Energy procurement strategy – your questions answered

Energy framework

A good energy procurement strategy optimally matches your business needs with the many choices that are available when it comes to buying energy.

Energy is often one of the biggest overheads for a business, so it is crucial to adopt the right approach in how you go about purchasing your gas and electricity.

Here are a few FAQs around the subject that may help in your decision-making process.

What is the best Energy Procurement Strategy for 2020?

The best strategy will be determined by the needs of your unique business.

Energy prices fell dramatically during the early stages of lockdown to reflect the lack of demand, but following the easing of restrictions and the resulting step up in business activity, they are now climbing out of what appears to be a market trough,

Even so, energy suppliers are being selective about who they deal with and are avoiding perceived high-risk industries, such as hospitality, catering and travel, that have all come under intense pressure since lockdown started back in mid-March.

Businesses within those sectors on a fixed energy deal in a market where prices are rising will feel they are in a relatively good position from an energy procurement perspective as they’ll be protected against the prospect of being hit by increased risk premiums.

However, these are unchartered times, and without a crystal ball, managing risk has never been more important. Hence, having the correct strategy in place and being able to respond quickly to opportunities as they arise is crucial.

What is the best Energy Procurement Strategy to manage risk?

Simply put, it’s the strategy that’s most suited to the business. But first, you need to understand the role of risk in your business.

Some businesses do not have the option of adopting higher risk for potentially higher financial returns as budget stability might be more important to them.

Your business may have long-term fixed customer sales contracts which do not allow for passing on increases in energy costs to your customers.

In order to protect profit margins, having fixed price energy contracts is preferential to having the opportunity to take advantage of falls in the energy markets. This is because the risks of energy price increases would ultimately be more damaging to the financial performance of the business.

For energy-intensive businesses, in order to compete on price, it’s important that you’re buying energy at the current market rate, so a flexible contract that tracks the market could be advantageous.

As a general comment, a fixed price contract which is renewed when the energy markets are low has historically added value, particularly as they often avoid increases in non-commodity costs.

What is the difference between a fixed and flexible energy procurement strategy?

Most people view flexible contracts as riskier than fixed ones but, in reality, they can be used as a hedging tool to smooth out the volatility of market movements.

A flex contract enables you to fix any amount of energy for any period of time. For example, you could fix energy prices for half your anticipated consumption for the duration of the contract, and let market prices dictate the cost of the other half once you have interpreted market dynamics through the use of helpful energy management analytical tools such as EM-Powered. The price you then pay is the average between the two actions.

Whether a fixed, midi-flex or full flexible strategy is adopted, it is important to have a dynamic approach. By this, we mean fixing contracts when market movements present opportunities and not when you come to the end of a fixed period contract in the blind hope that the markets will be favourable.

How can Energy Management guide you in your Energy Procurement Strategy?

We can assist you by establishing and implementing an energy procurement strategy that best serves the needs of your business.

Once the right products have been selected and delivered, the performance of energy suppliers will be audited to ensure optimum budget management moving forward.

Ongoing invoice validation and budget management are also key in managing your energy procurement strategy.

Sign up to our Market Intelligence report

Analysing the factors behind why business energy prices have risen or fallen over a month-long period, our Market Intelligence report helps to give customers a handy overview of market conditions as they plan their energy strategy.

Before you make any energy procurement decisions it is important to understand what the energy landscape could look like in the future in order to get the best deal at the right price.

So many factors influence the price a business has to pay for their electricity and gas and the Market Intelligence report breaks these down in an easy-to-read format accompanied by historical and present-day price graphs.

To sign up, simply fill in the short form at the bottom of the page.

Switching energy suppliers – what you need to know

Energy is often a business’ biggest running cost after wages. That is why it is crucial to ensure you are not paying over the odds for powering your office, factory or warehouse, particularly if you prefer the security of a fixed-term contract over a more flexible arrangement.

Many energy contracts simply rollover once the current term expires, and this can lead to a business paying more per unit for their gas and electricity than they need to.

With the market as volatile as it is right now, switching energy providers can be in your best interests. Normally, your energy supplier – whether it is one of the so-called ‘Big 6’ or one of the smaller operators – will contact you up to six months before your contract enters its renewal window.

