Transitioning tariffs in agriculture

The Queensland Farmers’ Federation is helping farmers to thrive with a dual approach to rising energy costs by providing clarity to member organisations and advice to government in relation to energy pricing, and by assisting with practical on-farm energy productivity programs.

From 1 July 2016, South East Queensland (SEQ) retail electricity prices were deregulated, meaning the Queensland Competition Authority (QCA) no longer regulates retail electricity prices for residential and small business customers — those consuming under 100 MW of electricity per year. Retail prices for large customers (over 100 MWh per year) have been deregulated since 2012.  Retailers now determine electricity prices and publish their market and standing offers online and on the Australian Energy Regulator’s (AER) independent price comparator website (https://www.energymadeeasy.gov.au/) where customers are able to evaluate available offerings.

For customers outside SEQ, the QCA reviews the regulated electricity tariffs each year and determines new prices based on a number of factors. The authority has released its final determination for regulated retail electricity prices for 2016–17, while the Queensland Government supports regional and rural Queenslanders by subsidising the additional costs involved in supplying electricity outside SEQ through payments to Ergon Energy. This subsidy is called the Community Service Obligation (CSO) payment and, unfortunately, results in a lack of transparency of the real service costs and no retail competition within the network area, so most regional customers are on a standard retail contract with Ergon Energy.

Around 35,000 electricity connections in regional Queensland are on tariffs which have been classified as transitional or obsolete, representing around 25% of Ergon Energy’s business connections¹. These tariffs will cease to exist in 2020 driving customers onto potentially more expensive tariffs and many businesses (including agriculture) are concerned that these price increases (together with the annual increases) will threaten their viability.

Irrigated agricultural sectors will be especially impacted by the removal of the specific farming and irrigation tariffs with QCA data highlighting bill increases of between 10 and 100% for 100% of larger customers currently on some of the transitional tariffs (such as T37 and T66) as they move to ‘standard tariffs’ by the 2020 deadline. While the QCA’s 2016–2017 determination for regulated electricity price increases for small businesses in regional Queensland ranged between 11.2 and 15.8%.

The Agriculture Industries Electricity Taskforce² has called on the federal government to address the critical industry and market reform necessary to fix the regional electricity pricing system.

As electricity costs rise, the viability of irrigated agriculture businesses is being challenged. The energy productivity of Australian agriculture has declined more than 33% since 2008, impacting its international competitiveness. An international comparison of Australia’s key agricultural trading partners conducted in 2012³ showed that Australia’s average electricity prices had grown by 40% since 2007. Cost increases for irrigated agriculture have generally been in excess of 100%, and as high as 300% over the same period.

Linking energy efficiency and productivity

There is a risk that some industries in the agricultural sector will be forced to respond to rising electricity prices by irrigating less to avoid high electricity demand charges, leading to a decline in the sector’s productivity.

As QFF’s Energy Savers Program rolls out audits to over 100 farms across Queensland, there have been some significant energy efficiency and renewable energy opportunities identified, and case study examples where energy efficiency has cut energy costs and improved productivity. Two recent examples include a Central Queensland citrus farm and a Queensland nursery.

Central Queensland citrus farm: An irrigation energy audit at a Mundubbera mandarin farm recommended adding variable speed drives to two submersible pumps to reduce power costs and allow greater flexibility in watering, including the ability to water separate blocks at the right pressure without throttling at the outlet. The audit also suggested that a 30 kW solar PV system would be a suitable size for the operation of the packing shed given its seasonal operation.

The farmer reduced the size of the two pumps at the same time as fitting variable speed drives and installed an 83 kW solar PV system. He switched one of the pumps from its own network connection to the packing shed connection to take advantage of the solar PV for irrigating. The farmer will get the costs back in less than five years, with an energy saving of over 170 megawatt hours per year and cost savings of $41,000 per year.

Of the audit process, the farmer found it helpful to have the information needed to make informed decisions.

“Once I had all the information we went ahead with implementing the recommendations. As well as the energy savings, watering will now be more targeted, resulting in water savings as well. Before installing our variable speed drives, we had to irrigate all three blocks to get rid of the pressure. Now we can just do one or two as required,” he said.

Queensland nursery: Nurseries use most of their energy for irrigation and there can be energy used for hot water heating, lighting and even cold rooms. Following an energy audit, the owners of a Brisbane nursery replaced a 7.5 kW main irrigation pump with a 5.5 kW pump with a built-in variable-speed drive. As well as energy savings, the pump gives the nursery greater flexibility in irrigation and more consistent watering — with productivity benefits.

The owner said, “With irrigation, we now have constant pressure, so don’t have to have a main pump and a pressure pump. We can turn on a tap or a whole section of irrigation and it gives an even pressure across the system. Evenness of water is an important thing.”

A solar hot water system was installed to replace an 18 kW electric hot water system and spending an extra $24 on temperature data loggers gave them the ability to monitor temperature and only heat when they needed to, with huge energy savings.

The owner said that the changes “make it easier to have similar style and size plant, it takes out a variable in production. We are on track to be well below our target of 100 megawatt hours per year with energy savings of around 33% and cost savings of around $14,000 per year, exceeding the $10,000 saving estimated.”

Another nursery nearby audited under the program saw an immediate benefit from new pumps and variable speed drives before receiving the first power bill. “I stopped having to fix burst pipes!”

The future of Queensland’s agricultural sector

One significant outcome from the audits has highlighted the importance of reviewing current and alternative tariffs, with some audits identifying potential savings from simply changing to an alternative tariff. However, concern remains that many regional businesses on the transitional and obsolete tariffs will experience dramatic increases in energy prices and consequently operational costs.

The rising cost of electricity in some cases continues to outpace the energy efficiency savings and productivity improvements that agriculture can achieve. This is impacting the ability for farmers to compete on a level playing field with overseas producers.

QFF is continuing to seek both practical on-farm and policy solutions. QFF is working with the Alliance to Save Energy 2xEP initiative to develop and advocate cross-sectoral solutions; with the Australian Renewable Energy Agency (ARENA) to identify renewable energy technologies; to secure grants through Energy Consumers Australia (ECA); and to identify opportunities to assist farmers to implement energy efficiency and renewables projects with the current suite of low-cost finance offered by the Clean Energy Finance Corporation, QRAA and private financiers.

References:

1. Queensland Productivity Commission. Electricity Pricing Inquiry 2016. See Chapter 10: Rural and Regional Industries – Transitional and Obsolete Tariffs.

2. Members of the Electricity Taskforce: National Irrigators’ Council; NSW Farmers Association; National Farmers’ Federation; Cotton Australia; NSW Irrigators’ Council; CANEGROWERS; Queensland Farmers’ Federation, Central Irrigation Trust (SA), Bundaberg Regional Irrigators Group (BRIG).

3. ‘Electricity Prices in Australia: An International Comparison’: A report to the Energy Users Association of Australia by Carbon + Energy Markets, 2012.

Dr Georgina Davis is QFF’s Policy Advisor for Resources. Andrew Chamberlin is QFF’s Project Manager – Energy.