With Australia moving back to more lock downs it is interesting to see how COVID is impacting individual households.
Household electricity use has increased by 10% as people have been working from home and as a result household power bills increased by 7%. The bill increases are related to the increased consumption even though the underlying wholesale electricity prices have dropped by 4.8%.
The Australian Competition and Consumer Commission (ACCC) reported that even though household consumption increased it was at the demise of small business electricity use which decreased by 17%.
With wholesale prices dropping they are putting pressure on the profits of the retailers but despite the pressures the ACCC expects household bills to drop further as the wholesale prices flow through to the end user.
Low spot prices following COVID and the penetration of renewable energy triggered profit warnings from Origin Energy, AGL Energy, Stanwell, and Energy Australia.
As safeguards end on 1 July, the ACCC has warned retailers they are obliged to pass on the lower wholesale prices. This is despite the increases experienced in May and June when spot prices increased following the failure at Callide power station.
The “big stick” legislation that started in June 2020, obligates retailers to adjust their prices in line with their costs of securing electricity.
The ACCC is currently investigating several electricity retailers’ prices to see if recent wholesale price reductions were being passed on to consumers.
We’re embarking on a series of posts that go back to basics. As electricity market experts, too often we come across people and / or businesses who lack an understanding of what can and can’t be done in the market. Inevitably we find that it is difficult to educate if the basics aren’t fully understood.
There is no doubt that energy markets are highly complex. For example, understanding every aspect of the National Electricity Market (NEM) is near impossible. But a solid understanding of the fundamentals is essential if you stand any chance of knowing some of the more complex aspects of it.
National Metering Identifiers
A National Metering Identifier (NMI) is a unique 10 or 11 digit number used to identify every electricity network connection point in Australia. This includes all types of metered and unmetered electricity connections to the physical electricity networks in the National Electricity Market (NEM), Western Australia markets (SWIS and NWIS) and the Northern Territory.
Learning about NMIs and their function is essential. NMIs allow all the relevant players in the market to identify your network connection point and the associated services, costs and service providers associated with it. NMIs and all the data and information associated with them, are recorded in the Australian Energy Market Operator’s (AEMO’s) Market Settlement and Transfer Solutions system (MSATS), which all key service providers have access to. Put simply, MSATS is the IT system operated by AEMO to fulfil its obligations under the National Electricity Rules (NER). We’ll post on this soon.
Via MSATS, retailers become financially responsible for your NMI in the market, and therefore the costs associated with it. The energy and market costs to AEMO, the network use of system (NUOS) costs to your Network Service Provider (NSP), and the metering costs to your metering co-ordinator (MC). Your retailer is responsible for paying these costs to the relevant providers, and then recovers these costs through charges to you in your retail energy invoice.
Meter data is collected and recorded against a NMI. Any connection related works at your premises must be done with reference to a NMI (for example the installation of embedded generation). NMIs are transferred from service provider to service provider as the preferred party for these services changes, such as retailers and metering providers.
You can find your NMI on your electricity invoice. Noting a NMI will only change if there is a change to the physical connection infrastructure (for example, a change to the connection configuration or voltage) or the physical connection is removed and then later re-established.
In terms of industry speak, NMIs are often pronounced “Nim-ees” or “N M I’s”.
In the coming posts we will focus on the installation of generation at a NMI, including small scale solar PV and larger utility scale installations. How the configuration of generation can influence your consumption requirements from the market / grid and associated regulatory impacts.
Any questions, please don’t hesitate to contact us on 1800 334 336 or email save@edgeutilities.com.au or admin@edge2020.com.au
As seen in recent reports published by Australian Energy Market Operator (AEMO), which include the Electricity Statement of Opportunities (ESOO) and the Integrated System Plan (ISP), the outstanding trend is the rapid growth of renewables and the need to connect the generation and load in a more robust manner.
As coal is retired the replacement technologies are now Solar and Wind. This is resulting in issues such as, inertia and system strength. The network needs to be redesigned to cope with limitations, due to the lack of inertia provided by non-synchronous generation such as Solar and Wind.
AEMO, in conjunction with various Transmission Network Service Providers (TNSP) is leading the world in solving the issues associated with greater intermittent renewable generation on the network.
AEMO have launched the Global Power System Consortium (G-PST), a consortium of the six largest system operators grappling with high volumes of renewable generation and growth. The group includes:
Australian Energy Market Operator (AEMO)
The National Grid Electricity System Operator UK
California Independent System Operator (CAISO)
The Electric Reliability Council of Texas (ERCOT)
Ireland’s System Operator (EirGrid)
Denmark’s System Operator (Energinet)
The charter for the group is to achieve a 50 per cent cut in emissions by unlocking $10 trillion worth of investment in wind, solar and enabling technologies over the next 10 years.
