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The Pulse - Edition 3 Flipbook PDF
Welcome to Edition 3 of The Pulse, a quarterly partnership of news and information between Business SA and Statewide Sup
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THE ENERGY ISSUE
Quarterly snapshot of South Australian business and economy powered by Business SA and Statewide Super. Quarter 3, 2016
THE PULSE
CONTENTS
Energy, in all its manifestations, is integral to the successful operation of business and the community in general.
Positive signs for the SA economy.............................. 4
In this issue of The Pulse – a quarterly partnership of news and information between Business SA and Statewide Super – we explore the problematic issue of electricity prices, the benefits of energy efficiency, and the high profile public discussion over South Australia’s potential role in the Nuclear Fuel Cycle. We have also engaged Associate Professor Frank Bruno, leader of the Thermal Energy Storage Group within the Barbara Hardy Institute at UniSA, to provide his specialised insights into the State’s energy equation. The latest Business SA-Statewide Super Survey of Business Expectations, the centrepiece of The Pulse, has revealed a growing confidence in the business community and improved trading conditions, a positive position from which to meet the challenging times ahead. Read on and keep up to date with what’s really happening in the State.
Businesses support nuclear waste storage.............. 4 Better business conditions lift confidence................ 6 Signs are pointing in a positive direction................... 8 Transforming the energy sector................................. 10 A Business SA perspective on SA’s energy woes... 12 The Pulse Economic Barometer................................. 14 South Australia cautiously turns a corner............... 16 Saving energy, solving problems............................... 18 Powering the future.......................................................20 Working out the power puzzle.................................... 22 SA’s nuclear conversation gathers steam............... 24 Business SA: We're here for growth.......................... 26
Quarter 3, 2016 The Business SA-Statewide Super Survey of Business Expectations for the June quarter revealed a lift in business confidence founded on improved trading conditions and policy initiatives from the Federal and State Governments. The positive outlook continues an upward trend evident in the survey data over the past three years.
Working in partnership for South Australia’s future.
3
EXECUTIVE SUMMARY Positive signs for the SA economy Business confidence and trading conditions have improved and look set to further strengthen, according to the latest survey of Business SA members. The more positive environment has translated into a much more bullish outlook with 28.6 per cent of respondents to the Business SAStatewide Super Survey of Business Expectations (SOBE) expecting the State’s economy to perform more strongly over the next 12 months – a significant jump on the 16.5 per cent who took that view just three months ago. Results from the June quarter SOBE found a growing confidence across most elements of business activity. Interestingly, SOBE respondents reported that actual trading outcomes exceeded their expectations from the March SOBE on such important indicators as sales revenue, profitability, employment and capital expenditure.
This more satisfactory trend seems set to be continued into the September quarter. While the SOBE survey period spanned Australia’s longest Federal election campaign in 60 years, business owner-managers and consumers seem to cast off the usual caution that accompanies political instability. Australia’s record low interest rate climate and promises of taxation relief in the Federal Budget also appear to have played a part in the boost in confidence.
Businesses support nuclear waste storage South Australia should seriously consider involvement in storing high level nuclear waste according to more than 70 per cent of the respondents to Business SA’s June quarter Survey of Business Expectations (SOBE). The SOBE quoted the view of the Royal Commission into the Nuclear Fuel Cycle that South Australia could safely increase its involvement in the Nuclear Fuel Cycle and indicated the potential of establishing a deep geological waste disposal facility.
Confidence Business SA’s Confidence Index for South Australia surged 11.1 points in the June quarter to break through the 100-point level for the first time in three years and hit 103.3 points. An index of 100 points indicates that more respondents expect economic and trading conditions to improve than to worsen. The June quarter SOBE continues a three year upward trend after the SA Confidence Index last topped 100 following the 2013 Federal election.
SA CONFIDENCE INDEX SA Confidence Index
SA CONFIDENCE INDEX SA (past Confidence Index 2 years)
140
(last 2 years)
120
100
100
90
80
80
Jun-16
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
60
70 Jun-14
Jun-15
Jun-16
Business SA-Statewide Super Survey of Business Expectations The Royal Commission estimated that such a facility could generate $6 billion of revenue annually from storing nuclear power station waste from around the world. The Commission also reported that 1,500 jobs could be created in the construction phase with 600 permanent operational jobs to follow. Against that background, 54.6 per cent of survey respondents agreed with the proposition that South Australia build a two-stage (above ground followed by deep below ground) storage facility “as long as risks were appropriately managed and SA receives appropriate financial and employment benefits’’. A further 16.7 per cent of respondents agreed with the statement that “I haven’t made up my mind but given the advised benefits, SA should seriously consider this proposal”. Ten per cent of respondents did not agree with the Royal Commission’s view on the basis that “I do not have enough understanding of the risks, costs and benefits to make an informed decision”.
