2015-03-31 Planning & Organisation Committee Agenda

PLANNING & ORGANISATION COMMITTEE MEETING AGENDA                                  31 MARCH 2015


PFC involves improving low power factors by installing equipment (capacitor banks) that supply
the necessary reactive power and improve the power factor closer to 1.0.

Network Demand Charges

Council has nine (9) sites which are classed as large users (usage greater than 100MWh per
year). The electricity expenditure at these sites is attributed to energy costs, network charges and
market/ancillary charges, and is approximately $500k per year.

Network charges are set by, and paid to Energex, including a demand charge component that is
intended to reflect a customer’s usage and impact on the network. Currently, the demand charge
is based on the maximum electrical demand (kW) at a site during each monthly billing period.

Within Energex’s 2015-20 regulatory pricing proposal submitted to the Australian Energy
Regulator, Energex is proposing the introduction of a demand charge that is based on kVA
($/kVA), describing that a network charge based on kVA is a more accurate measure of a
customer’s impact on the electricity network.

Given that kVA can be reduced by improving the power factor at a site, it is appropriate for
Council to examine if capital expenditure in relation to PFC measures to reduce network charges
offers a sound investment opportunity for ratepayers.

Importantly, Energex has recognised that business will look to invest in PFC measures to reduce
the cost impact of the changed method for network charges, and is offering the opportunity to
receive funding to assist with the installation of PFC equipment that will correct supply
inefficiencies while also reducing peak demand on the electricity network.

Cost Benefit Analysis

To test the cost benefit of PFC investment at Council’s large sites, analysis was undertaken
using a 3 year discounted cash flow approach (i.e. net present value methodology). Net present
value (NPV) is used to analyse the financial viability of an investment or project by comparing the
current capital investment to the present value of future cash inflows and outflows. A positive
NPV generally suggests a project is financially viable.

For assessment of investment in energy efficiency upgrades, a 3 year NPV was used as it allows
for an appropriate amount of time to compare the expected cost savings in future years to the
value of the upfront capital cost. 3 years is also considered a conservative time period over which
to make assumptions regarding expected future cost savings. Longer term investment analysis
carries more risk as key assumptions are more uncertain and may distort analysis outcomes.

Key aspects and assumptions of the cost benefit analysis include:

 Inclusion of Council’s nine (9) large usage sites;
 A period of three (3) financial years (2015/16, 2016/17 and 2017/18);
 A discount rate of 6.46% (Commonwealth Government 10 year bond rate plus 3.5%);
 Expected future monthly power consumption based on current usage trends (the power factor
   and kVA for each site differs each monthly billing period – the analysis uses the power factor
   and kVA recorded from each month in 2014 to allow for fluctuations due to seasonality and
   intensity in use at each site);
 Amount of reactive power (kVAr) needed to improve the power factor to 0.95 (as a minimum
   acceptable power factor);
 Future cost of network demand charges based on kVA ($/kVA) using Energex’s proposed
   rates over the next five financial years;


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