Along with the lead members, 25 other system operators from around the world will participate in the G-PST. Several large research institutions will take part in the technical work, including:
Commonwealth Scientific Industrial Research Organisation (CSIRO)
The Fraunhofer Cluster of Excellence for Integrated Energy Systems
National Renewable Energy Laboratory (NREL)
Latin American Energy Organization (OLADE)
Institute of Electrical and Electronics Engineers (IEEE)
Electric Power Research Institute (EPRI)
The Danish Technical University (DTU)
ASEAN Center for Energy (ACE)
During the announcement at London’s Bloomberg New Energy Finance Summit, AEMO Chief Executive Officer, Ms Audrey Zibelman announced that, “Countries around the world are looking to pursue a path to modern low-emissions energy systems, but face significant challenges in acquiring and applying the technical knowledge needed to operate and plan rapidly transforming power systems”.
She went on to say that “The goal of G-PST is bold: to contribute to more than 50% emissions reductions of all pollutants around the world, over the next ten years, by acting as an enabler of new clean energy integration.”
On Thursday 27 August 2020, AEMO published its latest Electricity Statement of Opportunities (ESOO), this is a projection of electricity supply reliability in the National Electricity Market (NEM) for the next 10 years.
The ESOO is key in identifying gaps in reliability which could lead to the calling of the Retailer Reliability Obligation (RRO) in the coming 5 years. As the ESOO covers the next 10 years, the second 5 years following the RRO looks closer at forecasts for the major transmission upgrades and the continued development of renewable generation.
This years ESOO has looked at the impact of COVID-19 and how this could impact the outlooks uncertainty. As a result of COVID-19 and the change in generation mix, demand changes and the gas market, it has resulted in AEMO not forecasting any unserved energy (USE) for the coming summer.
This years’ ESOO will require an update if the impact of COVID-19 is rapidly reversed due to a faster return to normal than expected. There are a few points of concern in AEMO’s statement including the delays or deferment of planned outages that could affect reliability over summer. ElectraNet have also reduced the summer rating on the Victoria to South Australia Interconnector in both directions following damage incurred during the bushfires of 2020.
A further downside of the reduced flow across the interconnectors is the further delays of the commissioning of renewable projects across the regions resulting in AEMO needing to deploy Reliability and Emergency Reserve Trader (RERT) to manage the expected unserved energy. The focus following this summer will be the outlook for reliability in New South Wales when Liddell Power Station retires.
The outlook has improved since the 2019 ESOO with the augmentation of the Queensland to New South Wales Interconnector (QNI) in 2022 to 2023 and increase renewable generation development in the region.
Another interesting observation is that by 2025, the minimum operational demand will occur during the middle of the day not the historic period overnight. As previously discussed, this will lead to the challenges of managing voltage, system strength and inertia.
AEMO is working with aggregators of Distributed Energy Resources (DER) to offer services such as increased PV controllability, load flexibility, storage, and load shifting.
Another urgent action for new projects is the requirement to ensure all new distributed PV installations have suitable disturbance ride-through capabilities and emergency PV shedding capabilities.
AEMO is also working with various stakeholder and industry experts to ensure energy supply is protected from the effects of increasing frequency, extremity and scale of climate induced weather events observed in recent years.
The NEM continues to see the connection of a large quantity of renewable generation with 4,300MW of new capacity forecast to be operational this summer, 1,900MW of this is expected in Victoria.
Due to impacts of COVID-19 and increased renewable generation penetration the reliability of thermal generators could remain at the historic lows observed during 2019-2020 or deteriorate further resulting in volatility.
We found an article on a retailer’s website titled “Do you use an energy broker? Read this first”. Edge2020 & Edge Utilities Managing Director, Stacey Vacher, thought she would share her view on this topic. Stacey has over 15 years’ experience as a senior energy professional. She has worked with some of the markets largest and most sophisticated energy users.
In the context of consumer procurement, in your view what is the difference between energy brokers and energy consultants?
Energy brokers negotiate deals between buyers and sellers. An energy broker will go to market, often by way of tender, for a consumer’s energy requirements at any given time. They review and present options to the consumer for their selection. A broker lives and breathes tenders and transactions day in day out.
A reputable energy broker knows energy markets, energy products, and which energy provider can provide the best outcome for a given customer, product, and / or portfolio. They can perform market analysis, manage the entire procurement process, and negotiate superior commercial and contractual outcomes.
A broker of this nature lives and breathes energy markets, energy products, market participants, and energy deals, day in day out.
Energy consultants can offer an array of specialist energy services. These may include:
brokerage
trading
strategy development and implementation
regulatory advice
energy efficiency and sustainability advice
price forecasting
Should a consumer use a broker or a consultant?
It depends on what a consumer is trying to achieve. If the objective is to achieve the best deal at the time, a brokerage service can be the most efficient and effective service. If it’s understanding options and what may be the most optimal approach and outcome relative to the objectives of the consumer, a consultant may provide a superior outcome (or in the very least, a reputable energy broker).
Using an expert to navigate the market and provide specialist advice is likely to result in saving a consumer time, headaches, and money.
My advice:
Engage a reputable broker or consultant with an experienced and established team behind them. At Edge Utilities we focus on you, your knowledge, your objectives and your value.
A good broker or consultant utilises:
their knowledge
their expertise
industry partnerships to deliver optimal outcomes to you, the consumer.
