Finance Finance News Businesses turning to renewables as energy prices climb

Businesses turning to renewables as energy prices climb

Businesses are making deals with renewable energy providers to combat rising energy prices. Photo: The New Daily
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Australians are paying 20 per cent more to power their homes than they were a decade ago despite recent improvements in the cost of energy.

The ACCC’s latest Inquiry into the National Energy Market found the average household is paying $254 (in today’s value) more for electricity than they were in the 2007-08 financial year.

That’s despite the average energy bill falling 4 per cent ($65) over the past 12 months, ACCC chair Rod Sims noted.

Mr Sims said those reductions were driven by changes to energy pricing introduced on July 1, but further reforms would be needed.

“There is still work to be done to make electricity more affordable for households,” Mr Sims said.

Environmental costs adding to bills

The ACCC’s report found the largest contributors to energy price increases in the past decade were added costs stemming from environmental policies, which drove the average annual bill up by $103.

These policies were implemented to combat greenhouse gas emissions, encourage better energy efficiency and more renewable energy use, but add to retailers’ cost of doing business – costs that are then passed to consumers.

Mr Sims was particularly concerned by the current Feed-in Tariff (FiT) rebate arrangements.

These rebates allow households that generate their own solar power to earn money from retailers by selling excess energy back into the grid.

The ACCC noted households without solar panels are now paying about $550 more per year than households without solar panels, helping cover the additional cost the scheme places on retailers.

“The cost of installing solar panels has reduced significantly in recent years, so environmental schemes like the premium FiT rebates are no longer needed to make solar an attractive option for those households that can afford it,” Mr Sims said.

“Indeed, all customers who can should consider how much they could save by installing solar panels. We are primarily concerned about the additional costs such schemes have imposed on households that cannot access or afford to install solar panels.”

Businesses turning to renewables

Clark Butler, analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), said the cost pressures stinging households are also affecting corporate Australia.

In response, more and more are entering ‘power purchasing agreements’ (PPAs) with renewable energy providers.

These agreements allow large corporations to negotiate with energy providers to supply power at a predetermined price for extended periods.

By 2018 PPAs now account for 1500 megawatts of renewable capacity, having grown from a “virtual standing start” only four years earlier.

Initially PPAs were used by businesses looking to cut their carbon emissions. But as prices from the broader market have increased, renewable providers have been able to offer “a pretty decent saving” to businesses.

“Probably the more important benefit they get is the protection against pricing volatility and future increases,” Mr Butler added.

“That’s not different to previous commercial purchasing agreements, but the prices that renewable PPAs are able to offer are better than what they’re getting from the broader market.”

PPAs could help increase renewable market

Although PPAs are not an option for households, their growing popularity could change Australia’s energy market over the long term, Mr Butler said.

That’s because these long-term deals – often lasting five or 10 years – mean renewable energy producers have a guaranteed source of funding.

Over the long term, Mr Butler said these deals have the potential to significantly lift the amount of energy generated from renewable sources, and the larger scale will only attract more investment.

Mr Butler pointed to superannuation as an example, noting many larger industry funds have shown interest in renewable energy but aren’t able to invest because current projects are too small to meet their mandates.

“If you have a $50 billion investment fund, you can’t invest $50 million in individual projects otherwise you’d just have endless projects,” he said.

“You want $500 million projects or $5 billion projects.

“Funding certainty is self-generating.”

But businesses are not yet taking up these agreements fast enough to drive that change, Mr Butler said, and large energy users (such as the Tomago aluminium smelter which uses 12 per cent of New South Wales’ electricity) to get on board first.

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