Electricity and the property sector

When the time comes to renew electricity supply contracts, many building owners will be in for a shock at the increase in electricity supply charges in South Australia over the last 12 months.  Two questions arise from this price increase; what has caused it and how should you respond?

Your electricity bill has two main components; the supply charge (the cost of the electricity you use) and the network charges (the cost of transporting electricity to your premises).

Supply charges have increased significantly in SA in the last 12 months, with the major underlying reason being the closure of our last coal fired power station at Pt. Augusta.  Before the closure was announced in June 2015, the wholesale cost of electricity in SA was $52 per megawatt hour (mwh).  It is currently $83 per mwh.  In June 2015 large market customers were contracting their forward electricity requirements at retail prices of 7 cents per kilowatt hour (kwh) for peak power and 3.5 cents for off peak power.  Current pricing is around 13 cents peak and 7 cents off peak.

Quite simply, the lack of generation capacity in SA now means that a great deal of our base load electricity supply now comes from Victoria.  This major change in where our electricity comes from is not clearly understood by electricity retailers, and with this lack of understanding comes risk.  The risk is now being factored into pricing by all retailers, including AGL who own and operate the Torrens Island power station, the largest power station in the state.

The network charges for SA have been determined for the period to 2020 by the Australian Energy Regulator and no significant increases are expected in these charges in the short term, however the rapidly evolving nature of the electricity market, alternative generation and electricity storage are all disruptions that will have a major impact upon the business model for electricity networks in the longer term.

So, what can you do? 

We are currently recommending to our clients that only short term contracts of 12 months be entered into.  Now that Pt Augusta has ceased generation, the impact upon demand will be better understood by retailers who will then reduce the “risk premium” they are currently charging.  It is our opinion that electricity prices will settle back to 10 cents for peak power and 5 cents for off peak power in the next 12 months, so contracts beyond this timeframe should be entered into with caution.

We are also recommending to our large electricity consumers that they review their network charges.  There have several major changes in network tariff categories in the last year, meaning that you may be paying more than you need to be paying.  We have seen reductions in network tariffs in excess of $,000 when a correct match is made between consumption patterns and the correct network tariff category.

Richard Mintz is a Director of Savant Energy Power Networks Pty Limited (www.sepn.com.au), the only licenced electricity retailer wholly owned and operated in South Australia.  SEPN specialise in developing and managing embedded networks for electricity, gas and hot water in multi tenant facilities such as apartment buildings, retirement villages, office buildings and shopping centres.