Why do most Retailers work with brokers and consultants?
as a channel to market.
consumers prefer to provide the service of sleeving fees to consultants
to protect themselves by ensuring a consumer makes independent and informed decision
protect a retailer from the intensity of consumer education and enquiries.
Under the Australian Financial Services Licence retailers won’t provide financial advice to consumers.
Do retailers prefer to deal with consumers directly or through brokers or consultants?
I have asked many of our retailer counterparties this question over the years. It’s fair to say retailers ultimately prefer to deal with a consumer directly. They have more control over what customers do and what the retailer can achieve. This includes price / fees, products, risk, and contractual flexibility.
Many retailers will work with brokers and consultants. They acknowledge:
the benefits a third party brings to their relationship with a consumer
the role of the broker or consultant working directly with them is to deliver their service to the consumer.
We are starting to see larger retailers be a lot more selective with respect to which brokers or consultants they will work with. Edge Utilities support this move for many reasons. It often means the retailer is more serious about ensuring the broker understands the retailer’s products and objectives, and ensures the broker is introducing consumers and opportunities that stand to benefit from them.
The blanket approach by some brokers of going to retailers to make up numbers in a tender is lazy and ineffective. Brokers should be looking to bring parties together that both stand to benefit from the transaction. This should be done using a superior competitive process, whereby all counterparts are genuinely well positioned to provide the product and / or service to the consumer.
Should brokerage / consultant fees be transparent?
All fees should be transparent
Don’t expect transparency across the market.
Edge Utilities brokerage clients are advised that we are engaged on the basis of getting paid via third-party fees.
If an existing client isn’t paying a fee for service, or seeks services out of scope, we ensure the client knows in writing that a deal tabled to them contains:
brokerage or commission fees.
the quantum of the fee.
Lack of transparency of brokerage fees is often criticized. As we read in a retailer’s “Do you use an energy broker? Read this first” article.
What’s interesting about this, is a retailer’s fees are unlikely to be transparent and are often rolled into the energy rate. Retailers secure fees on metering and there is absolutely no transparency that they are doing this. Brokers are expected to outline exactly what percentage, cents per kilowatt hour (c/kWh) or total quantum of fees are in a deal. This is a double standard that isn’t going away.
What is frightening is the lack of transparency around risk. At Edge Utilities, we are seeing more and more retail products in the market as retailers jostle for market share, around spot and renewable backed products. These can place an exorbitantly high risk on consumers and may result in volatile and high cost outcomes. Fees are not the fundamental issue for consumers, the risks are. Many of these risks can result in much higher cost outcomes.
If you don’t use a reputable broker or consultant, there’s a good chance you won’t receive the most competitive offer from your retailer. You will potentially expose yourself to higher costs and / or risk and / or inflexible contractual terms.
It’s the broker / consultant’s job to get the very best deal possible, considering commercials, risks, and required contractual flexibility.
The utilities market is complex and always changing, and it’s crucial for businesses, Strata and Body Corporates to understand their energy, gas and hot water contracts. We have an in-depth understanding of the needs and regulations in the management of Strata and Body Corporate operations and finance. We are ready to share our knowledge with you in order to maximise value on your utilities spends.
It is important to understand part of the process that goes behind producing the energy that is consumed by your business, Strata or Body Corporate. The National Electricity Market (NEM) operates on one of the world’s longest interconnected power systems. The NEM travels a distance of approximately 5,000kms across East Australia, stretching from Port Douglas, Queensland through to Port Lincoln, South Australia and across the Bass Straight to Tasmania.
The NEM incorporates around 40,000kms of transmission lines and cables, and supplies approximately 200 terawatt hours of electricity to businesses and households each year.
When you switch on your computer at work, power is instantly transmitted from a power station to the appliance. We may think that this is an easy process, however there is a lot more to it.
To ensure that the electricity required is delivered to consumers, there is a specific sequence of events that needs to take place first.
Generators
Electricity is produced by the conversion of energy found in resources such as coal, natural gas, oil, solar and wind. Generators in modern power stations produce electricity by the mechanical action of large, powerful magnets, that spin rapidly inside the huge coils of conducting wire driven by steam, gas, water, and wind turbines.
Generator Transformers
Convert electricity that has been produced at a generating unit from low to high voltage (up to 500 kV). This process enables efficient transport of the electricity to the transmission network.
Transmission Lines
High voltage currents leave the generator transformer and travel along the transmission network. The transmission network acts as a bulk transporter of electricity through a series of high voltage power lines. These lines stretch great distances across the east of Australia.
Distribution Transformer
Receives high transmission voltage and reduces it to a lower voltage, that can soon be distributed to consumers. Once this process is complete, the electricity transfers over to the distribution network.
Distribution Lines
After leaving the transformer, electricity will travel along the distribution lines and into a distribution substation. Here, high distribution voltage is again reduced to a lower voltage. The new lower voltage electricity is now suitable to be distributed to local lines such as the power lines we see on our streets.
Consumption
Once the above sequence is complete, we can turn on our computer and get on with our day.
et (NEM) is near impossible. But a solid understanding of the fundamentals is essential if you stand any chance of knowing some of the more complex aspects of it.
