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What a year….. !!
2007 has been a rocky year in the energy sector. High wholesale prices have resulted in major problems for most retailers with profit downgrades and sell offs. Some of the casualties were Energy One which closed its doors in late June and Momentum Energy which sold off its residential customer base to Australian Power and Gas. AGL and Origin’s stock prices have also been hammered after significant profit downgrades due to reduced profit margins caused by wholesale pricing.Retail price rises…..
As predicted back in our June newsletter, retail pricing for small domestic and commercial consumers in Victoria are set to rise from 1st January 2008. Depending on where you live, the default residential tariffs will rise between 13 and 18%. As most retailers offer a discount off this tariff, you can expect the entire market to rise by the same amount.In an interesting move, the Victorian government has abolished commercial default tariffs from January 1. This was scheduled back in 2002 when the market first deregulated however the government has elected to continue residential price caps beyond 2007.
One can only predict how the competitive retail market will react but you should expect price rises of the same order of magnitude as for residential consumers if not higher. Each retailer will be monitoring the other very closely to see who moves first with pricing. Not unlike petrol stations or the banks with interest rates. I do know from gossip on the grapevine that a couple of the smaller retailers are going to plunge right in and increase pricing from Jan 1 and hope the rest follow.
Network price rises…..
Retail prices have not only risen due to high generator prices but also price rises by the network providers. Consumers on energy only contracts (eg. consuming > 160 MWh pa) will be predominately impacted by the new network tariffs as network charges for residential & commercial consumers are included in their bundled rates. Network pricing for 2008 can be found on the ESC website (www.esc.vic.gov.au/).Now is the best time to buy…..
As discussed in the June newsletter, the long term drought has been the key reason for high wholesale energy prices. Whilst the winter rains have re-filled dams, the summer temperature outlook (as issued by the Bureau of Metrology) predicts a 70% chance of above average temperatures in Victoria over the coming months. This is in contrast to the summer rainfall outlook which only predicts a 50% chance of exceeding average rainfall over this period.You can make your own interpretations of the above but it could mean that we are headed for a long hot and dry summer which could cause the futures market to rise sharply again. Currently whilst market pricing is still elevated for 2008, pricing for 2009 and 2010 appears reasonable. We are thus of the opinion that there is greater potential for prices to rise next year rather than for them to drop. Likewise the magnitude of any rise is likely to be far greater than any possible drop. Hence if you want to play the safest odds, you may be best to buy in the next month or so rather than wait for the traditionally lower priced autumn period.
Beyond 2010, there is too much uncertainty with regards carbon pricing (now that Rudd has ratified the Kyoto Protocol) and we are not recommending contracts beyond this period as you will likely pay a premium for the retail risk.
Further market news………
Feedback from a recent EUAA conference we attended revealed that large energy users are experiencing similar problems nationally. That is, there is a real shrinkage in the retail market as large retailers swallow small ones (eg. Qld) and retailers become vertically integrated with generators. This has resulted in less competition and increased difficulty in obtaining sharp retail contracts. Retailers are also becoming less customer-focussed. In fact it seems the larger the user, the greater the perceived risk and hence retailers are becoming less attentive. When was the last time you saw or spoke with your account manager? Assuming you even still have one!?About WINenergy
WINenergy are an independent service company providing value added products and services for energy consumers. Our services are designed to help you understand and manage your energy contracts to minimise the costs associated them.When negotiating and purchasing energy contracts, it is important to not only understand pricing and tariff structures, but to also understand market volatility, how timing impacts pricing and when best to negotiate the renewal of a contract. Working together with our clients, we leverage our experience and market intelligence to strengthen your buying position in order to negotiate the best possible contract rates. WINenergy do not have alliances with energy retailers, nor take “hidden” commissions but instead offer transparent tender processes and consultancy fees.
If you wish to find out more about our services or simply like a free analysis of your bill to determine if any savings can be made then contact David on (03) 9822 4055.
Tenders and site reviews we have conducted for clients this year included; SEEK, Fort Knox Self Storage, Crown Casino, Salta Property Group, IGA Supermarkets and Highpoint Shopping Centre.
WINenergy Employee Profile
As the author of this newsletter, David Regenspurger actively keeps an ear to ground with regards to pricing and movements in the energy market. David manages all WINenergy’s clients with regards to management of their energy contracts and site tenders.[ Tell A Friend | Top ]
