Despite energy costs hitting record highs, Australian manufacturers can still gain a competitive edge by finding smart ways to make energy savings. By Lachlan Jacobson.

Australia’s manufacturing industry is one of the nation’s most energy-intensive. It accounts for close to one quarter of Australia’s total energy consumption and around 40% of natural gas consumption. Historically, manufacturers have benefitted from low energy costs but in recent years, costs have increased. According to the Australian Energy Market Operator’s (AEMO) first quarterly report of 2019, prices are at a record high. While this has impacted manufacturers’ bottom lines, energy still has the potential to offer a competitive advantage.

Australia’s shifting energy market is creating new opportunities for manufacturers to generate savings in the energy category, from taking on portions of Australia’s growing pipeline of renewables, to investing in future-ready energy strategies that leverage market-ready tech to deliver savings. If manufacturers are able to engage with how they use energy, they can move beyond being simply price takers.

Plan for the long term

The energy market is changing. Coal-fired generation is leaving the market and being replaced by renewable energy. This is pushing new retailers to deliver more innovative offerings and impacting how users engage with energy.

At the forefront of this shift is the rise of the Power Purchase Agreement (PPA). First pioneered by large corporates like Telstra and Coca-Cola Amatil, PPAs allow businesses to push past the traditional retail model and lock in long-term agreements directly with renewable generators.

This model, when treated as more than just a financial tool, enables manufacturers to contract energy directly from wind and solar plants, supporting Australia’s development of renewable energy. It is a low-cost strategy that reaps the most benefits when implemented for a long-term period, and allows businesses to fulfil sustainability commitments.

For one leading food & beverage manufacturer, the decision to enter a PPA delivered savings of 18% on its energy costs in 2018, compared with what it would’ve paid on a standard fixed-rate retail contract.

Knowing the hows and whens

Taken alone, PPAs deliver low-cost renewable energy, but if treated as part of a broader energy strategy, they create more opportunities on price.

The concept of peak and off-peak is familiar to many energy users – most fixed-rate contracts charge based on this pricing model. But these contracts don’t give transparency into the actual highs and lows of the market, which shift every 30 minutes. Manufacturers who buy from the wholesale market should look at how and when they use power, to maximise the opportunities to tap into low-cost pricing periods.

Demand management, specifically load shifting, encourages manufacturers to move operations in-line with the highs and lows of the market. This can be as simple as shifting energy-intensive processes to earlier in the day to reduce consumption during the more expensive late afternoon and early evening period.

These small daily movements, which can account for just a handful of hours over a year, drive down total energy expenditure. Aside from the cost-benefit, demand management connects manufacturers to how they use energy, allowing them to uncover potential areas of improvement.

For businesses, especially those buying power on the wholesale spot market, it can deliver savings of up to 33.3% on energy costs, in addition to savings generated by a PPA.

ANCA: Leading the way

Founded in 1974, ANCA has established itself as a leading manufacturer of CNC tool grinding machines, motion control systems and sheet metal products, exporting 98% of its product while remaining based in Melbourne.

Faced with a changing energy market, ANCA knew that it would need to make a change to how it bought energy if it was to keep costs down. When the power contract came up for renewal, its incumbent offered a quote of a 100% price increase, while another power supplier quoted an increase of almost 150% from the existing spend.

ANCA approached Flow Power for an energy solution that was reasonably priced and offered greater transparency on costs. Looking at ANCA’s energy usage, Flow Power was able to connect the manufacturer to low-cost wholesale wind power through a Corporate Renewable Power Purchase Agreement.

The renewable energy can be used in real time to offset grid electricity consumption, saving thousands of dollars in electricity costs and reducing overall emissions. ANCA buys a fixed percentage of wind power under a ‘take or pay’ arrangement, meaning that the business only ever pays for what it uses.

ANCA’s cost saving potential doesn’t stop there. Data assessed from a 12-month period (Q2 2017 to Q1 2018) has shown that using a demand response strategy would deliver a further 2.3% in savings. This is on top of those savings already achieved from buying wholesale power with a PPA.

Defying the economy

The time is right for manufacturers to act on energy, and the market is ready with tools to drive them.

Taking a holistic view of energy that encompasses how it is sourced, managed and consumed is the avenue that will power a low-cost energy future for Australia’s manufacturers. Once manufacturers are able to do this, it becomes clear where energy expenditure lies and its impact, including the all-important end cost to the customer.

Lachlan Jacobson is a Senior Business Development Manager at Flow Power.