Energy procurement: When is the price right?

The first half of June has highlighted just how challenging it can be to secure the best business energy procurement deal if you’re not armed with the right information.

Despite what the most bullish energy consultant might say, no-one can predict the future, especially not when it comes to business energy prices.

Too many factors outside the control of suppliers and brokers come into play for that to be the case, whether they are geopolitical or meterological.

However, beyond doubt, the first half of June has been a period when prices have continued to be on the up, both in terms of gas and electricity.

Despite the warm weather the UK has experienced for the majority of June, gas prices continued on an upwards trajectory. Contracts have largely been dictated by an overall strengthening across global energy markets, with oil, in particular, displaying an impressive recovery.

Storage issues

However, other fundamentals have contributed to the bullish sentiment. A strong demand for LNG supply in Asia, combined with the continent’s lucrative pricing, has reduced deliveries into the UK and Europe and impacted storage levels that are replenishing slower than previous years due to a lack of surplus supply.

Scheduled maintenance and unplanned outages have also played their part in regard to price increases this month, limiting imports into the UK. As a result, the system has seen very few periods of oversupply despite low demand for heating.

Carbon conundrum

Meanwhile, wind generation has underperformed once again this month, adding to some of the gains we have seen in recent weeks. A lack of consistent wind generation has meant that reliance on gas-fired power was unseasonably high.

The hot weather we have enjoyed this month has also increased demand for cooling across the country, creating an additional challenge for a stretched energy mix.

Rising carbon prices have played a role behind increases on the power curve too, as this makes fossil fuels such as gas, oil and coal more expensive. An unwanted variable at a time when low carbon generation sources are in limited supply.

Oiling the wheels

OPEC+ members agreed to a gradual increase in production at the start of the month which helped oil prices (both Brent Crude and WTI) to reach a two-year high.

The International Energy Agency also called for a further increase in production to help meet expected demand over the next 12 months. Some projections even expect oil demand in 2022 to be greater than 2019.

As such, the agency has called on OPEC+ to increase output by 1.4 million BPD by next year, with a number of leading analysts predicting oil to trade at $100 a barrel in 2022.

The Zoom boom: How broadband providers can manage energy costs

Knowing your megawatts from your megabytes is crucial for booming broadband providers and Internet Service Providers (ISPs).

IT and the internet is one of the boom industries of the last 12 months due to the changing behaviours brought about by the global pandemic

With working from home and home schooling becoming ‘the new norm’ during lockdown it has highlighted the need for an improved broadband network that covers all of the UK not just certain postcodes.

This increased demand – UK internet use has more than doubled in 2020, according to Openreach – has seen tech companies roll out network expansion plans and upgrades, creating thousands more jobs in this sector.

With increased demand comes the need for additional power supplies and meter installation is only the start of the process.

Clarity in energy reporting

To be able to understand and therefore save on energy procurement costs, it goes without saying that a business needs to know how much energy it is consuming in the first place – and when and where.

It is advisable for companies with a high volume of meters, such as a broadband provider or an ISPs to consolidate the captured data from meter readings in one place, such as an energy management portal, where it can easily be monitored and digested.

EM-Powered allows users to have a clear view of all their meters in one place, making it ideal for clients with 50+ meters on their portfolio.

Energy consumption and spend can be tracked on a monthly basis across all sites and can be broken down into bespoke groups, dependant on the client’s preference of reporting.

Only pay for what you use

One of the many added benefits to an energy management portal, such as EM-Powered, is that it helps to mitigate against errors in energy billing.

Invoice validation is a critical aspect to energy cost control because our experience tells us that as many as one in five energy bills are incorrect, with an average overcharge amounting to three to five per cent of the bill’s overall value.

EM-Powered helps to flag up any anomalies that might come about through misread meter readings or the wrong tariff being applied to a meter.

To find out more about EM-Powered, please visit our dedicated web page or you can speak to our specialist consultant Billy Pryke on 01225 867722.

Shining a light on green energy – what is it and why is it popular?

Green energy tariffs are becoming increasingly popular amongst net-zero conscious businesses.

On a record-breaking Easter Monday, the UK power network was its greenest yet with over 80% of the electricity produced coming from renewable energy rather than from traditional pollutant fossil fuels.

It is worth noting, however, that not all sources used by the renewable energy industry are green. Burning wood waste sourced from sustainable forests and turning organic agricultural waste into energy, for example, maybe renewable but the process is not green, due to the CO2 produced.

Green energy comes from replenishable natural sources, often without the need for mining or drilling operations that can be damaging to eco-systems.

The main sources harness the power of nature such as wind energy, solar energy, geothermal energy and hydroelectric power, including tidal energy.

Local benefits

From a business energy procurement perspective, suppliers offer a range of green energy tariffs that can be part-sourced or fully sourced from green energy.

In addition to contributing to a more sustainable future, one of the benefits of switching to a green energy tariff is greater price stability.

With these sources often being produced locally, the green energy market is not as affected by the geopolitical issues and supply chain disruptions that lead to volatility. When the Suez canal was blocked for six days due to the cargo ship Ever Given running aground, it caused chaos.

