Containing energy costs
A good understanding of the fundamentals underlying your electricity bill, a willingness to use that knowledge when bargaining with your retailer and investing in power saving measures is what will bring down your energy costs, writes DAVID CARDOZO.
If you’re still waiting for the federal and state governments to fix the electricity mess, you will be wasting money that would be much happier in your bottom line.
Here’s the lowdown – you are in charge of electricity cost reduction and therefore you need to have an idea of how to go about the task. Some solutions suggested are hardware ones, while others involve ‘shopping around, and beating up on your present supplier’. However, if you are not a consumer with electricity use somewhere in the order of 600 megawatt-hours annually, you may have to clamour a bit for attention and will need to do some preparation before approaching your retailer.
UNDERSTANDING YOUR ELECTRICITY BILL
The structure of bills varies by state and the ACT. Note that the Northern Territory and Western Australia are not part of the
National Electricity Market (NEM) and their cost of a kilowatt-hour is at the smaller end of the spread.
So what’s to discuss apart from the letterhead on the electricity bill? Let’s say you’re a small to medium enterprise (SME), getting billed around the $2000 per month level; the paperwork from your retailer will very likely not reveal anything more than your various tariffs for kilowatt-hour time of use and a daily network charge. Customers in some jurisdictions are also slugged monthly kilovolt-amp (kVA) demand charges and, at the lower end of the scale, everyone pays a daily connection charge.
Let’s unpick the relationship between the kilowatt-hours, the kVA demand and network charges. Your retailer purchases bulk energy in megawatt-hours from the generator companies, either via the on the spot market or using hedging contracts. They on sell this to their customers.
But what gets billed is on the basis of local meter readings, and that is between five and eight percent less, as energy is lost in transmission (at high voltage), and distribution (at medium and low voltage). The loss increment you cause is very much determined by something called the ‘power factor’.
WHAT’S THIS KVA DEMAND AND POWER FACTOR THING?
The kVA demand, when a larger amount than your kilowatts, causes more energy loss in the network than is absolutely required in order to get those kilowatts to your doorstep. The ratio of kilowatts to kVA is the power factor.
Having a power factor of 1.00 is exceptionally good! Most industrial and commercial consumers, and you’re likely to be among them, have power factors of 0.9 and lower. Compared to 1.00, a power factor of 0.9 implies 23 percent more loss than is absolutely necessary, while 0.8 causes the loss to be 56.3 percent more.
Very large users see the energy loss separately detailed in their bills as additional charges, but SMEs do not. All very large users, mainly connected to high voltage or medium voltage networks, are charged monthly kVA demand charges. Depending on where there they are geographically, SMEs are increasingly exposed, as the bar for kVA demand is set lower and lower.
In southern states, monthly kVA demand charges for smaller consumers are creeping in. In parts of New South Wales and very much for Queensland, kVA demand is charged to SMEs. As pointed out in my article in the last issue of FM, there is a way of reducing the impact through the use of power factor correction. This is hardware that needs to be installed, and specifics are discussed later in this article.
The process can be sufficiently complicated that an energy consultant should be called in, but understanding the process helps in conversations with a specialist. However, we’ll assume here that you are going to do the work.
Under the federal government’s ‘Power of Choice’ policy, you can switch away from your standing offer (the one originally allotted through your network provider-retailer) to any other retailer. For the purposes of this article, we’ll assume you have already moved from this, or stuck out for a better deal.
First, you need to find out whether you are on a kVA demand tariff – this appears on your electricity bill as a separate monthly charge. If you are not on this charge, bear in mind that the opportunity to bargain for a better deal is absolutely not precluded.
Plugging in some numbers focuses the mind. A typical small demand tariff is $20 per kVA per month. A fast food outlet can easily have an annual demand of 100 megawatt- hours, implying a minimum kVA demand of the order of 25 kVA if the power factor were 1.00. A power factor of 0.8, a more realistic figure, would increase demand to 31 kVA. This translates to a conservative savings potential of about $1400 per annum.
As the tabulation here indicates, actual savings, taking into account the variability of demand, can be much larger and provide very attractive payback times for investment in power factor correction equipment.
POWER FACTOR CORRECTION SHOULD BE REWARDED
Richard McIndoe is the former CEO of Energy Australia, a generation and distribution company with over two million consumers. He stresses the importance of energy saving for both consumers and for the network companies.
Accordingly, McIndoe and his former colleagues from Energy Australia have started a new company, Edge Electrons, with the specific task of developing energy-saving products. They argue that, even for consumers who are not on kVA demand charges, the pitch is that improving the power factor towards 1.00 should have a financial reward by way of reduced kilowatt-hour tariffs, even though it may require an insistent approach to retailers.
Effective power factor correction has to take into account the physical reality of the bulk of SME connections to the networks, being almost invariably 415/240-volt, three-phase, four-wire. This being the case, there are important implications for such consumers:
- The power consuming loads are distributed among three power-carrying wires (the so-called ‘phases’) with the return current flowing through the fourth wire (the neutral conductor).
- This division of loads is seldom balanced, and fluctuates as appliances are plugged in and unplugged.
In truth, there are therefore, in effect, three power factors, one for each of the three phases. Therefore, power factor correction has to be individually applied to each of the three phases.
Edge Electrons’ family of PowerSave power factor correction equipment ranging from 10 to 600 kVAr correction capacity appears to be uniquely equipped to handle this task of effective power factor correction, and on the basis of commercially attractive payback periods.
While most of the working case studies shown below left are for small businesses in Queensland, these high demand tariffs are now creeping into the southern states, where similar savings and ROIs are achievable.
DOES IT ALL SOUND TOO HARD?
Hopefully not, but what will be clear is that getting a better deal on electricity requires an active approach on your part. However, help is available. Colin Kinsey, power systems analyst with Power Parameters, an instrumentation company, indicates that quantifying the savings opportunities afforded by power factor correction can often be very readily determined by means of a power quality survey.
With such information in hand you can confidently approach your electricity retailer and negotiate a better deal. For starters,
the survey will determine the power factors and opportunity for correction. For those on kVA demand monthly charges, the maths will be simple. Consumers not on kVA demand charge with additions to their bills have more talking to do with their retailer – but there’s always someone else to approach if yours is hard of hearing!
If you are part of an industrial or commercial estate, nothing stops you from collectively bargaining and using power
factor data from all participants – and you are then also in a position to strike a deal for the power factor correction equipment on a bulk buy basis.
David Cardozo is a Melbourne-based energy writer.
This article also appears in the December/January issue of Facility Management magazine.