for between 20% and 40% of total electricity costs.
It is important to note that while many energy retailers may offer similar rates for electricity usage, the service charges can vary significantly, and so can the level of customer service and data support (e.g. access to online data).
We work with our clients to find the electricity retailers that offer the best retail rates and the best customer service. Whether your business has one site or a number of facilities across Australia we can help find the best price to reduce energy costs. See our energy energy procurement page for more information or contact us for a free quote.
Unfortunately some Energy Brokers have been taking advantage of businesses and signing them up to use their own more expensive metering agent as opposed to using the energy retailers preferred metering agent. For some sites we have audited this has cost them an extra $1,800 to $2,400 per year.
Don’t be fooled by Energy Brokers who appear to save you money on retail rates, only to increase your metering charges. Talk to us for independent advice when renewing or moving onto a new electricity contract.
While the impact of the carbon tax on energy costs has been widely publicised, not many people realise that 6% to 10% of electricity costs are for other environmental charges (ESS, SRET, LRET). While it is true the carbon tax has electricity increased costs for businesses by ~8% to 10% this does create a strong cost-incentive to invest in energy efficiency technologies and improve energy management practises. Our energy audits are a comprehensive tool to identify the best ways to reduce energy usage and energy costs.
It is important to check how your business is being charged the carbon tax. In 2013/14 the carbon tax is set at $24.15/tonne CO2-e. But how much carbon dioxide are you producing. Energy retailers apply a carbon dioxide emission intensity index (CDEII) to calculate carbon emissions from your electricity usage. The CDEII is calculated on a state and national level by the Australian Energy Market Operator (AEMO). Some states (e.g. Tasmania and South Australia) have a relatively low CDEII. If your energy retailer is charging you based on the National Energy Market (NEM) average CDEII than you may be paying more for carbon tax than if you were charged on your state CDEII. The following figure shows daily CDEII values for all states and the NEM average.
Contact us now to reduce electricity costs
We can help your business reduce and manage electricity costs.