The Survey also explored the idea of building a nuclear power station in South Australia by asking members if they agreed with the Royal Commission view that it would be wise to plan for the eventuality that nuclear power might be necessary in future to reduce greenhouse gas emissions. Nearly 63 per cent of respondents said they would support nuclear power if it became necessary to reduce greenhouse gas emissions with 17 per cent opposed to the idea. In a separate series of questions on electricity pricing, nearly 35 per cent of respondents said their power costs had increased by up to five per cent over the past 12 months, 19 per cent between five and 10 per cent, and a further 14 per cent experienced rises in excess of 10 per cent. Approximately 80 per cent of these businesses were retail level customers so had been less exposed to recent wholesale market increases. Peter Gill
Business SA thanks University of South Australia postgraduate students, Rita Yu and Tarin Aftab, and Tyson Gherghetta for their assistance in helping to analyse and interpret the SOBE data.
Conditions The Business Conditions Index also climbed through the 100 points threshold into positive territory with an 8.6 points gain in the June quarter to 105 points. The Index reflected the better-than-expected trading conditions in the June quarter and exceeded the expectations of SOBE respondents when they looked three months ahead in March with the survey results indicating an Index of 102.3 for the quarter.
ConditionsINDEX Index SASA CONDITIONS
SA CONDITIONS INDEX (past 2 years)
130 120 110 100 90 80 70 60
SA Conditions (last 2 years) 110 100 90
Jun-16
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-07
Jun-08
Jun-06
80 70 Jun-14
Jun-15
Jun-16
5
BETTER BUSINESS CONDITIONS LIFT CONFIDENCE
SOBE respondents also anticipate the sales outlook to further improve with a predicted Index of 117 points for the September quarter.
Improved trading outcomes coupled with some encouraging policy decisions by governments boosted business confidence in the June quarter, according to an analysis of the Business SAStatewide Super Survey of Business Expectations (SOBE) data. The General Business Conditions Index moved into positive territory, up 8.6 points to 105 points – a more positive outcome than anticipated three months earlier when the expectations of SOBE respondents pointed to an index of 102.3 for the June quarter.
Evidence of an improvement in trading conditions came with the Sales-Revenue Index surging
UP 19.1
POINTS
IN THE JUNE QUARTER
POINTS
UP 36.5
POINTS
TO 115.5
OVER THE PAST YEAR
The improved trading environment was reflected in the key SA Confidence Index which was up 11.1 points in the June quarter to 103.3 points, and 20 points ahead of the comparable period in 2015. Encouragingly, the SA Confidence Index outpaced the National Confidence Index that only rose by 8 points, indicating that survey respondents are starting to feel more favourably about the State’s economy compared with the national picture which has been outperforming local perceptions for some months.
Underlying the improved trading conditions indicated by the SOBE data were a number of factors that support a more positive outlook across the SOBE indices and performance indicators. The Federal Government sent a strong signal that small and medium enterprises are vital to the health of the economy with its Budget decision to cut the company tax rate from 28.5 per cent to 27.5 per cent from July 2016. It also announced a longer term ambition to reduce all corporate taxation to 25 per cent by 2026-27. The State Budget announcement, which occurred within the SOBE survey period, of a ‘jobs grant’ for hiring new employees of up to $10,000 for businesses with a turnover of less than $5 million and a $4,000 grant for firms with turnovers of less than $600,000 also appears to have improved confidence and lifted the outlook for employment levels.
Business SA-Statewide Super Survey of Business Expectations Another major boost to confidence in the State during the June quarter was the long-awaited announcement that 12 stateof-the-art submarines would be built in South Australia at a cost of $50 billion. The Federal Government’s decision on the submarines closely followed an announcement that a project to construct 12 offshore patrol vessels would commence in Adelaide – before transferring to Western Australia - pending work flowing from the $35 billion Future Frigates project. The trio of naval projects will ensure the maintenance of a highly skilled and specialised workforce and be a major economic stimulus for South Australia for decades to come. Peter Gill
7
SIGNS ARE POINTING IN A POSITIVE DIRECTION A growing confidence in the corporate community in the June quarter was confirmed by a number of businesses exceeding their expectations on a range of key economic indicators, including employment, capital expenditure and profitability. While South Australia continues to have the highest unemployment rate in the country, the Business SA-Statewide Super Survey of Business Expectations (SOBE) gave an interesting insight into the employment situation of its 475 respondents. In the three months to end of June, 23 per cent of respondents hired staff while 62 per cent retained the same level of employment. The number of companies expanding their workforce was 8.9 per cent higher than had been anticipated by those firms at the time of the previous SOBE. The more positive trading conditions also translated in longer working hours with 27 per cent of respondents reporting higher levels of overtime worked, exceeding earlier expectations by 12 per cent. Nearly 30 per cent of respondents reported that their average wage bill was higher for the three months under review, an outcome which was 8.1 per cent higher than anticipated in the previous SOBE when respondents were invited to look three months ahead and estimate the direction of their payrolls. Employers continued to find it harder to secure skilled labour than unskilled workers, a situation which may reflect the continued net migration interstate of skilled employees in search of work consistent with their qualifications and experience.
Against such an employment backdrop, more companies trained staff during the June quarter with 21.4 per cent increasing their training expenditure, 6.1 per cent more than had expected to do so. Drawing on their own experiences, the SOBE respondents appear to be modifying their views of the overall unemployment situation with a significant drop – from 72 per cent previously to just under 60 per cent – in the number expecting unemployment to rise in the September quarter.
