End users have a number of options for dealing with retailers, each of which has advantages and disadvantages.
Using intermediaries to negotiate energy procurement
Given the challenges that procuring energy poses, significant benefits can be derived from using an intermediary. Intermediaries offer a range of services that assist end users to procure their energy and improve their overall use and management of energy.
Intermediaries’ services include:
- assistance to develop energy procurement strategies
- assessing current arrangements and advising on potential risks and opportunities
- advising on how and when to negotiate an energy contract
- providing information about trends in the market, particularly price trends
- assessing proposals from energy retailers and assisting in selection processes
- undertaking energy audits to determine expected requirements and to identify opportunities for energy efficiency, distributed generation, and demand-side response
- advising on appropriate metering infrastructure and reporting specifications
- aggregating your energy profile with others to secure more favourable terms and conditions
Going to tender requires a clear specification of requirements and a rigorous process for assessing proposals.
This requires a detailed understanding of existing and potential energy requirements. A bottom-up process works best, involving key decision makers at each site, taking account of expected future requirements, and considering the importance of flexibility of supply. For example, if the possibility of winning a significant future contract is uncertain, or the impact of energy efficiency measures is unclear, it may be appropriate to enter into shorter-term contracts if sufficient flexibility cannot be included in a longer-term contract.
Assessing proposals can be challenging. Retailers may provide information in a format which is not easily comparable. When preparing Requests for Quotations, clearly specify how you want the information provided and the level of disaggregation you require. Ideally, you will be able to separate out network charges, metering charges and renewable energy costs, as well as the separate components of the retail energy cost including wholesale energy, ancillary service charges, network losses and retail margin. When comparing quotations it is also important to understand the different pricing elements. For example, one supplier may have quoted a low energy price, but much higher environmental charges.
Negotiating environmental credits
There are a number of federal and state level markets for ‘environmental credits’ that have been created by governments to implement climate change and renewable energy policy.
Retailers pass the costs of complying with these schemes onto end users, either directly as a separate component on your bill or indirectly through higher rates. It is useful to take account of these costs when comparing tenders from prospective suppliers.
Retailers often set their charges based on what they expect the costs of compliance will be and what they believe the market will bear. They may also charge a premium to the actual costs they expect to incur to compensate for price risk and scheme administration costs. Negotiation is possible around these costs.
End users may also be eligible to generate certificates under these schemes through prescribed activities. These certificates can then be sold on the market or sold to retailers in exchange for reduced energy charges.