Armed with the facts

At this time, it is important to have all the right information to hand and to understand how, when and where you are consuming the most energy, especially if you operate over multiple sites, as this could impact on how much you eventually pay.

Switching energy suppliers can take anything between four to six weeks but without any disruption to your current supply.

Many businesses, particularly at times of great stress, either don’t have the resources to handle this energy procurement process or do not have the expertise to shine a light on unfavourable terms and conditions which may hit the business financially in the long run.

If you consider yourself to be in such a situation, we’d be more than happy to assist you in getting the right deal at the right time and for the right duration.

Swing and you’re winning. Is now the best time to renew your energy contract?

All crises create winners and losers and the coronavirus pandemic is no different when it comes to how much businesses are paying for their energy.

Compare electricity and gas prices from the period before the pandemic took hold and adversely affected so many lives, to today’s market and there is no comparison.

With the global economic slowdown came a vast reduction in energy consumption – by as much as 38% in April – as factories and offices shut up shop, and prices plummeted as a result.

Summer 2021 electricity prices took a massive hit, falling by 32 per cent from the start of October until May 20, dropping from £55.01 to £37.50, while Summer 2022 swung by 24 per cent.

In terms of gas, there were equally big fluctuations over the near eight-month period. As of May 20th, Summer 2021 prices had gone from £53.34 to £30.23 – a 43 per cent reduction.

Our team of expert energy consultants constantly analyse the energy markets to help clients try and strike deals with suppliers at just the right time.

Whilst this is clearly not an exact science all the indications at present are that this is a good time to review your energy contract renewal options.

We are slowly starting to see the forward prices recover as the lockdown restrictions start to ease, but these costs are still low based on wholesale costs back in October/November 2019.

That lag won’t last forever though, and as more and more people go back to work, there will be an inevitable knock-on effect on prices as demand for energy increases.

If you would like to talk to us about your renewal options, please give us a call on 01225-867722.

Missed the ESOS deadline?

For qualifying companies, the deadline for phase 2 of ESOS passed on December 5, 2019.

Some companies have missed this cut-off point after finding the complexities of the compliance process more challenging than anticipated.

Faced with being hit with fines potentially running into tens of thousands of pounds, it is important for those companies to act now.

If you don’t have the time, money or dedicated resource to do this, our highly experienced team can take care of the paperwork on your behalf and help you mitigate those costs.

Here’s a reminder of which companies need to comply:

  • Those that employ at least 250 people; OR
  • has an annual turnover in excess of €50 million and a balance sheet in excess of €43 million.

ESOS assessments are carried out every four years and there are five separate UK regulators: Environment Agency, National Resources Wales, Northern Ireland Environment Agency, Scottish Environment Protection Agency and Secretary of State for Business.

For more information please contact us on: 01225 867722 /sales@energymanagement.com

An energy framework that delivers for the public sector

Energy framework

Looking after the health, fitness, safety and education of the nation does not come cheap. In 2019, the figure for powering the public sector was estimated to be an eye-watering £3.4 billion.

Keeping offices, hospital wards, classrooms and leisure centres heated, lit, ventilated and air conditioned contributes towards a large percentage of a local authority’s total expenditure.

Controlling costs is a key focus for councils under financial pressure. Fundamental to this goal is smart energy procurement, even more so in times when the markets are volatile due to a host of geopolitical factors and health-related issues such as the coronavirus outbreak.

Buying energy is not always straightforward but the Choice Energy Framework (CEF), which involves a panel of six pre-selected suppliers, makes it as simple and as competitive as it can be.

With a range of supply parameters to consider (e.g. scope of services, technical capability, procurement mechanism), public sector clients need to have access to easy and ready to use Value for Money resources.

The aim of CEF is to make procuring these services more user-friendly. It minimises the cost of energy procurement while retaining accessibility and transparency.

Approved by The Official Journal of the European Union (OJEU), the CEF enables signed-up organisations to avoid time-consuming form filling and could save them as much as £20,000 in admin fees.