Also as knowledge of this sector becomes more advanced, it is becoming cheaper to produce green energy, making it a good low-cost solution for parts of the world where affordability has been an issue.

As the world strives to reduce carbon emissions and the cost of production continues to fall, green energy looks set to become ever more popular and this is likely to be reflected in the range of tariffs available.

Green energy would appear to be the future, fossil fuels a thing of the past.

The benefits of outsourcing energy procurement

Power-sharing in the energy industry can make a lot of sense.

Securing the right energy contract for a business can be a time-consuming process due to the complexities of the energy market; the large number of suppliers; and the variety of different terms available.

Those organisations who have the necessary in-house expertise and staff resources to pinpoint the right time and the right energy contract may decide to take care of this aspect of energy management themselves.

But not all energy or facilities managers have a team around them; some work in isolation, and they may be facing an ever-growing list of responsibilities, including the reduction of carbon dioxide emissions, waste management and sustainable development.

As the energy markets are fast-moving and often volatile, given the huge range of factors that affect prices, it is important to stay completely up-to-date with the current picture.

Whilst no-one could have foreseen that a giant cargo ship longer than four rugby pitches would have blocked off the world’s largest trade route for a week and thus prevent fuel supplies from getting to their intended destinations on time, a trained eye, with the right analysis tools to assist them, can spot energy price trends in advance.

Outsourcing energy procurementto a trusted and reputable energy consultancy can take the pressure away from businesses and ensure they are not paying over the odds for their gas and electricity, or signing up to unfavourable terms and conditions that may lead to penalty charges down the line.

With an ever-changing renewables landscape and related Third Party Charges (TPCs), compliance and legislation is another area of energy management that is increasingly taking up more of an energy manager’s time.

At Energy Management, we have been helping clients with their whole energy services portfolio for over two decades and support clients in a variety of different industries, in both the private and public sectors.

As the name implies, our Choice Energy Framework (CEF) offers more choice and a better deal for those public sector organisations that join. If you would like to know more about the CEF, you can speak to a member of our team on 01225 867722

Energy procurement strategy – some key things to consider

An effective energy procurement strategy optimally matches your business needs with the right business energy deal.

As energy is one of the biggest overheads for any business, securing the right price and the right terms for your gas and electricity can make a huge difference to the health of the balance sheet.

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

What is the best Energy Procurement Strategy for 2021?

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

In these uncertain financial times, energy suppliers are being selective about who they deal with and are avoiding perceived high-risk industries, such as hospitality, catering, retail and travel.

Only this week Arcadia Group, which owns renowned High Street stores like Selfridges, Topshop and Topman, announced it was going into administration.

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. As soon as prices go up, they can just as quickly go down. 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.

Energy procurement – the devil is in the detail

When a business energy user sets about the process of energy procurement, they will go to the market to get different quotes from suppliers. The suppliers will come back with their offer and a decision is then made based on the average unit rate.

But as well as getting the best average unit rate, it’s important to be mindful that what you actually end up paying depends on the detailed Terms & Conditions (T&Cs) of each supplier.

A lemon of a deal

Comparing apples with apples is difficult when energy offerings have many unique pass-through clauses.

These can range from published distribution to published environmental charges and that’s before you consider the possible future impact of volume penalties.

A fixed-price energy contract is a relative beast. It is interesting to note, that unless you look back on how your energy contract actually performed, you’ll never know if your apple was in fact a bit of a lemon in disguise!

The human touch

Even if you factor in the differences in the terms and conditions into the supplier selection process, there is one fact that often escapes the recognition it deserves.

Some suppliers have historically never invoked their T&Cs even though they had the opportunity to recover additional costs. So how suppliers actually behave is more important than what they could do under their T&Cs.

If you would like us to handle your energy procurement strategy to avoid such pitfalls and free up your valuable time, please get in touch on 01225-867722.

Not only will you have peace of mind in the knowledge that you’re on the right contract, but also that your energy costs are being managed professionally on a day-to-day basis.

How to control energy costs in the Covid-19 crisis

Controlling costs has always been good business, but during the COVID-19 pandemic, it is now more important than ever.

With turnover having taken a hit in so many different sectors, the ability to manage overheads could make all the difference to a business’s survival or demise.

Government initiatives like the furlough scheme have helped employers keep wage costs down but what can be done to protect against energy costs?

Spiralling energy costs can sap the life out of a company, so it is important to put a cost-control plan in place and get the power back in your hands, so to speak, wherever possible.

Controlling energy costs can be done through better energy procurement, by introducing a range of energy efficiency measures and by leveraging government help.

Procurement

The price of gas and electricity nosedived during the first U.K lockdown as industry ground to a halt and demand plummeted. But once industry started to open up again and people realised the end of the world wasn’t nigh, prices rallied significantly.

Currently, market conditions are favourable to securing contracts early but, in a volatile energy market such as they one we are currently experiencing, a flexible approach shouldn’t be ruled out when formulating your energy procurement strategy.

