Key Energy Review - June 2016


Welcome to our June newsletter and unfortunately, news of higher electricity prices. On the one hand low prices experienced this time last year could not be expected to last forever and many of our clients took advantage of these low prices to forward negotiate. On the other hand, it is hard to explain the sudden price increase. As usual, further information about energy prices or anything else dealt with in this newsletter can be obtained from info@thekeygroup.com.au (mailto:info@thekeygroup.com.au) or phone (03) 9885 2633.

Electricity prices have been steadily rising over the last six months. This is best illustrated by the following graph of the Wholesale Electricity Price Index (WEPI).

Wholesage Electricity Price Index

WEPI

The situation with the Electricity Futures Index (EFI) is not any more optimistic.

Electricity Futures Index

EFI

Clearly, the low prices experienced last year could not be expected to last forever. The recent increase is hard to explain, especially the increase in Victoria and New South Wales; there is ample generation in both of these jurisdictions. Admittedly the closure of Alinta’s power station in South Australia presents a problem insofar as the state will be left bereft of low cost coal generation.

Tasmania and the loss of Bass Link presents another interesting quandary for the industry. Fortunately, record rainfall in May helped turn around what could have been a catastrophic situation. That aside, the economic loss for the state and the industries obliged to curtail their activities is something that will be counted for years to come. Hopefully, planners will consider the likelihood of major plant failure more seriously. In some respects it mimics the effect of the Longford plant failure where the unthinkable did happen. Now the question is: do we spend money planning for these problems or just live with the consequences?

Power Factor charges are now spreading across Victoria. From 1 July 2016 Citipower and Powercor will automatically reassign all customers with a minimum demand over 120kW to kVA demand tariffs. Ausnet Services and Jemena will follow from 1 January 2017. Conversely United Energy, who had already introduced kVA tariffs, look like will be reverting back to kW tariffs.

Consider that a 500kW site in the Citipower network with a power factor of 0.8, i.e 625 kVA, will pay about $58,000 pa in demand costs. Correcting the power factor to 0.95 will reduce the total kVA to about 526kVA with savings of about $9,000. This will require about 210 kVAr of power factor correction at a budget price of $26,000. Hence the payback is probably a little under three years.

Has Deregulation delivered any benefit? When we last asked this question we looked at a medium size LV consumer located in the Citipower franchise area of Victoria, and showed that in real terms their delivered cost had dropped from about $142.50/MWh to about $104.42/MWh today. We deliberately neglected the environmental levies as these are new imposts that were not relevant pre-deregulation. In real terms this is a very considerable benefit.

But, if the same customer was located in South Australia with a Maximum Demand (MD) of 500 kW, annual Peak usage of 1,500 MWh and 525 MWh Off-Peak, the story is very different. The delivered cost for this customer has increased to $256.00/MWh in FY 15/16 compared to a pre-deregulation price of $222.18/MWh in real terms. Given slightly different tariff definitions these calculations are a little 'rubbery', but the point is well made. So perhaps deregulation has not worked for everybody.


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