The CEF has been developed by Shepton Mallet Town Council and is being managed by Energy Management LLP.

The result of this is a Framework Agreement designed and procured by the public sector, for the public sector, applicable throughout the United Kingdom.

For more details on CEF, click here.

Coronavirus and the energy price market

energy price

Subscribers to our Market Intelligence monthly bulletin will be only too aware that there are a multitude of factors driving the energy price market.

If you compare business electricity prices from one day to another, they can look very different depending on how bearish or bullish the market is.

On top of all the geopolitical and meteorological factors at play, the coronavirus is an extremely unwelcome addition to an already complex situation.

With the viral outbreak spreading to more countries, the price of oil has dropped markedly as global demand weakens even further due to production cuts in places like China, the source of the COVID-19 disease.

Brent crude, the international standard, dropped 14% for the week to its lowest levels since July 2017, closing Friday at a fraction over $50 a barrel. Cuts in oil production are now being called for by countries such as Saudi Arabia to stabilise demand.

For any energy consultant, such scenarios present challenges, especially around energy procurement, which is why experience is so important in good energy management.

Through years spent in the industry, Energy Management’s energy consultants know the markets inside and out and are across all the news that could impact on our clients’ energy deals.

And this knowledge is complemented by energy management portals such as EM-Powered and its wide-ranging benefits, including the ability to compare business energy consumption over specified periods of time.

That historical data can then be used to help our energy consultants make better-informed decisions on the type of energy procurement right for your business.

Why energy procurement is best left in the hands of the experts

For the first time in history, more UK power came from renewable sources than from fossil fuels in the calendar year ending December 2019.  National Grid described it as “a historic moment”.

Wind power provides the largest percentage of the UK’s overall renewable energy output, making up 20% of the UK’s electricity following a series of major windfarm openings in recent years.

And with energy derived from solar power around the 6% mark, roughly a quarter of the UK’s renewable energy output is dependent on the right weather conditions.

While the wind is blowing a gale at the moment, thanks to Storm Dennis, that’s not always the case and, as we all know in this country, the sun can never be trusted to shine as long as we’d like it to.

Market vulnerability

But the vagaries of the weather are not the only strong drivers when it comes to the price people pay for their electricity.

From faulty nuclear reactors to the US-China trade talks and even the assassination of Iranian warlord, Major General Qasem Soleimani, the last few months alone has illustrated how the market is vulnerable to a host of geopolitical issues.

Understanding the market and the mechanisms that may trigger wild fluctuations in price is an important facet of energy procurement.

Right price, right time

A good level of market intelligence – through a combination of experience and accessibility to software such as EM-Powered, the energy management portal – is vital in procuring energy at the right price and at the right time.

Minimising those energy costs through smart energy procurement – and taking the hassle away from clients – is at the heart of what we do.

With over two decades’ worth of experience, Energy Management explores the range of options available to their clients, from a fixed-price, longer-term arrangement that allows for greater security, planning and budgeting, to a more flexible approach, where advantages can be derived from fluctuations in energy pricing.

Speaking literally, our consultants are experts at knowing which way ‘the wind is blowing’, so why not give them a call, on 01225-867722 or email: sales@energymanagementltd.com

 

EM-Powered – the secret weapon in managing your energy costs

To reduce energy consumption and consequently your company’s energy bills, you first need to have a very good understanding of your energy profile.

Energy Management’s energy monitoring and reporting portal, EM-Powered, assists companies in compiling an instant overview of their organisation’s actual energy consumption, predicted energy consumption and peak loads in an easily downloadable report.

Especially useful for multi-site operators and energy-intensive industries, the portal can be adapted to suit an individual company’s needs.

