What is going on with energy prices?

I am going to ask you to do something you never do. In preparation, open your bottom drawer and take out that packet of ‘Brave’ pills. Take one now and keep the packet handy.

I am going to ask you to look at your energy bills. I know that trying to understand your 14-year-old’s social media account is less stressful than analysing energy usage, but that is what you need to do.

The energy costs we need to review include fuel cost for vehicles and your electricity bill. Maybe you also have a gas bill and other energy sources.

Fuel prices are the costs we notice most often. Watching fuel price boards along the road is a national pastime so let’s start with fuel.

Energy Australia has calculated the average price of petrol at the beginning of COVID in 2020 was $1.39.  Diesel was $1.45. By December 2022, petrol had risen by 32 per cent to $1.84; worse still for business are diesel prices which rose 53 per cent to $2.22 per litre.

Why? Everyone has a theory, and we have had far too many studies and Royal Commissions into fuel pricing, more than any other industry.

Let us start at the start. The foundation of Western economies and the major driver of our increased wealth since WWII has been globalization. That means we treat the world as one big market. We allow companies to buy and sell products at world market prices, avoid trade restrictions and minimize import duties that only ever slow down trade.  As a result, what we pay retail reflects world prices.

Australia imports over 90 per cent of our fuel. When the price of crude oil goes up it is because, for example, the Saudis announce they are reducing production. The supply/demand trade-off pushes prices up in the world market, and in turn at our fuel pump. 

Diesel prices have risen much more than petrol mostly because we are buying a lot more diesel. In 2020, Australia was buying about the same amount of petrol and diesel, around 1,500 million litres per month.  By 2022, petrol sales had dropped slightly to 1,400m litres/month but diesel had steadily grown over $2,500m litres/month. 

As the demand for diesel keeps growing so will the relative prices. I can’t see that trend changing in the next few years. High diesel prices are here to stay.

The world price has also taken us for a ride and that’s what has pushed Australia over the edge into an energy crisis. To get a handle on this we need to understand that all energy prices are linked. Oil is the probably the starting point, as its price is managed by OPEC. Gas prices follow and so in the end does coal.

To put this into practice, here is just one scenario. Germany imports most of its energy and gets half of its gas supplies from Russia. Putin then decides to invade Ukraine. NATO, including Germany says that’s naughty and to punish Russia, we will stop buying Russian goods.

That’s great but what does Germany do? They start buying a lot of gas from other markets, pushing prices higher. So some energy buyers say ‘Wow, gas is expensive this week, so let’s use the diesel generator, and turn off the gas generator’. So more diesel is purchased and the price of diesel goes up.

Confusing as all of this is, it is actually far more complex. There are spot sales and long contracts. And once you build a gas-fired power station, well it takes a lot to convert to oil, diesel or coal. Amongst the mix are spot traders, forward contracts, wheeling and dealing all to make a buck.

What has pushed up prices?

  • The war in Ukraine, using a lot of fuel and turning buyers away from buying Russian energy (gas and oil).
  • Post COVID recovery, fuelling everything as economies reboot.
  • Supply chain and shipping shortages and rising transportation costs.
  • The above two factors driving inflation in general.
  • Extreme weather events, needing more energy to warm in winter cool in summer.
  • Unplanned outages of several generators.
  • Voluntary early shut down of coal fired generators.

What can you do in your business about fuel costs?  

We cannot control the world, so look internally to see what can be done. The first task is to monitor. Watch the numbers by insisting on an odometer reading every time your drivers buy fuel. Most fuel card systems have this option, but it gets ignored. Next calculate the fuel economy of every vehicle in your business, in litres per 100km.

When I did this analysis for a fleet, the first discovery was petty theft.  Once you see a truck with double the fuel consumption of any vehicle in the fleet, it seems obvious that all is not above board. This one driver was either getting his groceries for free or siphoning fuel into his own 4WD.

For the rest of the fleet, we started posting the numbers on the wall. The third step was to reward and celebrate those who did best, and those who improved the most. Both were to be celebrated.

Nothing is more politically charged then electricity prices as it affects us all enough to change our vote.

According to The Guardian, the former Coalition Energy Minister Angus Taylor knew that prices were ready to rise significantly. They knew it before the May election and made the decision to delay telling voters about electricity price rises.  “On 29 April, Taylor told 2GB Radio that claims of power price rises were fake news,” The Guardian reported. 

