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20 July 2017

Small businesses bleeding from higher energy costs

The Australian Small Business and Family Enterprise Ombudsman says small business operators are the forgotten people in Australia’s energy crisis.

Ombudsman Kate Carnell says high energy users like manufacturers and hospitality businesses are casualties of a failed system.

“It makes sense for heavy users to negotiate long-term contracts, but it’s nearly impossible to meaningfully compare quotes without expert knowledge,” Ms Carnell said.

“Combined with poor reliability of supply, small businesses are in a precarious position. It’s a disincentive to employ and invest.

“For manufacturers, the rising cost of energy has also heightened their vulnerability to foreign competition, eroding one of the few cost advantages that Australia has compared to other countries.

“It’s a terrible shame that one of the most energy-abundant nations in the world has reached this point.”

Ms Carnell said the Finkel Report provides a way forward. The recommendations are technology agnostic, they support growth in renewables and storage, and encourage lower emissions from coal and gas.

“It’s encouraging that COAG endorsed 49 of the 50 recommendations and some good will come of that,” she said.

“The Commonwealth has not ruled out a clean energy target and is working towards this.

“The states need to stop grandstanding and get on board with a national approach.

“Bans and moratoria on gas production are part of the problem and should be lifted.”

Ms Carnell said business as usual is no longer an option. Business as usual is lack of reliable power and unsustainable price increases.

“If we don’t fix the policy settings there will be small business closures and job losses, it’s that simple,” she said.

“The only growth will be in high-polluting diesel generators and off-grid generation.

“Investors need confidence there’s not going to be another change of policy when there’s a change of government.

“Without confidence and stability there won’t be investment in baseload power generation.

“Without investment there will continue to be price hikes and unreliability. The consequences for small business, employees and consumers are potentially dire and can’t be allowed to occur.”

 

CASE STUDIES:

Price Plastics, Dandenong:

A wholly Australian-owned small business manufacturer of industrial plastics products fears that their business will no longer be viable. The company has 50 employees in three states and is keen to continue investing in manufacturing in Australia.

Price Plastics has had to enter into a new one-year electricity supply contract and faces an increase in electricity costs of more than 75% this year. In addition, the company faces seasonal tariffs on electricity for industrial use.

Careful management has kept other business costs at similar levels to the previous year, but electricity has become the company’s second highest cost. The business has found that suppliers and customers are adversely impacted by gas price increases as well as rising electricity costs and face closure or sourcing products from overseas.

PMG Engineering, Braeside:

Victorian injection-moulding business and tool maker, PMG Engineering, employs more than 30 people. The business is grappling with a 20 per cent spike in its electricity costs and the outlook is for a 180 per cent increase next financial year, excluding network charges. The estimated increase is more than $110,000 a year.

In addition, owner and managing director Gerard Suttie says electricity infrastructure charges have more than doubled in the past five years. He says it's difficult to compare quotes from retailers and he engaged a broker for this purpose. He explains the retailer can penalise his business if he uses less electricity than agreed under the contract.

For PMG Engineering and many others, the rising cost of energy has also heightened their vulnerability to foreign competition, eroding one of the few cost advantages that Australia has compared to other countries.