With all their jargon, technical information and complex calculations, energy bills can be confusing and difficult to understand for Australian businesses.
Because of this many discrepancies between what organisations should be paying and what they're actually paying go undetected.
Sometimes the difference may only be a few dollars, but in many cases it can be hundreds or even thousands of dollars. Furthermore, more than half of Australian businesses (55 per cent) wrongly believe their energy contracts are not "contestable" (or able to be negotiated).
Many businesses sit back and remain on the same contract, and some may not even be aware they are on high default rates. It is therefore more vital than ever for Australian businesses to understand the content of their bills.
Correcting overcharges can save Australian businesses a significant amount on their energy bills. Likewise those being undercharged can identify the discrepancies early in their contract and rectify them, avoiding hefty surprise additions to bills later down the line.
Energy Action analysed bills submitted for bill validation via their contract management and monitoring services over a 3 month period. They found that:
- One in five bills (21 per cent) were incorrect in some way;
- On average, 13 per cent of users are overcharged and 8 per cent undercharged;
- Overcharges amounted to more than $74,000;
- The most common reason for an overcharge was incorrect 'line loss' charges (loss factors represent energy lost in the electricity network during transport).
"Many businesses are worried about the rising cost in energy and the introduction of the carbon tax," Valerie Duncan, CEO of Energy Action, said.
"But there are many other charges that could potentially be reduced if actively monitored. Having an independent energy management company assess that you are on the right network tariff for example can, in some cases, result in significant savings.
"Businesses wouldn't pay a phone bill without checking its accuracy, and energy bills should be no different. But the reality is that a lot of energy bills are paid without ever being validated.
"Checking an energy bill is virtually impossible without expert help however. Energy Action's Activ8 service provides energy monitoring and bill validation services to help Australian businesses check they are not being charged incorrectly as unlocking these savings is not a simple task for a business to tackle on their own."
What makes up energy charges on a bill?
An energy bill is made up of several different charges. Energy itself makes up just under half (around 45 per cent) of the total. The charges that make up the remainder of an energy bill include: network, market, environmental and service related charges.
- Network charges cover costs involved in the transporting of electricity from generators, across the transmission and distribution networks to a site. These charges are reviewed and adjusted annually.
- Market charges are fees which are paid to the Australian Energy Market Operator (AEMO) to operate and maintain the National Electricity Market (NEM).
- Environmental charges are costs associated with complying with State and Federal schemes which are aimed at promoting efficient use of energy, reducing greenhouse gas and funding renewable energy generation.
- Other service related charges are fixed fees which typically cover costs associated with electricity retailing such as service charges and retailer fees. This section may also include additional metering fees that may be associated with metering or monitoring services.
What should businesses be doing?
Get to know your bill
To help Australian businesses better understand their energy bills Energy Action has launched an online guide.
Check your charges
Get an expert to check bills. It can be difficult to know whether bills are correct without understanding how charges are calculated. Often you may require additional information and consumption data related to time of use from a metering agent.
Many bill issues therefore cannot be rectified directly with your energy supplier and will need the expert help of a reputable energy management company who can independently check charges are correct and advise on where savings could be made.
Review network tariffs
An energy management company can advise if you're eligible for a better value network tariff. As network charges make up a sizable part of an organisation's energy bills, switching tariffs can, in some cases, result in significant savings.
Energy Action highlighted potential savings for its Activ8 customers in Victoria of more than $1.2 million, with average savings of $5800 and several being well in excess of $20,000 per annum.
Think about use
Using electricity in the off peak period is not necessarily the best way to save money. Electricity companies look at peak usage and keep enough energy back to cover this level at all times (so there is always enough energy available).
Using large amounts of energy in a short period of time means the electricity company will need to supply the highest amount you use all day — resulting in much higher demand and capacity charges. It is often better to spread use across the day.
Identify opportunities for energy efficiency
Ultimately, the best way to reduce bill costs is to reduce consumption. Educating staff on ways to reduce electricity use and creating an energy policy are good ways to lower a business's energy footprint. Upgrading lights can also be a cost effective option to reduce consumption.
Some businesses may even be able to produce their own energy with expert guidance. Cogeneration can reduce organisations carbon footprint by up to 30 per cent. There are also many schemes and grants available to help businesses implement energy efficient improvements.
Duncan added: "Checking your bill is just the first step in making cost savings. Most organisations can also find other quick-win efficiencies and organisations spending more than $20,000 per annum should consider securing future energy rates by negotiating a forward contract.
"Businesses should also be looking at ways they can become more energy efficient in the long-term to bring down costs and help the environment."