Rising energy costs are increasingly playing into the purchasing decisions of Australian businesses, with new, energy-efficient equipment providing opportunities for business to reduce their operating expenses, according to Commonwealth Bank of Australia (CBA) Asset Finance Managing Director, Sylvia Terry.
Businesses are often looking for ways to streamline their operating costs. And in recent years, rises in the costs of running equipment, transporting people and goods, and keeping the lights on, have put energy and fuel prices increasingly in the spotlight.
Between 2015 and 2017, wholesale electricity prices rose 130 per cent, resulting in a doubling of the price paid for electricity traded in the National Electricity Market (NEM). And while government intervention has seen gas prices ease over the past year, high overseas demand looks likely to keep putting upward pressure on prices.
Fuel and diesel prices have also been rising, with impacts on transport companies as well as those who rely on company vehicles. In the September quarter of 2018, retail petrol prices rose to four-year highs in Australia’s biggest cities. Meanwhile, diesel rose to its highest level in four years, adding to the running costs faced by Australian businesses.
The impact of energy costs
It’s therefore unsurprising that CommBank’s latest research has revealed that rising electricity costs are a key factor when looking to lease or buy new equipment. Among the survey participants, 90 per cent said that the cost of grid electricity was impacting their purchasing decisions.
Electricity was the most pressing energy consideration across all the focus sectors except transport. However, this trend was most pronounced for the health sector, with grid energy costs cited as a consideration by 100 per cent of health businesses in our survey. Agriculture was close behind at 97 per cent.
Most transport businesses in our survey (83 per cent) said they were impacted by the cost of grid electricity, but predictably were more concerned with the costs of fuel. Ninety per cent of these businesses said petrol and diesel costs were impacting their purchasing decisions.
Almost all surveyed transport companies (97 per cent) also reported being extremely influenced by the ongoing costs of parts and maintenance when purchasing new equipment. This was substantially higher than the average for all sectors (34 per cent).
Meanwhile, with much of Australia recently affected by drought, agriculture was highly focused on water efficiency and costs, with 96 per cent of surveyed businesses in this sector saying this would influence their purchasing decisions, compared with just over half (57 per cent) of businesses across all sectors.
Factoring in efficiency
Against this backdrop, it’s unsurprising that CommBank’s research revealed that the move towards more efficient equipment is well underway. Just over a third (32 per cent) of businesses in our survey had already invested in energy and fuel-efficient equipment, with smaller businesses (between A$25-$150 million in earnings) leading the way (41 per cent).
For those already in the market, or considering accessing new equipment in the future, energy equipment is an important consideration. Across all our focus sectors, 56 per cent said their decisions were driven primarily by energy efficiency. A further 34 per cent said that they were engaging with energy efficiency when making decisions (but not as the primary driver).
Healthcare industries had the highest level of purchasing decisions driven primarily by ‘green’ or efficiency considerations at 75 per cent. Meanwhile construction lagged the other sectors, with just 37 per cent of decisions being made on green or efficiency grounds, according to our survey.
Healthcare had the highest level of engagement of green and efficient considerations in decision-making, at 50 per cent compared with the average of 34 per cent.
The efficiency dividend
Our research shows that there is a strong incentive for businesses to consider efficiency when choosing the equipment they need. Remarkably, those who have already made the move towards more efficient equipment have already reaped a significant dividend, with these businesses reporting an average saving of 30 per cent on energy costs. This rose to 38 per cent saving for the largest companies (A$500 million+) in our survey.
As well as the direct financial benefits of lowering energy and fuel costs, more efficient equipment can have other positive benefits for the company – and more broadly across our society. By becoming more efficient in their use of resources, companies can reduce their impact on the planet – lowering pollution and greenhouse emissions.
Newer and more efficient equipment contributes toward a safer working environment and is often more ergonomically efficient than the equipment it replaces. This has the potential to reduce incidents in the workplace, and their associated costs – as well as potentially lowering hospital admissions, disability support payments – and, critically, the personal impacts of workplace injuries.
It can also help ensure that businesses comply long-term with changing government regulations and industry standards.
Preparing for sustainable growth
Finding new ways to be energy efficient – by embracing new technology and equipment, can be a pathway to achieving sustainable growth – and help to mitigate the risks of future rises in energy and fuel costs. And while barriers remain, it’s clear that the financial and non-financial benefits mean it will continue to grow in influence in purchasing decisions for years to come.
Sylvia Terry is Managing Director, Asset Finance at Commonwealth Bank of Australia and has been in the banking industry for the past 17 years. She oversees the Bank’s asset finance solutions for business customers of all sizes including the Bank’s own self-funded Energy Efficient Equipment Finance designed to support financing of energy efficient cars and equipment. Terry is a current board member of AFIA, holds a MBA with AGSM, and Commerce / Law degrees with University of Sydney.