Any manufacturer looking to negotiate a new retail electricity contract is probably bracing for a shock. The uncertainties concerning the future makeup of the Australian energy market have led retailers to increase their offer prices ahead of the current market values, particularly on longer-term deals.
However, one retailer is offering an alternative option - one that could see major changes to the way in which Australian industry sources its power, and could even accelerate the development of the renewables sector.
While Flow Power is a licensed electricity retailer, the way it goes about the task is radically different to the practices of the “big three” in Australia (AGL Energy, Energy Australia and Origin Energy).
The central plank of the Flow Power business model is to give its customers access to the wholesale electricity market, and effectively “cut out the middle man”.
The National Electricity Market (or NEM) is as volatile as any other trading market. The prices change every half hour in line with the forces of supply and demand, and these are the prices at which retailers purchase electricity on behalf of their customers.
But whereas a traditional retailer will generally sell a fixed rate contract which will average out these variable rates over a fixed term (while allowing itself a safety margin to cover for potential cost rises over the term of the contract as well as its own profit margin), Flow Power gives its commercial customers access to these variable rates with an agreed fixed mark-up.
Recent history (and current experience) suggests that the model does offer considerable savings for the consumer. Wholesale prices are consistently lower than retail rates, with only occasional major spikes working in the opposite direction.
“The risk is really only a cashflow issue,” says Flow Power Managing Director, Matthew van der Linden. “Businesses who partner with us see savings of between 10 and 50%, depending on their operation and their ability to react to the market.”
The company has two types of power plans that it dubs Mastery and Freedom.
The Mastery plan is a “set and forget” operation, where the customer gets direct access to the wholesale market price, and is insulated by a predetermined ‘ceiling’ for the quarter. This allows them to access the low while smoothing out the high.
The Freedom plan is more ambitious and interactive, and offers larger savings for users that can exercise a degree of demand management – including the ability to switch in their own generating resources, whether that is a diesel generator or a solar/battery installation. Flow Power monitors the market 24/7 and issues SMS and email alerts to warn of impending market spikes allowing the consumer to take appropriate measures to reduce their reliance on the grid.
Solar without the panels
Now Flow Power is keen to help customers exploit a further option in the form of solar power purchase agreements, or PPAs, a scheme it describes as “solar without the panels”.
The scheme allows businesses to buy direct from large-scale solar plants rather than installing panels on their own sites. The PPAs allow businesses to buy bulk energy at a fixed-rate – for up to 25 years – and still access the wholesale market when the solar plants are not generating.
Strangely, solar PPAs are relatively unknown in Australia compared with almost all the rest of the world. And one reason, according to Matthew van der Linden is that the “big three” have tied up almost all the large-scale solar plants available. “A couple of farms still have some capacity spare, and we can currently offer limited PPAs in Victoria and NSW, with a little more to follow in South Australia,” he says.
And that, it seems, could be the most disruptive influence of all on the commercial energy market. If solar PPAs do gain traction as a way for businesses to guarantee long-term economical energy supplies, investment in large-scale solar projects could well go “through the roof”.
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