Amcor Limited takes a proactive approach to energy procurement. Issues which drive energy prices are closely monitored, and the company responds swiftly to take advantage of market opportunities.

Company profile

Amcor Limited is one of the world’s largest packaging companies. Amcor’s Australasia and Packaging Division is a diverse packaging business that includes paper, corrugated box, cartons, glass and aluminium can businesses in Australia and New Zealand and a distribution and corrugated box manufacturing business in the United States.

Company revenue: $12.12 billion pro-forma sales

Energy consumption in 2011

  • 8.0 PJ natural gas (66.0%)
  • 2.2 PJ (600 GWh) electricity (18.3%)
  • 2.0 PJ (100 kT) coal (15.7%)

Summary of key issues for energy users

In Amcor’s view, the most important issues for end-users to consider when planning energy procurement are to:

  • Understand the underlying drivers of prices such as the effect of drought, supply/demand balance, and the impact of ‘renewable’ intermittency.
  • Regularly monitor issues that drive prices, for example by reading Outlook statements from the Australian Energy Market Operator. Be aware of retailers’ prices that incorporate assumptions about future situations that may or may not occur.
  • Be aware of the potential cost implications of large-scale renewable generation, particularly if the generation is not located close to demand or is not ideally located due to network constraints.
  • Look for ‘sweet spots’ in the system for new sites that could minimise network charges.
  • Never seek a single, Australia-wide price through a single contract with a single retailer. In Amcor’s experience, this will not deliver the lowest energy cost.

Energy procurement

Amcor’s energy procurement policy is signed off by the Managing Director, with responsibility for procurement assigned to the Group Manager, Resources and Energy. The company procures energy through contracts with energy retailers. Amcor does not believe any one retailer can provide the most competitive price in all states. It therefore has an energy supply agreement with a single energy retailer in each state, selected separately based on periodic tendering undertaken by the company.

Amcor does not always go to the market to obtain quotes because the company sees an advantage in being nimble.

The company sometimes moves quickly in response to softening of futures market prices. The company believes the ability to quickly respond to prices in the forward and futures market is very important.

For example, sometimes there is only a short window of a few hours in which to execute a trade that locks in future energy supply in response to short declines in futures contract prices. [/quote]

Electricity procurement

Amcor has an in-house analyst to:

  • track energy prices using wholesale market spot price data from NEMWatch (which is particularly useful for demand side response), energy futures contract price information from ASX and forward pricing information provided by several of their retailers
  • monitor load profiles for all major sites using half-hourly metered data provided by a Metering Data Agent.

Amcor uses forward pricing information to trigger a request to retailers for a supply contract. The offered price is compared with the futures price.

Amcor adopts short-term contracts where they believe they can achieve more competitive prices in the near future. They contract long when they observe the market is soft. Amcor’s monitoring of futures contract prices suggested they were achieving retail margins of approximately $3–$4/MWh for electricity at the time of this case study.

Amcor consider these margins to be reasonable, given the reduced price volatility risk provided by retail contracting. Amcor also has a predictable load profile at their major sites, which also helps to contain retail margins.

Amcor uses standard contracts offered by its energy retailers, but attaches its own ‘special conditions’, primarily to cover certain risks. Typically, these special conditions are an attached schedule to the retailers’ standard contracts. Occasionally Amcor also negotiates to amend the retailer’s standard terms, such as when Amcor uses its own Metering Services Provider.

Amcor has found ‘Carbon market pass-through’ clauses in contracts require particular attention because they are detailed and technical. By contrast, the company has found the standard contracts used by its demand side aggregator to be far simpler, easy to understand and suitable to Amcor's requirements

Another issue that requires particular attention for Amcor is Partial Exemption Certificates (PECs) from activities defined as Emissions Intensive Trade Exposed (EITE). PECs provide partial exemption from the Large Scale Renewable Energy Target (LRET) and Small-scale Renewable Energy Scheme (SRES) liabilities. Amcor has to negotiate with retailers to accept their PECs.

Attention should also be paid to ensure that renewable energy target charges levied by retailers are consistent with prices of traded renewable energy certificates, including New South Wales Greenhouse Gas Emissions Abatement Scheme Certificates (NGACs) and Queensland Gas Electricity Scheme Certificates (GECs). Peter Dobney says users should ‘haggle with retailers to ensure you get full value’.

For every new contract, Amcor checks the first bill by component. Amcor then checks network charges annually and when rates are known to change.

Gas procurement

The company believes the main issues in the gas market are:

  • constraints on gas transmission pipelines in Queensland resulting in high prices offered by retailers
  • pipeline owners are unwilling to expand transmission capacity unless costs are directly underwritten by customers through long-term contracts
  • the gas market is facing similar pressures to the coal market, with producers having an option to export.

Despite these issues, Amcor has some bilateral contracts for gas. In some states they also have contracts for transmission capacity that they are able to trade. For example, when Amcor’s third glass furnace came into operation at Gawler, the plant was run at its full capacity, requiring the company to contract additional Maximum Daily Quantity (MDQ) capacity. Gas consumption for the third glass furnace is now lower, allowing Amcor to trade the unused MDQ capacity.

Network charges

Amcor currently engages a ‘tariff expert’ to assess their non-standard network charges. Some of Amcor’s sites are subject to cost-reflective pricing and Amcor is particularly concerned about the utilities’ approach to these tariffs.

Demand management and demand-side participation

In South Australia, Amcor uses a demand-side aggregator to provide demand-side response. This service provider combines individual items of Amcor capacity into a reliable portfolio and contracts with National Electricity Market participants for demand-side response services.

Amcor also uses the same demand-side aggregator to provide demand-side response services in Western Australia using approximately 1.7 MW of curtailable load. It aggregates Amcor’s capacity into a portfolio and contracts for reserve capacity with the Western Australian Independent Market Operator (IMO) through the Reserve Capacity Mechanism.