One of the biggest challenges Australian businesses have faced in the last few years is the price of energy. This has led many to refer to the current situation as an energy crisis. The causes of this energy crisis are varied, but many of them are not new.
This crisis has led to issues with operational costs, supply chains, and long-term financial planning. In this blog, we're going to take a broader look at the causes of the energy crisis, but more importantly, we're going to look at the solutions. Read on for more.
What Is Causing the Energy Crisis?
In times of crisis, people often mistakenly look at just one factor and heap all of the blame on a single event or party. But that's just not possible in this instance. The energy crisis is a combination of global and domestic pressures that have been building for some time. In fact, you could place blame as far back as the beginning of the Industrial Revolution if you wanted to. Here are some of the reasons for our current energy woes:
Global Factors
- Geopolitical events like the Russia-Ukraine war have disrupted global energy supply chains. Sanctions on Russian oil and gas have caused shortages, particularly in Europe, leading to price surges worldwide.
- The Organisation of the Petroleum Exporting Countries (OPEC+), which controls a large share of global oil production, has repeatedly cut supply to maintain higher prices, affecting both fuel and gas costs.
- Extreme weather events, such as heatwaves, droughts, and storms, have put pressure on power grids and energy infrastructure, increasing demand for gas and electricity while limiting supply.
Domestic Factors
- Australia's ageing energy infrastructure, such as our reliance on older coal-fired power plants and limited gas storage facilities, has led to supply bottlenecks, increasing energy costs.
- While renewable energy is growing, coal and gas still supply most of Australia's power. However, slow investment in renewables and storage solutions means demand is outpacing supply. This mismatch in supply and demand is part of the problem.
- Australia exports a significant portion of its LNG supply, particularly to Asia. This means local businesses often face higher prices, as domestic supply is limited despite Australia being one of the world's top gas producers.
The Impact On Australian Businesses
The ongoing energy crisis isn't just a global issue. Its direct effects on Australian businesses are being felt across all our major industries. As the majority of Australian businesses still rely on the power grid for their energy and as prices remain high, businesses are being forced to continually absorb these price constraints.
Rising Operational Costs
For manufacturers, farmers, and hospitality businesses, high energy prices are hitting where it hurts. With gas and electricity rates fluctuating, the cost of powering equipment, refrigeration, heating, and running production lines has become unpredictable.
This uncertainty has increased caution, with businesses choosing to produce less in order to safeguard against their rising overheads. As demand continues to rise, this has caused several notable bottlenecks that have led to higher-priced goods for Australian households.
Supply Chain Disruptions
The effects of energy price volatility don't stop at power bills. Rising fuel and transport costs are driving up the price of raw materials and finished goods, making everyday business operations more expensive. This has a knock-on effect across supply chains, as businesses either pass on higher costs to customers or absorb them, eating into already tight margins.
Reduced Profit Margins and Business Closures
Energy prices have fallen from their peak in 2022, but still don't look like they'll be returning to pre-pandemic levels anytime soon. This has led to expansion plans being curtailed, hiring being slowed, and investment in growth taking a back seat. This has led to what some are calling a 'per capita recession'.
Solutions to the Energy Crisis: What Can Be Done
The energy crisis isn't just going to go away on its own. But there are energy crisis solutions available to ease the pressure and improve our situation. Some of these solutions require collaboration on a national scale, while others can be implemented by business owners right now.
We'll start with solutions on the national level. To improve energy security and stabilise prices, investment in better infrastructure is critical. Upgrading the electricity grid, expanding battery storage, and ensuring a stable domestic gas supply would reduce price volatility.
Similarly, increased government incentives for businesses—such as subsidies for solar and efficiency upgrades - would further ease financial pressure on industries hit hardest by rising costs.
What Can Businesses Do About the Energy Crisis?
Large-scale reforms will take time, but we know businesses can't afford to wait. So, if you're looking to cut down on your energy bills right now, here are some effective strategies to consider:
Reduce grid reliance by investing in solar
Less grid reliance means less susceptibility to energy price increases. It's as simple as that. But with government incentives and subsidies available across a variety of different industries, installing solar is more affordable than ever. Businesses can explore tailored options through commercial solar and solar for small businesses.
Secure Better Energy Contracts Through Procurement
Many businesses are stuck on default market rates, overpaying for their energy. By using expert procurement strategies, businesses can negotiate lower rates, better contract terms, and access group tenders to secure wholesale pricing. Energy procurement for small businesses ensures competitive rates, while commercial energy procurement provides tailored solutions for the needs of larger enterprises.
The energy crisis continues to be a challenge for Australian businesses, but that doesn't mean they have to take it lying down. If you're looking to save on your energy bill, get in touch with Choice Energy for a free energy assessment today.