The clue to the boost in capital expenditure could be found in several quarters. The Reserve Bank of Australia cut interest rates mid-way through the three months to which the latest SOBE relates and followed with another 0.25 per cent cut in the cash rate to 1.5 per cent in August. The lower cost of money coupled with the continued benefit of accelerated depreciation offered by the Federal Government appears to be encouraging investment by the business community. With higher sales and improved trading conditions, more SOBE respondents than expected reported higher profitability for the period. Nearly 32 per cent of those responding to the survey said profits were higher in the June quarter whereas only 24.5 per cent had expected that to be the case three months earlier. Peter Gill
Business SA-Statewide Super Survey of Business Expectations
28.6
%
EXPECT SA ECONOMY TO BE STRONGER OVER THE NEXT 12 MONTHS, UP FROM ONLY 16.5% PREVIOUSLY
23
%
SAID EMPLOYMENT INCREASED, 8.9% MORE THAN EXPECTED
24
%
SAID CAPITAL EXPENDITURE INCREASED ON EQUIPMENT, 7.1% MORE THAN EXPECTED
9
TRANSFORMING THE ENERGY SECTOR Associate Professor Frank Bruno Globally the electricity sector is undergoing a one in a 100-year transformation. This involves shifting from a centralised power grid to a decentralised grid with increased local generation. Renewable energy is well suited to a decentralised grid, and being a manufactured technology costs have dramatically reduced over recent years. In 2015, there has been a shift whereby 70% of global investment in electricity generation was in renewable energy. South Australia is one of the leading regions in this transformation, which will ultimately deliver long term benefits. Although it is understood that the current electricity market was not well designed to operate under the new distributed paradigm, it is wrong to assume that renewable energy was the primary cause behind the recent spot price increases. Electricity prices paid by most businesses are the sum of network charges, generation charges and retailer margins. Over the last decade network charges dramatically increased, principally in response to an increase in peak demand due to air conditioning loads. More recently, the significant roll out of residential and commercial solar PV, together with various energy efficiency measures in buildings and appliances has seen peak demand reduce in absolute terms. As a result, network charges are not likely to see the dramatic rises that occurred in the past. Electrical energy demand has also reduced in SA due to energy efficiency measures and increased renewable energy. Within SA, energy from wind farms is variable and therefore any
generated electricity is sold at the market price of the time effectively causing a reduction in the overall spot price. Furthermore, price spikes in the spot market occur far less today than in 2008, when the State had limited renewable energy supplies. The recent price spikes relate more to factors such as the price rises in gas, the closure of Port Augusta power station and factors relating to the way the national electricity market operates. The Port Augusta closure was due to the competitiveness of renewable energy in reducing electricity spot prices. The disconnection of this power station has resulted in SA’s electricity prices to be more correlated to that of gas. Whilst this contributed to the recent price spikes, additional renewable energy connected to the grid in the future will reduce the impact of gas prices on electricity costs. The concept of baseload generation is also misunderstood and often confused with grid stability. Fundamentally, electricity demand varies on a daily cycle. Renewable energy is variable but not unreliable. South Australia has had many periods when renewable energy has met more than 70% of the energy demand without disruption. The issue for the grid is to ensure that it can cope with the increased variety of power flows from generators and consumers, not whether there is baseload generation. Future growth in renewable energy together with energy storage technology will support grid stability. Discussion over increasing the capacity of an interconnector or installing more conventional power stations needs to be put in context with the overall trend of energy. Does it represent the best value for money? Business customers today are able to make investments in solar PV that can deliver very attractive rates of return.
This reduces demand for grid electricity, hence, reducing energy distribution sales. Therefore, how can any investment in upstream supply get a return if downstream sales are falling? Energy storage can take many forms including, electrical battery storage at both customer and grid level, high temperature thermal storage with concentrated solar power (CSP) and customer thermal energy storage. A CSP plant operates by using mirrors to concentrate the sun to heat up molten salt which is then stored as thermal energy for later use to generate steam and electricity. This technology offers significant potential for SA’s future and would provide many of the solutions to the current problems, however it does require substantial investment. In the long term, battery storage may well dominate however it is currently uneconomic for SA businesses in the short term. Thermal energy storage for customers can include anything from chilled water storage for air conditioning, hot water storage, underfloor heating/cooling storage in buildings, high temperature storage for industrial process heat, or phase change material (PCM) energy storage for refrigeration applications as commercialised by our team at the University of SA. These technologies all offer customers the ability to economically reduce energy bills today.
Associate Professor Frank Bruno Image courtesy of UniSA
11
A BUSINESS SA PERSPECTIVE ON SA’S ENERGY WOES It’s hard to escape the seemingly constant media focus on SA’s electricity prices and the ensuing debate about why we’re here and what should be done about it. There will no doubt be many small businesses out there wondering what all the fuss is about when their electricity costs represent a relatively small component of total costs and that may well be a reasonable perspective. However, even the average small business electricity bill has doubled over the last decade from approximately $2,100 per annum to in excess of $4,250 per annum, which for many small businesses operating on tight margins can be quite difficult to absorb and hard to pass onto customers in otherwise tough economic times. Compounding this for many businesses is the price of network gas which has also been rising steadily at rates well in excess of inflation. For medium to high electricity intensive business on non-retail contracts or in the spot market, who would typically be paying above $50,000 per annum, recent cost increases have been much more pronounced due to more direct exposure to the wholesale electricity market where prices have effectively doubled in the past 12 months. In several examples provided to Business SA, mostly from manufacturers and irrigators, cost increases faced by businesses re-contracting over the past year have typically been in the hundreds of thousands and we know that for the largest users in the State, increases have been running into several million dollars each. In a State whose export profile is dominated by electricity intensive manufacturing (particularly food and beverage), irrigation and mining, the price of electricity and gas is a large driver of the success or otherwise of such businesses which are crucial to the broader economic fortunes of the State. We need look no further than Arrium to understand this.
