Small businesses and homeowners all over Australia have been faced with rapidly increasing energy costs over the last several years. The increase has been so drastic that the country went from being one of the lowest-cost energy markets a decade ago to competing with Germany and Denmark for the most expensive power bills in the world today.
Rising energy prices put enormous pressure on businesses that rely on any significant level of power consumption. Unpredictable price increases can result in budget shortfalls, drains resources from other projects, and forces them to additionally raise prices to pass the burden on to consumers. This, in turn, makes them less competitive against foreign competitors that can operate in a lower-cost environment. To survive, businesses need to understand what’s causing the problem, and how they can react to protect their interests and continue growing.
Why are power prices rising?
Energy costs are a politicised issue in Australia, which can make it difficult to track down exactly why costs are rising so dramatically. Initially, in the early 2010s, the blame for the sudden price increase was laid on Australia’s carbon pricing scheme, which was introduced around the same time in 2011, and came into effect in 2012. However, prices continued to skyrocket even after the program was repealed in 2014.
The culprit, it appears, is actually Australia’s electricity network providers, and some sorely miscalculated infrastructure investments. Network companies, with the support of regulators, invested $45 billion dollars in 2010 to upgrade the grid to accommodate an expected spike in demand. This investment was made on the assumption that a growing energy market would bring a return over the next 40 years. The opposite happened, however, and Australian energy demand has actually gone down every year since 2010. To finance their infrastructure projects, network companies had to raise prices, which only drove people to reduce their power consumption even more to try to keep costs manageable.
This vicious cycle has continued for the better part of a decade, and prices are still rising. Australia’s new, super-powered electricity grid is serving fewer customers with less power. These astronomical prices, however, also present an opportunity for new energy providers. Renewables, specifically wind and solar companies, are flocking to Australia to offer stable, independent energy solutions to businesses and homeowners.
How can businesses cope?
Businesses who are facing astronomical and unpredictable electricity bills are now in a unique position. High energy prices squeeze budgets, cause cash flow disruptions, and sometimes even sink entire businesses. However, they also make it comparatively cost-effective for businesses to invest in their own personal power infrastructure. Many businesses are doing exactly that, and turning Australia into a leading market for renewable energy.
Stabilise your own supply
In Australia, solar and wind power are significantly less expensive than fossil fuels, precisely because they can be generated by the end consumer. While network companies buy their power at a highly competitive 5-6c per kilowatt-hour, consumers often pay as much as 30c per kilowatt hour. Over the life of the system, solar power currently costs around 7-15c per kilowatt hour (depending on the panels, light conditions etc…), and wind power is already directly competitive with fossil fuels. So long as a business can come up with the initial investment to install their own local power generation equipment, they can drastically cut their energy costs. Better yet, the long-term cost is completely predictable, allowing businesses to plan for the future with greater financial security.
Disrupt the energy industry
Businesses can do more than just stabilise their own energy costs by producing their own power. If they want, they can also get into the energy business themselves. Excess power can be fed into the grid and sold to the same network companies for distribution to other users. As more homes and businesses turn to power generation as a way of cutting energy costs, the entire grid system is promising to become more of a supplementary support network than a default energy provider. This, again, would only be likely to increase energy prices more as network companies work to stay in business, but it also creates a new equilibrium that ultimately gives more control to consumers, and creates a more stable and resilient system overall.
Despite the visible changes to the landscape of Australia’s energy industry, both existing energy providers and government regulators haven’t sought to capitalise on the opportunities presented by these events. Instead, they expect to keep prices uncompetitively high, with no clear plan for the future. Their inaction creates a situation where proactive businesses can seize a major competitive advantage by effectively halving their energy costs while less enterprising competitors are left to continue coping with the increasingly obsolete and overpriced network companies. By adapting quickly, you and your business won’t just escape an unstable situation, you also get a leg up on the competition.