10 Actions to Manage Business Energy Costs
Many businesses are looking for ways to better manage their energy costs.
The following actions can help small, medium and large businesses understand how to take control – to manage their energy use and reduce their energy costs.
They range from simple to more sophisticated actions and are set out in a suggested progression.
The actions provide links to references for further help and advice, and case studies of real time action implemented by businesses.
Start with simple, ‘good practice’ actions for businesses to take at low or no cost (Actions 1-5):
Who is responsible for managing energy in your business?
As a first step to controlling costs, you need someone to look after all energy matters within your organisation.
This ‘energy champion’ is responsible for systematically reviewing your bills and tracking your energy use over time. Interval data (obtainable from your energy retailer) is particularly useful in businesses where machines are used intermittently throughout the day.
In consultation with management and independent experts, their mandate is to identify and implement energy cost saving actions that provide the best return on investment for the organisation.
With support from the Victorian government, the Energy Efficiency Council has published a briefing outlining the trends and technology driving the energy transformation and how business leaders can leverage and take control of their energy position.
With retail price deals frequently changing, it is important that you regularly review your energy contract and invoices to make sure your energy agreement is right for your business.
For larger consumers, understanding the different types of energy contracts for businesses, or using an energy broker, can also help you get the best energy deal.
To make a start on managing your business energy costs, you first need to obtain your energy data (from your energy bills, or ask your energy retailer) over the last 12 months to determine the quantity of energy you consume and whether this varies throughout the year. This data can also be used to compare how your energy costs have changed once you undertake any of the recommended actions.
If you have been at your premises for more than 12 months and are on an energy retail offer (where you have accepted an existing contractual arrangement from your energy retailer), the Victorian Government’s Victorian Energy Compare website can help you find the best deal on your energy use.
If you have a business with energy consumption similar to a household or just a few times larger (e.g. less than $20,000 per annum), for example, a café or retail store, you can use similar arrangements for your home to obtain an energy contract. Each energy retailer will offer a range of contracts, each with set terms.
Get advice from an energy broker
If your business spends a substantial amount of money on energy (e.g. more than $50,000 per annum), there are good reasons for engaging an expert to advise you. Energy brokers have a deep understanding of the commercial energy business and market trends. They are independent and will constantly monitor gas and electricity market prices to help their clients obtain the best energy deal and may be able to achieve far bigger savings for your business than you can access yourself.
Securing the lowest energy price may be your top priority when renewing your energy contract. However, the terms and conditions of supply are similarly important, and an energy broker can help you. Terms and conditions should be carefully reviewed and negotiated, especially in the current volatile gas and electricity market.
Identify a suitable energy expert through word of mouth or via an industry association such as the Energy Efficiency Council, which has a searchable database of independent energy brokers.
There are many simple actions you can take that will immediately reduce your energy use and cut costs.
The type of actions will depend on how you use energy and the type of equipment in your business.
The following actions are applicable to most businesses.
End of day shut-down procedure
Develop and commit to an overnight and holiday shutdown procedure. These procedures can be as simple as having the last person to leave turn off the lights and other equipment or can be automated with a building management system or equipment timers.
Set computers and other equipment to automatically turn off at the end of the day. Appliances such as printers and photocopiers often can be set to ‘energy saving’ modes.
Installing simple timers on equipment such as boiling water taps can make sure they’re off overnight and still ready to use when you arrive at work.
Larger businesses should consider shut down procedures for data centres and computers as well as shutting down or minimising the out of hours energy use of larger equipment such as boilers, chillers and air compressors.
Remind after-hours cleaners to turn off lights when they leave.
Service your equipment
Equipment will operate more efficiently if it is cleaned and serviced regularly. For example, refrigerated display cabinets have been found to use up to 10 per cent more energy if not cleaned regularly.
Make sure sensors and timers are working as they are supposed to.
Set up a process to regularly check for leaks in compressed air and steam systems.
Businesses are encouraged to conduct their own energy assessment on a regular basis to understand where energy can be saved. There are many simple ways to reduce energy consumption in your business and actions taken can provide immediate cost savings.
If you want a detailed energy assessment, go to Action 4.
It’s important to know where you are using energy and to track your energy use and costs over time.
Audit your energy use
An energy audit will identify where you use energy, what you can do to reduce this and make your business more energy efficient. An audit will recommend improvements specific for your business, including reviewing tariffs, investing in energy efficiency upgrades, and suitable renewable energy options.
Know who to turn to for advice - consider seeking guidance from a professional energy assessor
Energy assessors provide guidance on how you can reduce your energy bills.
When selecting an assessor, a good assessor should be able to:
- Demonstrate energy auditing experience within your specific sector or industry
- Provide details of their relevant expertise with appropriate qualifications and/or industry accreditation
- Produce references, testimonials, and relevant case studies
- Be capable of delivering energy audits to industry best practice standards (AS3598:2014).
Word of mouth
Have you asked your friends or business colleagues about their energy use? You may discover someone with an existing relationship within your network and word of mouth is a great way of finding people with the expertise and the right advice for you.
Alternatively, you may wish to check with your local council, or local business or industry association about who the specialist energy assessors are in your area and industry sector.
