Altus Energy Insights
In the previous article on reducing electricity costs we looked at energy efficiency and the fact that the cheapest electricity is the electricity that you don’t consume.
In this article we will look at how to pay less for the electrons that you do consume.
The article is based on Chapter 13 (Step 6) of my book “Power Profits – A Comprehensive 9-Step Framework for Reducing Electricity Costs and Boosting Profits”.
Retailers bundle up electricity products into a vanilla product that have risk premiums and profit margins built into them, and many businesses are unaware that there are alternatives to buying electricity at these risk-premium-laden fixed prices.
The standard retail contract
Most businesses in Australia purchase electricity as a bundled retail product from a licensed retailer. The retailer takes care of the administration of the customer’s supply service, […]
We all know that electricity prices have escalated dramatically over the last couple of years. But did you know that it is possible to offset these increases and even achieve cost reductions in the face of increasing retail prices?
Electricity bills are composed of:
- Energy charges (the cost of the electrons that you consume)
- Network charges (the cost of the supply infrastructure required to deliver the electrons to you)
- Retail supply charges (the cost of the hard work that the retailer puts in to ensure that electrons are delivered to you and a margin to reward them)
- Metering charges (the cost of measuring and reporting the amount of electrons that you consume)
- Market charges (the cost of the service that the Australian Energy Market Operator AEMO provides to ensure the smooth operation of the market)
- Environmental […]
Pool prices fell last week due to strong wind generation throughout most of the week and some negative half-hour prices dragging the average down below the median price.
The average price was a relatively low $61.09/MWh with the median price being $65.13/MWh. The average was lower than the median due to several half-hour periods of negative prices, the lowest of which was -$366.10/MWh. There were no half-hour prices above $300/MWh and only eight half-hour periods above $200/MWh. The negative prices were the result of high wind and rooftop solar generation and low demand.
Figure 1 shows the daily half-hour box plot inclusive of outliers for the week and Figure 2 shows the same box plot with the outliers removed. The average price on Sunday 29th was $5.25/MWh.
With the recent recommendations of the ACCC to implement a demand response mechanism to “promote competition” and “not allow retailers to limit the ability of customers to engage a third party demand response provider” I thought that I would share excerpts from Chapter 13 of my recent book Power Profits – A Comprehensive 9-Step Framework For Reducing Electricity Costs and Boosting Profits.
This Chapter discusses how end users have the option not to accept plain vanilla fixed price retail contracts and instead have full or partial exposure to the wholesale market pool price and manage their risk through demand response and other hedging mechanisms. End users can gain the full benefit of demand response rather than giving half of the benefit away to retailers and demand response aggregators.
The Chapter is titled: Step 6 Reduce Your […]
Prices increased in the week of 22nd – 28th July due to one high price spike on Saturday the 28th when wind generation and imports from Victoria dropped to almost zero during the morning high demand period. High-cost Open Cycle Gas Turbine Generation (OCGT) and diesel generation were required to meet demand during this period. The average price was $93.10/MWh compared with the prior week of $76.20/MWh.
Figure 1 shows a box plot (excluding outliers) for daily half-hour price distributions over the week-long period. The median pool price for the week was $80.76 compared with the mean price of $93.10. The week saw some negative prices as well as the $3,985.64/MWh price spike that pulled the average up above the median.
Figure 1. […]
South Australian Wholesale Electricity Price Review 8th – 21st July
This week’s blog covers the last two weeks electricity price action as I was “curtailed” last weekend with higher demand elsewhere.
The prices during the week of the 8th-14th July were significantly higher than previous weeks due to a scheduled outage of a transmission line connecting the South East of the State to the rest of South Australia on the 9th July. This outage effectively cut off most of the imports from Victoria at a time when the wind generation had dropped to almost nothing. Nearly all of the demand needed to be met by gas-fired generation and they certainly “made hay while the sun shined”. The average price for that week was $216.05/MWh, largely driven by that 8-hour period over which the […]
The wind returned to South Australia last week increasing wind generation and pushing down wholesale market electricity prices to an average weekly price of $64.99/MWh. Peak period prices averages $73.78/MWh (7.38 c/kWh) and off-peak period prices averaged $58.70/MWh (5.87 c/kWh).
Figure 1 shows the box plot of the daily distribution of half-hour prices for the week. The distribution of half-hour prices dropped sharply on Tuesday 3rd July and remained low for the remainder of the weak. There is a significant outlier, or price spike, on the 4th July.
Figure 1 Daily SA Electricity Price Box Plot (Data Source: NEMReview)
The reason for the step down in the daily half-hour price distributions on the 3rd July was the increase in the wind generation and the stability of wind generation for the remainder […]
The last week of June 2018 saw very low wind for much of the week and so prices rose on the back of increased reliance on more expensive gas generation, particularly Open Cycle Gas Turbine generation and on imports from Victoria. The average wholesale market price for the week was $115.89/MWh and the median was $111.58/MWh.