South Australia’s population growth is at best sluggish and in order to grow our economy, we cannot rely on domestic demand alone but need to increasingly look to developing more export markets.
However, if we continue to exhibit a significant cost disadvantage to our nearest neighbours Victoria where wholesale electricity prices are effectively 50% cheaper, how are our businesses supposed to compete on world markets? Business SA’s constitution ensures we work both on behalf of members and for the broader interests of South Australia’s economy and while electricity costs might be less important for low energy intensive small businesses, they have large ramifications for energy intensive businesses and the State’s economic growth prospects more broadly which indirectly influences the growth opportunities for small business. While Business SA has been an active participant in recent regulatory reviews relating to what monopoly network businesses spend and pass back to consumers, and whilst we continue to maintain a close watch, the prevailing price drivers for both electricity and gas are increasingly coming from wholesale/generation markets where prices are unregulated. Unfortunately, South Australia’s strong intermittent renewable energy profile and limited network interconnection to Victoria combined with a limited number of high cost gas fired baseload generators has left us subject to increased market volatility meaning higher electricity prices for wholesale contract customers.
Small businesses have not entirely escaped either after electricity retailers began passing these cost increases onto retail customers from July 1 with bills rising by approximately 10% depending on the retailer. The rising price of wholesale gas has intensified the South Australian wholesale electricity market’s lack of baseload generation capacity. While the world liquefied natural gas (LNG) price may be falling, (which, ironically, benefits Business SA’s members on bottled gas), the prices paid by SA’s gas-fired electricity generators and other businesses using gas from the local network have risen. This is largely due to tighter supplies as northern Australian LNG plants fill long term contracts, combined with low gas exploration and new extraction, exacerbated by unconventional gas moratoriums in New South Wales and Victoria. Business SA recognises there are no quick fixes to South Australia’s high electricity prices but we will continue to advocate for solutions in the best long term interests of our members and the broader economy with respect to price and reliability. We will progress these issues as soon as practicable to ensure South Australia does not remain at a cost disadvantage to other States and our international competitors. Andrew McKenna
Image courtesy of SA Power Networks
13
THE PULSE ECONOMIC BAROMETER
SA LABOUR FORCE Trends for June 2016 quarter
While official ABS data for South Australia’s June quarter economic growth was yet to be released at the time of writing, evidence from other economic indicators and Business SA-Statewide Super's Survey of Business Expectations (SOBE) suggests the economy is likely to have grown by approximately 0.5 per cent in the June quarter, albeit coming off 0.1 per cent growth in the March quarter and 0.4 per cent growth in the December quarter. This would translate to annual economic growth of approximately 2 per cent which compares against Australia’s current growth rate of 3 per cent. Despite the significant headwinds facing South Australia’s economy at present, particularly related to high energy costs and large uncertainty in the manufacturing sector with the pending loss of Holden and unresolved challenges at Arrium, business conditions are holding up and according to the SOBE, have actually improved by 32.8 index points over the past year to sit marginally in positive territory for the first time since 2010; with a similar uplift experienced in business confidence. Assisted by a prolonged softening of the Australian dollar, South Australian exports have started to show signs of a more sustained rebound after falling away during 2015. Residential construction is also lifting with total approvals up 13.8 per cent on 2015 while retail spending remains strong and continues its recent growth around 3.5 per cent per annum. These factors have kept downward pressure on South Australia’s unemployment rate which, while still creeping up slightly over the June quarter to finish at 7 per cent, is still down from the nearly 8 per cent recorded in mid-2015. Andrew McKenna
Unemployment rate Up 0.2 percentage points (pp) to 7% Participation rate Down 0.3pp to 62% Full-time employed Down 4,600 to 520,400 Part-time employed Down 1,000 to 290,800 Youth Unemployment Down 0.4pp to 14%
SA RETAIL TURNOVER Trends for June 2016 quarter
Total SA retail turnover Up 1.2% for quarter and up 3.5% year on year. Key movers for quarter Other specialised food retailing (up 8%), Other retailing (up 7.2%) and Cafes, restaurants and catering services (up 4.8%).
SA RESIDENTIAL BUILDING APPROVALS
SA CPI Trends for June 2016 quarter
Trends for June 2016 quarter
Total dwelling units Up 8.3% for quarter and up 6.2% year on year Private sector houses only Up 7.3% for quarter and down 2.6% year on year Total dwelling units (excluding private houses) Up 10.3% for quarter and up 13.8% year on year
Key movers for quarter Up 0.5% for quarter and up 0.7% year on year. Furniture (+5.6%), medical and hospital services (+5.3%) and automotive fuel (+5.1%).