Here’s a breakdown of some of the benefits:

  • Accurate financial reporting – incorporates budget management tools, cost and consumption break downs. Management reports can also be downloaded for an overview of all activities. Ideal for board-level reporting.
  • Market forward pricing – We provide live forward and historic market trading prices. These prices can then be compared between specific dates, or alternatively can be expanded to show a high-level overview. The portal provides the ability to set multiple price notification triggers and alerts. These alerts will then be either sent via SMS or email to the user. Invaluable for flex contract management.
  • Seasonal comparison tables – Market charges can then be compared in table form, giving the customer an accurate and concise method to measure market fluctuations. The system provides you with the current position, and with a comparison to the previous day, week, month, quarter, 6-month and 1-year prices. In addition, you have the ability to choose specific dates, forward or backward, to compare prices over any given time.
  • Market Intelligence Updates – Customers are provided with a daily market intelligence update. The portal will update 3 times a day providing them with the live day ahead, month ahead and 2-month ahead prices. There will be a short commentary of why prices have fallen/risen, along with prices on Brent Crude and EU ETS Carbon, as both have an impact on UK wholesale electricity cost.
  • Daily Updates – Daily news updates are provided within the portal which gives an understanding of current geopolitical factors which may influence the market.

More information about EM-Powered can be found here.

Food and Drink energy consumption … in a nutshell

Energy efficiency may not be your bread and butter if you’re in the food and drink industry, and why should it be?

But spiralling energy costs brought about by a range of geopolitical factors in 2019 make it a topic that is never far from the top of the agenda.

As the fourth highest industrial energy user in the UK, according to a report by the Carbon Trust, businesses in the food and drink industry are increasingly recognising the need to lower their energy bills, hedge against future volatility and adopt measures that help them comply with green energy legislation.

Non-energy costs

With analyst forecasts suggesting that Decarbonisation and other government social policies will account for the majority share of energy bills in the near future, compliance and energy efficiency will soon be of equal importance to procurement. The phrase ‘the cheapest unit of energy is the one you never use’ is well-liked at Energy Management, and for good reason.

For many organisations, time poverty means that managing the work required to reduce their energy consumption is an undesirable distraction from their core business activities.

To further compound this, there may also be a lack of energy expertise and distinct skills gap creating barriers to finding savings and implementing reduction initiatives. This is where an expert reputable energy management consultancy can step in to remove these barriers and ease the way forward to effective reductions.

No compromise needed

Energy efficiency may mean different things to many of us, for Energy Management LLP it means reducing energy consumption without compromising business throughput, output or thermal comfort and wellbeing of staff.

Energy drivers can be defined under one of the three core areas responsible for consumption: People, Process or Technology.

    • People– Human influences
    • Process– Policies, procedures, protocols and regimes
    • Technology– Energy consuming plant, machinery and equipment and their associated controls.

Energy Management has the expertise to identify, qualify and quantify the opportunities in all three core areas

Invoice validation is also an area which can help reduce costs; did you know that one in five utility bills are wrong?

Discrepancies can occur on energy invoices, as they can on any type of bill, and, more often than not, such errors go unnoticed or unchallenged. Just like a customer of a restaurant wouldn’t leave without checking the bill was correct the same applies to your energy bill, this is when professional invoice validation can prove helpful, with the potential of saving you hundreds, if not thousands, of pounds.

Procurement of Energy is also an important factor to help you reduce your costs when choosing a supplier.

Simply by following “The five Rs”

    • Right price
    • Right time
    • Right contract type
    • Right terms and conditions
    • Right contract duration

Out-sourcing your energy management may seem like a big step but, with energy costs higher now than they have been for the past two years, we believe understanding and controlling these costs are vital to your business’s future success.

Visible consumption

To continue making energy savings, businesses need to have clear visibility of their energy consumption across the whole asset base thus leading to the ability to act. Bespoke energy management portals such as Energy Management’s EM-Powered allow this to happen, whether your business operates on one site or across multiple locations.

As the name suggests, the portal empowers energy managers to compile an instant overview of their organisation’s actual energy consumption, predicted energy consumption and peak loads in an easily downloadable report.

On gaining a complete understanding of your business’s energy performance, informed decisions can then be made on energy efficiency measures.

Worth the energy

So, whilst energy efficiency might not be your bread and butter there are many things as a business you can do towards following a path of becoming more in control of your energy usage and being more efficient. With such a wide array of benefits on offer, beginning even a small review of your business is anything but a waste of energy.

If you would like further information please contact a member of the team sales@energymanagementltd.com or visit https://www.energymanagementltd.com/contact-us/ to see how we can help your business.