Case Study: Vic Water
SMART POWER SUPPORTS VICTORIAN WATER INDUSTRY TO DRIVE ENERGY EFFICIENCY WHILE MEETING COMMERCIAL DEMANDS
The water industry in the Australian state of Victoria was looking to move from a transactional model of energy purchase. The new approach – driven by a rapidly evolving electricity sector and government expectations – was for water companies to lead the way in efficiency and sustainability, while still meeting commercial disciplines.
With 19 water corporations servicing communities throughout the state, the Victorian water industry needed an electricity management solution that was flexible, wide-ranging and future-facing. Vic Water engaged Smart Power to develop a strategic plan and five-year rolling price forecast for the industry
The strategy developed by Vic Water and Smart Power provides a suite of options in every area from energy efficiency and self-generation (e.g. on-site solar) to plant and procurement. Each company can adopt the elements of the plan that best suit its operations, knowing they all meet the sector’s need to move towards best practice in energy procurement and usage.
In addition, Smart Power’s five-year rolling forecast of electricity prices provides high-level support for contract negotiations and the allocation of spending by managers in the various water corporations.
Water is a fundamental human need. To meet that need, governments typically own and regulate water companies that have a natural monopoly of water supply and treatment. In Victoria, the industry body that represents the state-owned water corporations is Vic Water.
Vic Water’s responsibilities stretch far beyond advocating for its members. It is also tasked with providing strategic guidance and coordinating projects outside the day-to-day scope of individual water company operations. One such strategic mandate is a critical one: energy usage by the Victorian water industry.
With 19 water corporations serving over six million people, the state government encouraged an industry-wide collaborative approach to efficiency and sustainability. The collaborative approach took into account procurement, consumption and the environment.
At the same time, the state’s energy market was evolving in four key areas:
- Changes in electricity generation, such as the growing importance of solar.
- A shift in supply from ‘on demand’ to intermittent.
- Government and consumer expectations that state-owned entities, such as water corporations, lead the way in being good corporate citizens.
- Ongoing costs associated with the above, that were traditionally considered as being outside business as usual.
The responsibility for finding a way forward landed on the desk of Satvik Gangavarapu, Vic Water’s Director of Commercial & Supply Chain. He realised these issues could not be dealt with by the industry, through approaches by individual water corporations alone. They called for a strategic, industry-wide response.
“Our members are used to just buying electricity. Now we needed them to actively manage their power. We know how to manage water, but now we have to start being proactive with electricity too,” Satvik said.
A first step was to find a strategic partner with expertise in the energy market, who could provide in-depth analysis and practical guidance for decision-making throughout the Victorian water sector.
“We needed a partner who could understand the changes our industry was going through, and help guide us through it,” said Satvik. “We also needed to know, that partner could evolve with us.”
Smart Power was already working with several Vic Water members on an individual basis, focusing on procurement. Satvik saw that Smart Power had in-depth expertise in electricity and the capability to work with businesses to understand their goals and processes. So Smart Power was engaged to help Vic Water develop a future-facing energy strategy.
The key was seeing electricity as a ‘portfolio’ rather than simply taking a transactional view. So what does this look like in practice?
The Smart Power review considered options in every area from energy efficiency and self-generation (e.g. on-site solar) to plant and procurement.
It was inclusive of diversity, and customised to meet the individual (and evolving) requirements of 19 distinct companies.
It took into account load management during periods of high demand and high prices. This information could then drive responses, so water companies were not caught off-guard and locked into expensive contracts.
The final piece in the puzzle was a comprehensive five-year electricity price forecast, provided to all Vic Water member companies.
In his role providing strategic guidance to the Victorian water industry, Satvik can see the results stemming from Smart Power’s engagement.
“With the help of Smart Power we now have contracts and new supply relationships in place. At Vic Water we’ve been able to facilitate new business models for electricity procurement and utilisation, and we’ve become a key planning partner for many of our members.”
The benefits extend beyond strategy advice and support for decision-making.
“Our members have been able to mitigate costs, and do so on a sustainable basis. While we can’t share the details, I can say that Smart Power now works with over 50% of our membership.”
One reason might be found in the inclusive approach taken by Vic Water and Smart Power. They created a comprehensive strategy with a range of options, so the recommendations could be adopted by each water company in the most appropriate configuration. “It was flexible and customisable,” is the way Satvik puts it.
Satvik also appreciates the value of the five-year pricing forecast, developed exclusively for Vic Water members by Smart Power.
“This is a rolling five-year forecast, and we revisit it every year,” he says. “We have viewpoints and a roadmap the entire Victorian water industry can follow, and this helps us deliver on our mandate to develop best-practice for energy usage and consumption.
“But it’s not a rigid plan – we are continuously revisiting pricing models and looking at developments in the marketplace. This in turn helps our members make smart decisions in their use and purchase of plant and equipment. And it means we can be confident as an industry that we’re facing up to our future challenges.”
KEY BENEFITS OF THE ENERGY STRATEGY PROVIDED TO VIC WATER:
• Comprehensive analysis of electricity market conditions and trends, facilitating to a holistic strategy road map for the Victorian Water Industry under the umbrella of Vic Water’s Supply Chain Excellence Program
• Flexible array of options provided, so each company can take the path that suits its operations, while adhering to the overall industry masterplan.
• Five-year pricing forecast, updated annually, to provide members with a tool to plan their electricity expenditure and to manage risk.
• Ability of water industry as a whole to cope with the rapidly evolving electricity marketplace, and not simply treat energy as an operating cost.
• Ability to meet government and consumer expectations of environmental responsibility while delivering commercial outcomes.