SA BUSINESS CONDITIONS & CONFIDENCE
SA EXPORTS Trends for June 2016 quarter Trends for June 2016 quarter based on Business SA-Statewide Super Survey of Business Expectations:
SA Merchandise exports Up 4.5% for quarter and up 2.7% year on year.
Business Confidence Up 11.1 index points to 103.3 points over the quarter and up 20.1 points over the year. Business Conditions Up 8.6 index points to 105 points over the quarter and up 32.8 points over the year.
15
SOUTH AUSTRALIA CAUTIOUSLY TURNS A CORNER
The Federal Government has flagged lower company tax rates, but a question mark arises given the complex and contradictory composition of the new Senate. The State Government’s grant of up to $10,000 for businesses to hire more staff is also an incentive and contributes to a more positive mood amongst corporate decision-makers and the unemployed who will benefit.
Con Michalakis Chief Investment Officer
It may be a bit of a cliché but I think we have drawn a line in the sand with the South Australian economy. After some fairly ugly statistics a year ago, we are starting to see some encouraging signs. Business confidence is edging up – as revealed in Business SA’s survey and others – and unemployment has improved slightly with the July ABS data showing a 0.6 percentage point decline in the unemployment rate to 6.4 per cent, seasonally adjusted. Ironically, where South Australia was way ahead in the unemployment stakes, the other States are now starting to join us. The more positive mood in the State is a factor of many things. However, I think getting the Federal election out of the way after such a long campaign (although short by American terms – where voters endure a 12-month marathon to elect the President) was important, and both Federal and State governments have put some positive policy measures in place to stimulate the economy and drive jobs growth.
These good signs could mean that South Australia’s unemployment rate has plateaued. What we now need is a downward trend. But that will take time. There is no magic wand that will accelerate the transition of the South Australian economy away from its traditional over-reliance on manufacturing and mining, to a more balanced economy where the services sector will play a substantial and increasing role. That said, sometimes there are positives in things that do not occur – for example the recession that some pundits maintained would follow the end of the mining boom did not materialise. South Australia has not fallen off the economic cliff and the low cost of borrowing continues to hold promise that companies – and governments for that matter – will invest the capital needed to grow the economy and jobs. China is doing its part by stimulating its economy with government cash, which can only help trading partners like Australia and important sectors of the South Australian economy like agriculture, education and tourism.
These sectors would all be helped by a lower Australian dollar but, despite the best efforts of the Reserve Bank, our currency remains a prisoner of what other central banks are doing around the world. Many countries would like to see their currencies trading at a lower rate against their competitors but, with all currencies inter-related, that is simply not possible. The headwinds facing the local economy remain the same and include the need to create an environment where the State’s bright young people can be confident of getting a job and do not leave the State in search of work. We cannot afford to lose their innovative thinking, entrepreneurism and economic and social capital from a city described as one of the ‘most liveable’ in the world.
While some commentators claim that renewable energy is contributing to high power prices because it is forcing coal-fired, baseload power generation out of the market, such views ignore the environmental realities that the world must achieve a low carbon future through renewable energy. The discussion we should be having is that our short electoral cycles at both Federal and State levels of government undermine the planning and investment we should be making in the productive infrastructure that will ensure the State’s future economic prosperity.
Specific challenges like the outrageously high electricity prices confronting businesses reflect a lack of foresight and planning by policy makers. South Australian companies are hostage to high power costs because we do not have the efficient and fully-functioning national electricity market that was promised nearly two decades ago. The absence of that national market with adequate two-way trading in electricity by South Australia and the other States will compromise the future trade in renewable energy in which this State leads the nation in terms of production.
17
BUSINESS SA WORKING FOR… EFFICIENTSEE Saving energy, solving problems Some people prefer to solve easy problems. Quentin Roberts is not one of them. The electrical engineer with the entrepreneurial spirit likes complex puzzles in his area of expertise of energy efficiency. It’s not just the intellectual challenge that the Managing Director of EfficientSee enjoys but, since the earliest days of his business, he has been motivated by an environmental consciousness and wants to be “a good steward of the environment.”
EfficientSee’s core business is advising clients on how to achieve more efficient use of their energy, or as the company’s catchphrase puts it – ‘making savings happen’. And he’s done that by adopting a different tack to most consulting firms. After analysing a client’s energy situation many consultants simply hand a report to the client recommending particular measures that can be taken to improve their energy efficiency. However, Mr Roberts goes two steps further – working with the client to implement changes and then reviewing the outcomes to see if the recommended measures have delivered what was promised. It’s an approach which makes the EfficientSee team accountable for the results they claimed they could achieve.
As power prices soar and policy makers consider “I’m actually passionate about seeing the savings how best to respond, Mr Roberts is in his element happen for clients and I really wanted to fill that gap. Based on my engineering and project as he pursues better energy solutions for clients management experience, it was a really easy that have an immediate positive impact on the value add for our business,” Mr Roberts said. business’s bottom line. Quentin established EfficientSee – a clever, double-meaning moniker that aptly describes his business – in 2009. Seven years on, and after surviving the ‘school of hard knocks’ that is so instructive for small start-up firms, Quentin is appreciating how accurate his mentors were at the SA Young Entrepreneurs Scheme (SAYES), run by Business SA. “SAYES was brilliant, I really enjoyed it. Like any entrepreneur I had these fantastic goals and the business plan that I developed through the SAYES program was quite lofty,” Mr Roberts told The Pulse. “But if you aim for nothing that’s what you hit,” he said. The upshot was that the financial forecasts he had set for the first three years of the business are now being realised in years 5-7 as referrals from satisfied clients generate the vast bulk of EfficientSee’s new business.
