Understanding business energy costs can help you implement strategies to save and reduce your business’s energy consumption.
Wholesale energy prices have been rising steeply over the first half of 2022. While wholesale energy prices make up only 30% of your electricity bill, the increases will impact how much your business pays for electricity.
Many business owners are too time-poor to keep up with what’s going on in the energy market so we have summarised what is happening and why.
Wholesale energy prices
Wholesale energy prices in the National Electricity Market (NEM) have already increased year on year, and it is predicted they will continue to rise.
Queensland has seen a 285% year on year rise in wholesale electricity prices, with New South Wales seeing a 130% increase and Victoria is seeing a 138% year on year increase.
A number of factors have converged to cause this prolonged increase in energy prices:
- Coal based generators suffering from extended outages
- Higher coal prices
- Higher gas prices
- Reduced solar output during winter
- Older coal generators have also left the market, and others are planning to exit earlier than originally planned
These factors have pushed wholesale prices significantly higher than in southern states, with NSW and Queensland hit the hardest.
Contributing factors to wholesale prices
Generators across the NEM have experienced significant outages, due to planned maintenance and unplanned equipment failures, which become more prevalent as generation assets age.
Many coal generators are getting old and becoming more unreliable, which is making outages a more common occurrence.
In Victoria, there was an outage at the Loy Yang 2 power generator due to an electrical fault which resulted in an outage that was estimated to be 100 days, but may end up being 9-12 months long.
Coal and Gas prices
Australian energy users are also becoming exposed to soaring international coal and gas prices. The Ukraine conflict, and the sanctions on Russia impacting gas, coal and oil exports is forcing international energy generators to buy gas or coal in high spot markets – forcing prices for coal and gas up in Australia, increasing the cost of generating electricity.
The demand for coal has increased from around $50 a tonne up to $450 a tonne.
Recently the Australian Energy Market Operator (AEMO) noted that it had to trigger its ‘wholesale demand response policy’ for the first time. This policy involves big power users being paid to pare back their consumption during periods of stress on the grid in an attempt to decrease the pressure.
Renewable energy and wholesale prices
The adoption of renewable energy should help ease cost pressures, but transitioning to more renewable generation will come with its own challenges.
Solar and wind generation is subject to high degrees of instability, and solar is only available during the peak sunlight times. This is why storage of renewable energy is so very important, storing and quickly sending that stored energy will mean that renewable energy will be much more stable and predictable, enabling it to replace the current base load coal generators.