Figure 1 shows the box plot of the daily distribution of half-hour prices for the week. It can be seen that the average price (in red) was above $100/MWh for the first five days of the week, beginning Sunday, and then dropped sharply for the last two days of the week.
Figure 1 Daily SA Electricity Price Box Plot (Data Source: NEMReview)
Wind generation during the week was very low except for Friday 29th June […]
This week, the Southern Hemisphere Winter Solstice and low wind combined to push wholesale electricity prices up. Demand jumped up with a combination of cold, winter weather and low wind generation and the lack of wind generation encouraged more Open Cycle Gas Turbine (OCGT) generation, Victorian imports and even some diesel generation.
Figure 1 shows the time series plot of demand for the week with demand reaching more than 2200 MW four times during the early evenings as people arrived home to their cold houses and turned their heating and cooking appliances on.
Figure 1 SA Electricity Demand Time Series (Data Source: NEMReview)
The 21st June was the Southern Hemisphere Winter Solstice with the shortest day of the year signalling the depths of winter. Minimum temperatures dropped to as low […]
The second week of Winter in South Australia was quite chilly with several days reaching a daily maximum temperature of only 15C with typical minimum temperatures of around 9C. Despite the cold weather, electricity prices remained relatively low, by South Australian standards, with an average wholesale electricity price of $73.37/MWh (7.34 c/kWh). The driver of the lower prices was a relatively high and stable level of wind generation.
Figure 1, below, shows the distribution of half-hour pool prices in each day of the week beginning on Sunday 10th June. Box plots as explained in this post, are a great way of visually analysing a large amount of data and studying data distributions and volatility. There are 336 data points reflected in the box plot below. The red line is the average price on each day.
The first week of Winter in South Australia saw an increase in wholesale market electricity pool (spot) prices with very low wind on all but three days of the week. The week started with almost no wind generation but on Wednesday 6th June the wind came back displacing interconnector imports and a large amount of the gas generation, particularly the Open Cycle Gas Turbines (OCGT). On Thursday 7th of June as the wind picked up further, generation output at Pelican Point, Torrens Island, and even Osborne was reduced as wind generation dominated the generation mix. The wind disappeared on Saturday 9th bringing back the gas generation, including OCGT, pushing prices back up.
The charts below shows time series plot of half-hour electricity prices and wind generation over the week.
The last week of Autumn 2018, over the period from Sunday 27th May to Saturday 2nd June, has been very interesting for explaining South Australian electricity price action as it was a great example of how generation mix and price change with changes in wind generation. The week was characterised by modest demand throughout the week and a drop off in wind generation in the second half of the week. Overall, electricity prices were relatively low, for South Australia.
The chart below shows a time series plot of half-hour electricity prices over the week.
The plot shows an increasing trend as the week progresses with some $200 price spikes from the Tuesday 29th May.
The box plot of this price action by day shows […]
This last week ending Saturday 26th May in South Australia, we saw Pelican Point re-joining the party, albeit only dropping in for a short “drink”.
Based on the data, it appears that the Pelican Point Power Station started up one of their units, after more than one month off, on 24th May. This appears to have helped reduce the spot price and also led to electricity starting to be exported from SA to Victoria.
The chart below shows a box plot for half-hourly spot prices for each day of the week.
The charts shows an increase in the spot price distribution on Tuesday 22nd May and a significant step up on the 23rd May and then a drop back on Thursday 24th May and subsequent decreases into the weekend. Prices […]
The month of April 2018 saw an increase in the average SA electricity pool price due to a number of high price spikes on the 26th April. The average was $98.37/MWh for the month compared with the previous month of March at $80.70/MWh.
As an end-user exposed to the pool price, with the ability to curtail load in the event of high price spikes, we are interested in the underlying half-hour spot price action and not just average monthly prices. We also want to know what is driving the price spikes so that we can be prepared for them.
A great way of understanding half-hour price action volatility and trend over time is to use box plots. Box plots capture all of the price action so that the data can be easily visually compared to examine price […]
The traditional approach to buying electricity has simply been to see it as any other purchase: businesses would try to secure a good price and good terms, but there was little or no thought given to energy as a strategic issue, despite its importance to many businesses. But the traditional approach to buying electricity almost guarantees locking in much higher electricity costs than can be achieved with the more modern, innovative and sophisticated methods we examine in the new book Power Profits.
In Chapter 2 of the book, we examine the eight most common mistakes when purchasing electricity.
There are eight very common mistakes made when it comes to purchasing electricity using the traditional method. These are issues I have seen firsthand time and time again:
- automatically rolling over contracts at […]
This post is taken from Chapter 3 of my new book Power Profits – A Comprehensive 9-Step Framework For Reducing Electricity costs and Boosting Profits.