“Consulting reports don’t save you any money, it’s the projects that flow from the report that does that.” “So one of the key innovations for EfficientSee has been to our own business model and it’s been driven by the desire to close the loop and provide a complete service to our customers.” EfficientSee’s services vary widely depending on the size and nature of the business. Mr Roberts said that a small business replacing metal halide globes with LEDs could halve their energy costs for lighting. He said small businesses could save between 5-20 per cent of energy costs by adopting new technologies and are able to tap financial support through the State Government’s Retailer Energy Efficiency Scheme (REES) - which obliges large energy retailers to invest in energy efficiency measures such as lighting, water heating and insulation.
Large businesses like manufacturers have much more complex energy equations often involving embedded energy in the form of steam - that may be used in a production process - as well as electricity. EfficientSee’s approach in such cases might involve reviewing and recommending adjustments to the operating speeds of motors to achieve the best alignment of energy use and output. On the bigger energy picture and looking to the future, Mr Roberts said the storage of renewable energy could be a significant factor in reducing the ‘peakiness’ of South Australia’s electricity demand which has contributed to the high electricity prices seen in recent times. “If we can balance out the peaks in power demand with technologies like batteries then that will help lower the peaks (when prices are highest) which will ultimately flow through in lower prices for households and businesses,” Mr Roberts said. Mr Roberts described the current advances in local technologies that could contribute to a reduction in greenhouse gas emissions as “encouraging” and said Australia “could take a lead” in addressing climate change. “Too often we see what we’re doing as insignificant compared with what big emitters like China are doing but Australia can take more of a lead in that space and we should not take our foot off the pedal in terms of what we are currently doing,” he said. Its clear Quentin Roberts will not be taking his foot off the accelerator any time soon. Peter Gill
Member name: EfficientSee Location: Unley Member since: 2009 Services used: SAYES, events Quentin Roberts, Managing Director of EfficientSee Image courtesy of Aaron Nagel
19
STATEWIDE SUPER SPOTLIGHT ON… ENERGY OUTLOOK Powering the future The past few months have seen a lot of media attention regarding high electricity prices in South Australia. There are a range of factors driving the State’s power prices including the relative owner concentration of gas-fired generators, maintenance on the SA-Victoria interconnector, and the impact of wind generation. The recent high electricity prices are also the result of South Australia’s energy mix and the short-term electricity market pricing dynamics. It would be unwise (and likely costly) to blame high electricity prices on renewables, as renewables will likely also deliver longer-term savings. Wholesale power prices have been much higher in SA than in neighbouring States and are forecast to remain significantly higher over the next few years. However, wholesale power prices (known as ‘pool prices’) are only one, normally relatively small component of the overall cost of getting power from a generator to your home or business. Network charges are actually the biggest cost.
Those with daytime power requirements and a suitable roof have the opportunity to harness significant savings through the installation of solar. Solar costs have reduced over time to the point that, in most cases, solar is now cheaper for daytime use than the cost of conventional grid-based electricity (i.e. the cost of delivered electricity). It is important to reiterate that the potential savings from solar for an individual household or business are driven by the extent of daytime power use. Battery technology, such as the much-hyped Tesla Powerwall, is emerging. This type of technology means households and businesses can store excess daytime solar generation for use during the evening peak.
PRICES ARE CURRENTLY HIGH – AT AROUND
$10,000
FOR A 7 KWH POWERWALL (THE TYPICAL HOUSEHOLD USES 20 KWH PER DAY).
What are the power options of the future?
Cheap batteries have the potential to be an even bigger revolution for the electricity sector than roof top solar. For the moment, except for those facing the very highest electricity costs, batteries are not an economic option.
By embracing technology we can find future affordable power solutions.
Future power price drivers
Solar offers the opportunity to generate power at the point of use – saving both generation and network costs.
It is anticipated that battery prices will fall substantially – particularly as greater economies of scale are achieved with the emergence of the electric car. The 2017 Chevrolet Bolt is said to have a 60 kWh battery at around a sixth of the cost per kWh of a Powerwall. This battery,
reconfigured for stationary use, would offer the surety of several days of power supply for the average household. However, it’s not just in electricity generation and storage where advances are occurring. Smart technologies that assist with electricity demand management and the sale of excess generation (solar or stored) to the market will become increasingly prevalent, putting downward pressure on prices.
What is Statewide Super doing? Statewide has been supporting infrastructure projects that:
Whilst the recent spikes in spot prices have been painful for South Australian businesses, the stream of new technology (including generation, storage and demand management) will have the net effect of both stabilising and lowering the cost of power. In the interim, it is important not to overreact to the situation with short-term solutions as these may burden electricity users with long-term unnecessary high costs.
