Key trends in energy management

In this article, Executive Director and founder of Energetics Jonathan Jutsen predicts some key trends in energy management over the next three years.

Trend 1: Gas price escalation will lead to a drive for improved gas use and alternative supply options

Over the last six years, business experienced a near doubling of electricity prices. Electricity prices have now stabilised and we are anticipating only moderate electricity price increases in the next three years and prices should fall by around 10%, if the carbon price was scrapped. The rapid price increase plus technology improvements, the strong exchange rate and incentives made electricity efficiency projects, which would not have even been considered five years ago, highly attractive and have driven significant overall efficiency improvements.

Gas pricing is the next big challenge for business, with potential doubling of wholesale commodity prices on the cards as the three Gladstone, Queensland, LNG plants come online from 2015 and expose the domestic industry to global gas price parity. There are many uncertainties in gas supply and demand and, as a result, Energetics has been running three gas price forecast scenarios, as depicted in the chart below, with a probability against each scenario which is adjusted as market conditions change.

The most likely outcome is for significant price escalation and there may even be supply constraints in NSW. We are working with a large number of industrial companies to mitigate the impact of the price increases through:

• enhancing submetering and business systems to drive continuous improvement in gas use;
• developing gas efficiency improvement and project implementation business cases; and,
• alternative sources of supply and alternative boiler fuels.

Trend 2: Australia needs to improve its energy productivity to maintain and then improve competitiveness

In my role as chair of the Australian Alliance to Save Energy (A2SE), I’m working to pull together a project to define how Australia could double its energy productivity ($ GDP/unit of energy consumed) by 2030. This is a critical project. We built our industry based on exploiting low-cost energy resources, but are moving rapidly to paying international parity pricing for our energy.

Because of our low energy costs in the past, we have generally neither invested in the most energy-efficient technology available nor had a culture of eliminating waste and optimising resource efficiency. This means we have low energy productivity, and Australia’s energy productivity has been increasing at half the rate of comparable countries over the last two decades. So the competitive advantage we have been steadily frittering away has now gone, and is becoming a weakness.

High prices + poor productivity = competitive disadvantage

Most businesses can achieve this goal of doubling energy productivity through continuous improvement in operations and maintenance and investing in retrofitting plant for efficiency and applying improved technology. This will become critical in energy-intensive businesses dealing with escalating gas prices.

Trend 3: All companies with significant energy use will develop energy management systems integrated into overall business management

Most companies still do not manage their energy use systematically using a continuous improvement approach. The federal government’s Energy Efficiency Opportunities (EEO) program aimed to push the top 250 energy-using companies into applying EEO as their management system and some companies have adopted this and other systems to professionally manage energy performance. But this is not the norm.

Energetics introduced the One-2-Five program to help companies improve their business systems 15 years ago, but these approaches are still the exception. Our focus now is to encourage clients who have implemented EEO and ISO14001 to make the small additional step to extend their ISO140001 systems to include energy and comply with ISO50001, the new energy standard.

But, just implementing a standard does not ensure results. Energy management must be integrated into business operations and become the responsibility of operations management. This is becoming an emerging trend.

We are working with many companies now to enhance submetering and performance monitoring and reporting across their facilities. Meter data providers and some equipment providers are now offering on-bill payment for information services, rather than the company having to outlay capital to buy and install metering and monitoring systems.

We also expect much greater focus on training and capacity building in energy management and the evolution of the role of the professional energy manager. We have been offering internationally recognised Certified Energy Manager training, and this will become increasingly important for companies dealing with escalating energy costs.

Trend 4: Government carbon policy will become less of a critical driver in energy efficiency and external funding may become more difficult to access

The advent of the new Coalition government marks a significantly reduced focus on carbon mitigation from the last three years. The new government wants to remove the carbon tax, a whole range of incentives (including the very popular Clean Technology Investment Program) and finance for carbon mitigation, and may cut the RET (renewable energy target). They will implement a ‘Direct Action’ program with fixed annual budget allocations, but it is still unclear what this program will entail. It appears that some form of baseline and credit trading scheme for major emitters will operate, combined with a ‘reverse auction’ scheme to fund cost-competitive carbon mitigation including energy efficiency. The Direct Action program is unlikely to be implemented this financial year, though $300 million is budgeted, so there will be a funding hole from the dissolution of the CTIP and other programs until it starts. There is also a question about the new government’s approach to existing state schemes such as the NSW Energy Savings Scheme and whether they will seek to influence the states to close them down.

Trend 5: Financing energy projects has become much more accessible, as well as on-bill charging for services

Finance for energy-efficiency projects has become easier to access. The big four banks are offering up to seven-year terms for equipment lease finance (on balance sheet) to their customers, with zero up-front capital and repayments aligned with savings cashflows. Non-bank institutions are also offering off-balance-sheet financing (operating leases) for energy efficiency but at higher rates. There are also many other ways to access finance now including on-energy-bill payments, performance contracts, EUAs and energy services contracts for supply of hot/chilled water, power and other services.

It is increasingly attractive to offer these services, packaged with funding, to deliver the most attractive and simple way to ensure project implementation and remove capital obstacles.

Trend 6: On-site renewables will start to become viable for business

Renewables are becoming an attractive option for businesses in specific instances and will become more widespread as fossil fuel prices increase. PV (photovoltaic) is already economical in more remote areas with high central-power prices. Large-scale wind is economical where there is a good wind resource and suitable site conditions, away from residential developments. We are seeing several attractive projects emerge at present using utility-scale 2-3 MW turbines. There will be a rapidly increasing focus on hybrid fossil/renewable solutions in remote areas off-grid.

In summary, business faces a challenge to rapidly improve energy productivity in order to address escalating energy prices, particularly gas, over the next three years. Continuously improving energy efficiency and investing to improve plant and equipment will need to become part of Australia’s business culture or it will become an increasing source of competitive disadvantage.