Negotiating a better energy deal for your strata

Over the past 12 months, global energy prices have been soaring. Individually, as consumers, and collectively, as strata owners, we have felt the brunt.

Globally, Russia’s invasion of Ukraine has crimped supplies of both coal and gas.

Closer to home, the price impact has been compounded by coal-fired plants undergoing forced or planned maintenance

As a result, wholesale energy prices were up 141% in the first quarter of 2022 even before the onset of a bracing winter sent demand higher.

Australia’s coal shortage has also strained the gas market. Unable to source enough coal, gas power plants have ramped up supply to meet electricity demand, sending prices soaring. Meanwhile, the transition to renewables continues to gather pace, but the extra capacity is not yet always available when and where needed.

All these factors have created the perfect storm of spiralling prices.

How the energy market works

Electrical and gas networks are owned by distributors & networks such as Ausgrid, Essential Energy, and Endeavour Energy. Energy retailers, such as Origin, AGL, and Energy Australia buy bulk electricity from the networks and sell it to retail customers.

The NEM (National Electricity Market) is a wholesale market where energy is bought and sold. Electricity generators (such as coal-fired power stations or wind farms) compete to sell the electricity they produce at the best price. The forces of supply and demand affect prices on the NEM and prices fluctuate accordingly.

The NEM is regulated by AEMO (the Australian Energy Market Operator).

Electricity generators submit bids daily to AEMO, detailing how much electricity they are willing to supply and at what price. AEMO then matches these generation bids with the predicted demand from retailers.

The resulting price is called the ‘spot price’ – the current price based on where the market is at any given point, or ‘spot’ in time. The wholesale market is settled when generators receive the spot price for the electricity they supply, and retailers pay the spot price for the electricity they buy for their customers.

In times of high demand, you may be exposed to these ‘Spot price’ forces or a much higher ‘non-contracted’ price.

What can owners corporations do to soften the energy price blow?

Tendering for Large Strata complexes

In NSW, customers who use more than 100-Megawatt hours (MWh) pa are classified as ‘Large Market’. This includes the common property of many larger strata schemes and community associations, particularly if there are lifts and other energy-intensive facilities.

Large Market customers are also known as C&I customers in the energy industry. C&I contracts are best negotiated through a tendering process.

C&I energy bills are presented to customers as ‘unbundled bills.’ This means the various components of delivering energy are broken down on the bill. Some components are not negotiable, while others, such as the retail energy, environmental charges, supply charges, and metering charges, are.

Through tendering, Strata +  is able to approach retailers to bid to supply the electricity, negotiating the ‘flexible’ components of the contract.

This also requires constant monitoring and being prepared to move before contract terms expire.  Unless a new contract is entered into, energy prices will go onto default rates that can be as much as triple their contracted rates in the current market. To ensure this doesn’t occur, we will tender or re-negotiate with the supplier so that our Large Market clients are never on default rates.

How bundling works for Small Market clients

Smaller owners corporations, generally those that use less than 100 MWh pa, are less attractive to energy retailers so there is less competitive pricing. However, by grouping accounts together, energy retailers are more interested in winning the contract.

To achieve economies of scale and create a stronger buying power, Strata+  bundles these smaller electricity-consuming buildings together to form a ‘collective buying group’ for electricity.

Small Market multisite agreements are designed to benefit small plans and utilise bulk purchasing power to facilitate better outcomes for small strata plans and have a guaranteed two-year discount locked in.

What can you do?

Talk to your Strata + manager and fellow owners to ensure that your current common property energy contract delivers the best possible value. Make sure the contract’s renewal or retendering is on the agenda of your strata committee well before its expiry date.