• are economic – that is they deliver electricity at a lower cost than the status quo, while providing attractive investment returns on the capital invested by Statewide’s members
South Australians have embraced household solar – in fact we have one of the highest penetrations of rooftop solar in the country – but the real advantages of solar lie with large commercial daytime users of power. It is in this commercial space where the advantages of scale deliver benefits through larger system sizes, sophisticated users, and efficient financing strategies.
• are positive for South Australia’s environment and support the transition to a low-carbon economy.
Components of the average electricity bill Retailer Margin >
13%
RET+FIT recovery >
14%
Network Charges >
46%
Pool Price >
25%
Source: AEMC, Infradebt
• provide substantial South Australian employment opportunities – both during the construction phase and over the long-term; and
Together with Infradebt, Statewide has submitted a proposal into the State Government’s Low Carbon Electricity Supply and Services Expression of Interest process. If selected, that proposal would deliver 20 per cent of the South Australian government’s electricity needs at no additional cost or subsidy in any form. It is 100 per cent private sector funded, would deliver 65,000 tonnes a year of CO2 abatement and 450–650 local construction-phase jobs.
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BUSINESS SA WORKING FOR… ALMONDCO Working out the power puzzle There was a time when businesses like AlmondCo did not give electricity a second thought – it was just one of many input costs and priced at a level that did not attract attention. But that has all changed as the Riverland-based almond processor faces a doubling of its power prices by the end of the year. While the grower-owned cooperative understands the new realities of the energy market – for both electricity and its other significant fuel, Liquefied Petroleum Gas (LPG) – AlmondCo is looking at all its options to meet a $1 million annual power bill. AlmondCo is one of only four almond processors in Australia and exports half its annual throughput of 22,500 tonnes of processed almond kernels to the Middle East, South-east Asia and Western Europe from a processing and packaging plant at Renmark. A second operation at Lyrup cracks 17,000 tonnes of almond kernels a year. As intensive users of electricity and LPG for activities ranging from dehulling and deshelling almonds to sterilising, blanching, slicing, sorting and packaging kernels, AlmondCo has a strong interest in the current state of the energy market. Group Operations Manager, Brenton Paige, told The Pulse that AlmondCo will be in the market for a new electricity supply arrangement by the end of the year when its current contract expires. And the outlook is not encouraging. Mr Paige said AlmondCo is currently paying 7 cents per kilowatt hour (kWh) for peak-load electricity – when power demand across the grid is greatest and prices are at their highest – and 3.5 cents/kWh for off-peak power.
“When I go back to the market, I’ll be looking at 17 cents/kWh for peak power and 13 cents/kWh for off-peak power – that’s more than a doubling of the 50 per cent of AlmondCo’s power bill that relates to the retail cost of electricity,” Mr Paige said. So the co-operative is looking at innovative solutions and weighing up the costs and benefits of making substantial investments to meet its future energy needs. One option is building a biomass plant that would burn the almond hull (the fibrous outside coating of the almond shell) and shell that is produced at the Lyrup facility. “At the moment we sell waste hull and shell from the Lyrup cracking plant at a relatively cheap price to the stockfeed companies but that’s not within a bull’s roar of the value it would have as a fuel to replace LPG,” Mr Paige said. “The 40,000 tonnes of hull and shell we produce each year is more than ample to be able to convert into fuel to burn and create the steam we need for blanching the almonds. The good thing about almond hull and shell is that it has a very high calorific value – it produces a lot of energy when it is burned which can be converted into steam.” While a substantial financial outlay would be involved, AlmondCo is also considering whether to fire an electricity generator with the hull and shell waste that is a ready and under-utilised source of fuel. “We could use biomass for electricity production but it is highly capital intensive to buy turbines to generate electricity and the payback period is nowhere near as good as it is for LPG replacement,” he said. “However, with prices doubling on power, I’m now reconsidering whether we need to have a look at biomass for electricity as well.”
AlmondCo has also recently signed “a purchase power agreement to put a small solar power plant on our roof at Renmark”. “Keeping in mind that the solar system is only going to knock off 10 per cent of our total power requirements, all we’re doing is dipping our toe in the water. “But, again, it’s another initiative that we are taking to try and offset high power prices in the future.” The frustration for Brenton Paige is that he “can almost smell the cheaper electricity prices” just over the border. But, in the absence of new transmission lines linking South Australian industry to that cheaper power in the Eastern States, his solutions to high power prices must be home grown – just like his almonds. Peter Gill
Member name: AlmondCo Location: Renmark, Lyrup Member since: 2005 Services used: International business, training services
23
SA’S NUCLEAR CONVERSATION GATHERS STEAM Political pundits often lament the absence of public engagement and detailed discussion leading to good policy outcomes in Australia. Such is not the case in regard to the conversation about the potential role that South Australia can play in the Nuclear Fuel Cycle. In its 2014 Charter for a More Prosperous South Australia, released in the lead up to the State election, Business SA started the conversation when it called for a mature debate of the nuclear energy industry in South Australia. It sought a dispassionate discussion on the issue that replaced fear with facts as its driving force. The State Government then continued the conversation. On 19 March 2015, the State Government announced the establishment of a Royal Commission to consider the practical, economic and ethical issues raised by South Australia’s greater participation in the Nuclear Fuel Cycle. In its investigations, the Royal Commission heard from 132 expert witnesses, including 41 international experts, over 37 sitting days and the report was publicly released on 9 May this year. Reflecting on the approach taken to exploring a role in the Nuclear Fuel Cycle that went beyond mining of uranium, Premier Jay Weatherill said: “The dissatisfaction with that old way of doing politics is finding its expression in events like the ‘Brexit’ vote and hung parliaments in our own country”. “A new way is to turn mass opinion into public judgment. That is what we are trying to do here
in South Australia with the question of what our future involvement in the Nuclear Fuel Cycle should be,” Mr Weatherill said. And so, the conversation turned to the community. The first Citizens' Jury – consisting of a group of 50 randomly selected South Australian citizens – marked the beginning of a comprehensive Statewide consultation program. Over four days in June and July, the Citizens’ Jury examined the Royal Commission report and called on experts to help them work through the issues and better understand the choices. After their deliberations, the Citizens’ Jury produced a report identifying the key topics that need to be discussed during the consultation program: safety, consent, economics and trust. The conversation then hit the road.