Energy demand management involves the modification of your demand for energy through various methods such as financial incentives and behavioural change.
Usually, the goal of demand management is to encourage the consumer to use less energy during peak hours, or load shift to off-peak times such as night-time and weekends. It typically involves an incentive to energy users to voluntarily shift or reduce their demand on the electricity grid during periods when the electricity supply-demand balance is tight.
If your business spends a substantial amount of money on energy (e.g. more than $50,000 per annum), demand charges can be a material part of your bill. An energy broker can help you understand any demand charges you are paying and how to minimise them.
Demand management can involve either the voluntary reduction in consumption at peak times or switching to on-site generation and battery storage instead of sourcing from the grid.
How does demand management work?
Businesses can take advantage of these incentives by managing their energy demand in four ways:
- ‘Shift’ their energy demand to times when the energy price is lower or the contracted payment rate is higher. For example, a dairy company could change its milking schedule to non-peak periods.
- ‘Shed’ part or all of their demand on the grid at particular times. For example, an industrial company could switch to backup generation or be compensated for reducing their energy use during critical peak periods.
- ‘Shape’ their overall demand – not just during peak periods. For example, a manufacturer could make energy efficiency upgrades to its equipment to reduce both its peak demand and total energy consumption.
- ‘Shimmy’ their demand, that is, rapidly decrease or increase their energy use to keep the frequency of the energy system at the right level. For example, a business with smart appliances and battery storage could sign up to a demand response aggregator company that coordinates multiple businesses.
How do I get started?
Good energy assessors and consultants should identify demand management opportunities alongside energy efficiency, onsite generation and procurement options and provide your business with tailored, integrated options.
Save even more by investing in energy saving projects (Actions 6-8):
Energy efficiency is one of the best ways for businesses to reduce costs.
Many Victorian businesses are achieving significant energy savings by replacing older, less efficient equipment with newer technology and improving their business practices and systems to reduce energy use. This can involve simple upgrades, like upgrading to more efficient lights, as well as making decisions based on improved energy performance when new capital investment is required.
The Victorian government is supporting businesses to make these savings through the Victorian Energy Upgrades program. In 2017-18 financial year alone, 20,000 business premises received discounts for energy efficiency upgrades through the program. On average, they will each save $4,500 off their annual energy bills. Large energy users have the potential to enjoy significantly higher savings.
Incentives to upgrade
The Victorian Energy Upgrades program is available to every Victorian business and organisation.
The program provides discounts on a wide range of energy saving products, including: lighting, heating and cooling, hot water systems, refrigerated display units, motors, and water efficient pre-rinse spray nozzles. These discounts are available through accredited providers across Victoria.
Click here to find an accredited provider in your area. Then choose the accredited provider that best suits your needs and book in a time for them to visit your business. Once you decide to go ahead with the upgrade, track your bills and see the savings.
Discounts apply only to products that have been approved under the program to meet minimum efficiency, quality, and safety benchmarks.
Incentives are also available for businesses and organisations to invest in large, complex energy saving projects where "off the shelf" activities are not appropriate or where “deemed” incentives significantly underestimate energy savings.
These custom upgrades can be tailored for a particular site and the level of incentive is based on the difference in measured energy consumption before and after an upgrade. This can be measured using two methods:
- the M&V method, which determines incentives based on the difference between a baseline energy model created before the upgrade and the energy consumed after the upgrade, or;
- the benchmark rating method, which determines incentives based on the difference between energy performance ratings of a building before and after an upgrade.
Increasingly, many businesses are implementing ‘behind the meter’ energy solutions which enable them to offset their energy consumption from the grid by producing energy on site to meet some of their energy needs.
Solar photovoltaic (PV)
The first option for many businesses to generate their own energy is a rooftop or ground-mounted solar photovoltaic (PV) system.
What times you use electricity over the course of a day, and the structure of your electricity tariff, are the main two factors that will determine if solar PV is a viable investment for your business.
Understanding your energy consumption is therefore an important first step in determining if solar PV is right for your business - see Action 3.
Solar with battery storage
While businesses with higher electricity needs during daylight hours can take advantage of daytime power generation from an on-site solar PV system, those with night-time electricity needs may benefit from storing excess daytime solar generation in battery systems that can provide power on demand when the sun isn’t shining.
A CEC-accredited solar designer can size a solar PV generation and battery storage system to cover both your day-time and night-time electricity needs.
Generating energy onsite can also involve other technologies such as solar thermal (concentrated solar power), co-generation (combined heat and power), waste to energy and biomass (organic matter used as fuel).as well as other energy storage options.
The best combination of these technologies will depend on your site and energy profile, including both when you use energy and what combinations of heat, gas and electricity are required.
Solutions to manage energy costs in this way are therefore often bespoke and you many need expert advice.
Beyond Zero Emissions has an Electrifying Industry Report describing how businesses can make the switch to electricity from other (often more expensive and carbon intensive) fuel sources.
Distributed energy in the property sector – today’s opportunities has been developed to provide useful and up to date information on clean energy technology options for different building types, locations and loads.