All of these energy sources (coal, gas and oil) get converted to electricity at some stage. Electricity is a very odd product. It is instantly perishable and expensive to store.  By perishable, I mean that when Mr DNS turns on a generator at 2 am and no one uses it as we are all asleep, then the energy is wasted. We can and do store electricity in all sorts of batteries from Tesla home batteries to hydroelectricity where we use off peak generation to pump water up to the mountain lake again, so it can once more be run through the turbines and generate electricity at a later time.

Please take another brave pill.  Have a look at your power bill. Do you understand it?

I have been working in electricity analysis for four years and I have not seen two identical bills. That includes bills from the same electricity retailer to the one customer with three buildings in the same street. So do not feel bad.

To understand your power bill, understand that there are three types of fees:

  • Fixed charges, per day or month. Items like meter charges. This end up being maybe $300.
  • Variable charges, some large, some small based on the number of Kilowatt hours (kWh) consumed. Think of this as litres of petrol, and all the multiple fees added up to maybe $0.23 per kWh.
  • Peak or network charges. This is the one that shocks everyone. They look at your consumption and argue that, for example, on Tuesday at 3pm you had the highest demand of the month at 1080 kVA.  Now to keep you happy, we had to build a generator and lines big enough to cope with your 3pm Tuesday power party. So, we are going to charge you $17.28   x 1080 kVA.

It is this peak charge that is often half of your total bill – just for 3pm to 3:15 pm on Tuesday 12th. If you get your meter interval data, and graph it, you can see the peaks and when they occur.

How can you save on this charge?

  • Do not use the kettle and the toaster at the same time, or whatever big machines you use.
  • Stagger the start of heaters and big machinery over 30 minutes or more to reduce peaks.
  • Install soft starts on machines so they don’t peak as much.
  • Install solar and do start ups when the sun is up.
  • Install Power Factor Correction equipment (a whole other topic, but it works with an 18 months payback usually).
  • Install a battery system and program it to trim peaks. Payback is often 18 months. You could even install a battery without solar, and charge it from off peak power at 2am.

Dear Reader, if you power bill is keeping you awake, send a copy to me via the Editor. We will graph your interval data and see what we can do, for zero cost to save you money. 

Monitor your electricity. Not once a month but daily. My favourite gadget cost me about $500 installed including a lifetime 4G data plan. It is a Solar Analytics meter that measures not just my solar system, grid export, but where it’s using the power.  It is a revenue grade meter. So if ever I want to argue the bill, I have my own data.

The latest software upgrade makes the whole deal worthwhile. The system will now look at my exact consumption pattern, every 15 minutes for the past six months. It then looks at all the deals available in the market, shows me how much I did pay and the three best deals available. They take no commission, they don’t even sell. You can call up the better supplier, change account, and do it all again every three months, finding the best available deal just from your app.

Make your own energy

Instead of being at the mercy of market prices, why not make your own? This way you lock in prices at a good price today, and for at lest ten years, you pay no more.  I’m talking about installing a commercial solar system. Not a household system, but a serious business system. While the size of a household system is around 6kW, I’m talking about much larger systems. With all the regulations there are two pricing sweet spots.  A 39kW system, which is just a big house system and a 99.9kW system which needs an Electrical Engineer’s sign-off.

You only want to deal with solar companies who insist on looking at 12 months of raw meter data, analyse the consumption patters and determine the optimal system size for your needs.

James from Taylor Energy in Brisbane shared with me some data from a new system he is installing for a German-owned manufacturing business. The ideal size system turns out to be 359 kilowatts (about 700 large commercial panels).  It will cost them half a million, give them a return of 30.1 per cent on their investment and pay for itself in just under four years, less than halfway through the 10-year system warranty.

They will be producing their own electricity at 6 cents per kWh, compared to the average of 30.5 cents they are paying now.  In addition, they will claim over $200k in government rebates.

The price of polysilicon, the raw material for solar panels has stabilized, and so prices will steady, perhaps even drop a little. That is good news for buying solar in 2023.

Need to know more? Email the Editor and I will try to help, or at least set you in the right direction. 

Gary Fooks is chair of the Blue-Sky Alliance. Gary has been working on small engine emissions standards since 2005 and was announced as the Environment Minister’s Clean Air Champion in 2015.