A framework provides structure, logic, and a sequential process that can be followed by anyone. This 9-Step Electricity Cost Reduction Framework has been used successfully in businesses in which I have had the responsibility for managing the operations, as well as in client businesses where I have assisted in helping reduce electricity costs. It has been developed by combining an operations perspective with knowledge of how the electricity market operates, and by applying quantitative analysis and financial risk techniques.
The context for the framework is the Eastern Australian National Electricity Market (NEM), but the principles can be applied in other international electricity jurisdictions and even in Western Australia.
The term “energy” is […]
This is the last of an initial series of articles about the opportunities for end users in the mainland regions of the National Electricity Market to save costs by purchasing electricity at pool prices and adopting a Demand Response strategy to save more. The previous articles can be found through the following links for South Australia, Queensland and New South Wales. This week we have a look at the opportunity in Victoria.
Table 1 shows that VIC along with NSW have been the two regions that have consistently had the benefit of relatively low and stable prices over the last, almost two, decades.
Table 1 – Financial Year Average Annual Spot Prices by Region
Victorian spot prices are far less volatile than in South Australia and Queensland as shown below in Figure […]
In my previous articles on electricity pool pass-through and Demand Response (see articles for SA,QLD, NSW and VIC) I presented historical pool price data over the last two years and compared that with indicative retail pricing to indicate the size of the cost saving opportunity.
In this article I present how a pool pass-through plus demand response strategy would have performed for different load profiles in the first quarter of 2016 for the mainland States. I have excluded Tasmania due to the interconnector failure but that case does highlight that sometimes the worst-case scenarios can manifest themselves.
Different load profiles will result in substantially different electricity costs for different businesses. A business that runs predominantly during peak periods will obviously incur a higher average unit cost than one that runs through both peak and off peak periods. […]
Last month I wrote about what happened with pool prices over 2014-15 in South Australia and Queensland and the opportunity for savings with pool price pass-through strategy and DSM. This week we will have a look at the opportunity in NSW based on 2014-15 historical data.
Table 1 shows that NSW and VIC have been the two regions that have consistently had the benefit of relatively low and stable prices over the last, almost two, decades.
Table 1 – Financial Year Average Annual Spot Prices by Region
The relatively lower NSW pricing is explained by the fact that there is a larger market, more generator competition, a large supply of lower short-run marginal cost black coal generation and a less “peaky” market demand than SA all culminating in less price spikes driving the […]
In early February I wrote this article about the electricity cost tsunami hitting SA businesses and what they could do to avoid the enormous price increases. I followed this up this month with a review of what January and February would have delivered a spot-exposed business in SA, in terms of benefits.
I received a lot of feedback about these articles including questions as to what the minimum load threshold for this strategy to be effective is and would it be possible to make similar savings in other states.
In terms of threshold, a business with a total annual consumption of 3GWh or more would certainly benefit from this strategy. This may include businesses with a peak demand of around 500 kW or more. Smaller loads would also benefit but the returns might not be large enough to generate strong interest.
In this article […]
I have written previously about the coming energy cost tsunami in WattClarity http://www.wattclarity.com.au/2014/10/when-the-levee-breaks/ Well, the electricity levee in South Australia has finally broken after severe cracking and the resultant tsunami is now swamping business consumers coming out of contract in 2016. Prices have almost doubled from the already high level they had been previously and customers weren’t expecting it.
Figure 1 shows the Calendar Year 2016 base futures price history up until 31 October 2015. Businesses that negotiated with retailers and locked in an agreement in the first half of 2015 received pricing not too dissimilar to the previous year. Those businesses in negotiations in the last quarter of 2015 were subject to pricing offers 180% – 200% higher and were forced to make a hard call on what term they locked in. Some customers were able […]
What would the benefits have been, with spot exposure and Demand Response, in SA for January and February 2016
1 January 2016 was the start date for the new “high price” contracts for SA business consumers that renewed their retail supply contracts in the second half of 2015. Quite a few consumers decided not to lock in the high fixed retail pricing but instead adopt a pool price pass-through arrangement with an accommodating retailer.
So how would have those consumers fared over the first two months of the year?
Figure 1 – Time Series Plot of SA Half-hourly pricing 1 Jan – 28 Feb 2016 (Data source: NEM-Review)
Figure 1 shows a time series plot for every half hour interval for the first two months of the year (excluding 29th February – the day of writing this article). It can clearly be seen that there was one “scary” spike above $5,000/MWh in mid January and […]
Recently there have been many news stories and conference papers calling for the Government to save businesses from rising electricity and gas costs otherwise they will “go under”. In fact, all sectors of the Australian economy are starting to feel the effects of an energy cost tsunami coming towards them. The Eastern States are starting to see up a twofold increase in natural gas prices as a result of the burgeoning LNG export industry buying up domestic gas combined with a lack of competition (WA has already gone through a threefold increase). “Gold Plating” of electricity networks and the so-called Solar PV induced “Death Spiral” are conspiring to push electricity supply charges up. Overlaying all this is the policy objective of achieving reductions in CO2 emissions through the renewable energy scheme putting additional short to […]