In one of the largest community consultation programs ever undertaken in South Australia, over 100 sites across more than 60 South Australian towns are being visited during an extensive three-month engagement program. The visits are designed as informal “face to face sessions” to learn more about the Royal Commission’s Report and its recommendations, and discuss the issues raised by the Citizens’ Jury. Feedback gathered through the consultation process will play a key role in informing the State Government’s response to the Nuclear Fuel Cycle Royal Commission Report.
Where to from here? In October, the 50 members of the first Citizens’ Jury will reconvene and will be joined by a group of 300 randomly selected South Australians. This jury of 350 people will assemble across two weekends for the second Citizens’ Jury. This jury will review all community feedback from the State-wide consultation program, in addition to finalising their own perspectives from examining the Royal Commission’s Report. The Jury will then capture their deliberations in a report that will be provided to the Premier as a key input to the State Government’s decision-making process. In November, the State Government will carefully consider the report from the Citizens’ Jury together with the views of the broader community. It will also consider the Royal Commission’s recommendations and the community’s views in deciding whether the State becomes further involved in the Nuclear Fuel Cycle. Business SA Chief Executive, Nigel McBride, returned from a nuclear fact finding mission to Finland, France and the UK in April firmly of the view that any possibility that South Australia might play a role, for example as a site for a high level nuclear waste repository, would only occur with genuine public support. The current conversation across the State will establish whether such support exists.
Sonia Bavistock
Business SA CEO, Nigel McBride, inspects nuclear waste storage facility in Finland
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BUSINESS SA:
WE’RE HERE FOR GROWTH Business SA’s policy advocacy on behalf of members continues to reflect the catchphrase: ‘Working for your business, working for South Australia’. Business SA’s recent policy successes have included a number of measures that the State Government announced in its 2016-17 Budget which support the growth and development of South Australian businesses. Employment Grants Businesses with payrolls of less than $5 million will be eligible for a $10,000 grant when they hire new employees with a $4,000 grant available for enterprises with payrolls less than $600,000. This positive initiative should provide a financial incentive comparable to the restoration of a previous payroll tax exemption for hiring apprentices and trainees for which Business SA has long advocated. Export Ready program Business SA encouraged the State Government to develop an ‘export ready’ program to assist small businesses to position themselves to take advantage of the many trade opportunities opened up through recent free-trade agreements. The Budget provided Business SA with $600,000 over two years to conduct export ready training for small businesses. Payroll tax rebate The State Government accepted Business SA’s argument that the small business 50 per cent payroll tax rebate for employers be extended for at least three years to provide certainty to employers. The Government extended the rebate for four years.
Public sector wage restraint In the face of Business SA calls to reduce the high cost of the public sector, the State Government announced a cap on pay increases of 1.5 per cent, down from 2.5 per cent in previous years. Over the next four years, this budget measure is expected to save $357 million. Other advocacy progress Electricity prices Against a background of sharp increases in wholesale electricity costs over the past 12 months, Business SA spearheaded a coalition of eight key South Australian representative organisations across the business, farming and community sectors to lobby the State Government to establish an independent inquiry into South Australia’s energy market transition towards a renewable future. Business SA has remained active in Australian Energy Regulator (AER) consultations on network reforms and monopoly business spending proposals. It released detailed research on SA Power Networks’ proposed tariff changes for small business. Senior Policy Adviser, Andrew McKenna, appeared before the Australian Competition Tribunal in the appeal of the AER’s 2015-20 regulatory proposal decision. Proposed industrial manslaughter legislation Senior Policy Adviser, Estha van der Linden, appeared before the Parliamentary Standing Committee on Occupational Safety, Rehabilitation and Compensation Health and Safety regarding the Industrial Manslaughter Bill proposed by Hon. Tammy Franks MP. Business SA reaffirmed its strong commitment to workplace health and safety and reiterated its position that current legislation already provides adequate deterrents and penalties.
Ready to employ? Up to $10,000 available for hiring new employees*
The State Government is offering up to $10,000 for businesses to hire new employees under its Job Accelerator Grant Scheme. To find out more call:
1300 363 831 *Eligibility conditions apply
apprenticeshipsupport.com.au
Business SA ABN 14 725 309 328 Level 1, 136 Greenhill Road Unley SA 5061 P : (08) 8300 0000 E : [email protected] W : business-sa.com