What options are available to help finance your energy projects?
Government incentives are available for investments in energy efficiency upgrades (through the Victorian Energy Upgrades program) and for onsite renewable energy installations (through the Clean Energy Regulator).
You may access a range of different financing options to fund energy efficiency or renewable energy investments.
Chattel mortgage finance is a commercial finance product that enables a financier to lend money to your business to purchase energy efficiency equipment (chattel). You repay the loan via regular instalments. Through discounted chattel mortgages offer by the major banks, this has been the most popular way to finance energy solutions.
A capital lease is a commercial finance product that enables a financier to purchase energy efficiency equipment on behalf of your business.
An Energy Performance Contract (EPC) is an agreement between a business and a service provider, where the service provider agrees to deliver energy savings to the business. If energy savings are not achieved, the service provider pays the shortfall to the customer.
Hire-purchase is a commercial finance product that enables a financier to purchase energy efficiency equipment on behalf of your business. The financier agrees to give you use and possession (hire) of the equipment in return for regular instalments. Once the final payment has been made to the financier the customer takes ownership of the energy efficiency equipment.
An operating lease is a commercial finance product that enables a financier to purchase energy efficiency equipment and then rent it to your business. You pay regular instalments to the financier. As the instalments are considered rental payments, you do not own the asset. Once the final lease payment has been paid, you take ownership of the energy efficiency equipment.
Environmental Upgrade Finance (EUF)
Environmental Upgrade Finance (EUF) is a council-based financing mechanism enabling building owners to better access finance for environmental upgrades to existing non-residential buildings. Under an EUF agreement, a lender provides finance to a building owner and the local council collects repayments through the rates system. The council then passes the property charge onto the lender.
Solar leasing offers some benefits over ownership of a solar PV system:
- low or no up-front costs for the installation of the PV system
- no requirement for system maintenance
- immediate savings on energy bills
An alternative to solar leasing is where a provider installs and owns a renewable energy source (e.g. rooftop solar) on the site of the business. Electricity generated is supplied solely to the business at an agreed rate.
This may be sometimes referred to as a Power Purchase Agreement (PPA). Currently, some major energy retailers and renewable energy installers offer this type of product. A good place to start would be to talk to your existing energy retailer and compare their offering with other retailers. You may also want to look at the Clean Energy Council’s list of approved solar retailers.
Additionally, you may wish to look at a Power Purchasing Agreements, see details in Action 10.
Explore more advanced options to maximise your use of renewables (Actions 9 & 10):
Power Purchase Agreement (PPA)
Larger businesses may wish to consider contracting their energy supply through a Power Purchase Agreement (PPA).
A PPA is a contract between two parties – one who generates electricity (the seller) and one who purchases electricity (the buyer). The PPA defines the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination.
In 2018 the City of Melbourne concluded an aggregated PPA involving 14 offtakers. The lessons learned from the Melbourne Renewable Energy Program is captured in the publication: A Guide to Renewable Energy Procurement.
There are many forms of PPA in use today and they vary according to the needs of buyer, seller, and intermediary e.g. financing counterparty. Before exploring a power purchasing agreement it is important to consider the following:
- interest in securing a long-term stable electricity price
- expiration date of your current energy contract
- commitment to procuring renewable energy
- size of your energy load (MWh per year)
- load profile, e.g. 9:00am to 5:00pm weekdays only, evenings, weekends, etc.
- requirements at one or more sites
- ability to enter into a contract for power for a minimum of 7 or more years (noting the longer the contract, the lower the power price) or ideally from 10 to 15 years duration
The Business Renewables Centre Australia (BRC-A) is an initiative supported by the Victorian government to facilitate the aggregation of power purchasing agreements and to provide a line of sight between energy sellers and buyers. The BRC-A will also have tools and guidance for those businesses contemplating this solution.
Aggregated Energy Procurement
Aggregated procurement is a centralised purchasing model where two or more organisations (or a third party on behalf of those organisations) join together to combine their needs and leverage negotiating strength. Participating businesses share the costs of legal, accounting and procurement advisors.
Progressive Energy Procurement
Progressive energy purchasing involves forming a framework agreement under which electricity is purchased in ‘blocks’ at different times, rather than purchasing all electricity requirements at once at a single price. By buying blocks of electricity, a business can secure low prices as they arise in the market and avoid renewing a contract at ‘the high’ and locking in high prices. It is a variation of the standard purchasing model that spreads the timing risk, allowing the electricity buyer to benefit from ‘averaging in’ or what is also known as ‘portfolio insurance’.
Speak with a professional energy consultant to identify the best options for your business.
These actions provide links to references for further help and advice, and case studies of real time action implemented by businesses.
Further assistance is available by contacting the Department of Environment, Land, Water and Planning customer service line on 136 186.
The following actions may not be relevant to all businesses, so you should consider your own individual situation.
None of the information constitutes, or is meant to constitute, advice of any kind. If you require advice in relation to any matter, you should seek appropriate professional advice tailored to your circumstances.
The State of Victoria will not be liable for any loss to you in relation to the contents of, or use of, or otherwise in connection with the information provided herein.
Page last updated: 02/08/19