Business energy deals offer a wide procurement window for tendering contracts and are more flexible than those available to domestic users in that they can be fixed for anything up to four years.

While it is not possible to forecast prices changes with a 100% degree of accuracy, the best business energy consultants are able to offer informed and impartial advice about the type of contract best aligned to your business’s needs.

Energy efficiency

COVID-19 has changed the way we conduct business, with home-working and Zoom conference calls now the norm.

Companies have reduced their carbon footprint as a result of less road and air miles being used to get to and from meetings, while energy consumption has dramatically fallen as premises remain empty or part-empty.

A greener way of living and working has been one of the few positive spin-offs of COVID-19 and there is an opportunity to build on this once the worst of the pandemic has passed. After all, the cheapest unit of energy is the one you never use.

European Regional Development Funding is still available to SMEs for energy efficiency measures, despite our withdrawal from the European Union.

We would advise businesses to check with their local Chamber of Commerce to see what level of support is being offered as these vary from region to region.

Government help

As experienced practitioners in the handling of Climate Change Agreement applications, we continue to help companies maximise the Climate Change Levy (CCL) discounts available to them.

Companies have been asked to monitor their energy performance against a 2018 baseline instead of the old 2008 baseline and the data is then used by the Environment Agency to set targets for TP5 (Target Period 5, 2021-22).

As well as providing this information in a timely fashion, contact details for the appointed authorised and admin CCA personnel need to be kept up to date, too.

Failure to do so could result in discount notification emails going unread because they’ve been directed to the wrong member of staff or to someone who has either retired or moved on.

The Metallurgical Exemption is another aspect of the CCA that can benefit certain industry sectors.

As a point of good housekeeping, multiple site operators who use different suppliers should ensure they resubmit the relevant forms if they ever change one of those suppliers. Otherwise, they could run the risk of missing out financially.

To coin a phrase, ‘if you take care of the small things, the big things take care of themselves.’

If you would like to speak to one of our business energy consultants about managing your nergy costs better, please get in touch by calling us on 01225-867722.

The effect of Lockdown 2 on energy procurement strategy

Whilst not as severe in its restrictions nor hopefully as long in duration as the first national lockdown in March, ‘Lockdown 2’ will inevitably lead to a nationwide reduction in energy use.

More businesses will either go to the wall or temporarily close their doors and encourage home-working wherever possible, leaving vast swathes of office floor space empty.

Meanwhile, non-essential retail outlets will put up the ‘Closed’ signs as of one minute past midnight on Thursday morning, and pubs, cafes and restaurants unable to provide takeaway food will also be left eerily quiet.

At the end of March, less than two weeks into the initial period of restrictions, electricity demand dropped by as much as a tenth as businesses were forced to close their doors as part of the measures introduced to curb the spread of coronavirus.

GB day-ahead electricity prices fell 10 per cent as a result compared to the previous week and the downward trend largely continued until lockdown restrictions slowly started to ease in mid-May when prices did a U-turn and increased again. Not all of these price wholesale price drops, however, were passed on to customers, at least not in the initial stages.

Whilst planning for the future is never easy at the best of times, let alone during the uncertainty of living through a global pandemic, an effective energy procurement strategy will help mitigate against some of the peaks and troughs.

Flexibility

Business energy deals offer a wide procurement window for tendering contracts and are more flexible than those available to domestic users in that they can be fixed from anything up to four years.

Business energy is also cheaper per unit of electricity and gas used, but it is important to be aware of associated non-energy costs, such as the Climate Change Levy (CCL), when considering which contract to sign.

Non-energy costs are those that are incurred around the purchase and supply of energy rather than the actual unit spend on gas and electricity and have risen incrementally in the last few years to form a larger percentage of the overall energy bill.

100 per cent accuracy in forecasting price changes is impossible given there are so many external factors involved, such as a change in government policy or unseasonable weather.

But, at Energy Management, we have the monitoring capability and in-house expertise to help clients make better-informed decisions about the type and length of the energy contract best suited to their needs.

If you’d like to use the latest lockdown period to do some energy ‘housekeeping’, please get in touch on 01225-867722.

Energy procurement is best left in the hands of the specialists

Companies that do not necessarily have the in-house expertise or the time to manage their own energy demands often turn to external business energy consultants to take care of their needs.

Business energy procurement (the buying of the energy that powers your company’s premises) is not always straightforward and a trained eye is needed to avoid some common pitfalls.

Choosing the right business energy consultant is one of the key factors behind a successful energy procurement strategy.

Buying power at the right time and the right price is an art in itself considering the volatility of the market and the multitude of factors that influence price hikes and falls.

“As a Chartered Electrical Engineer I would like to make the important point that energy procurement is a technical specialist purchase,” said chairman and founder of Energy Management LLP, Gary Weston.

“Comparing apples with apples is difficult when some energy offers have pass-through clauses, and what seems like a fixed price quote is anything but.

“For example, volume penalties can distort the true costs which vary considerably between suppliers.”

Hidden errors

With one in five invoices found to contain errors, amounting to around three to five per cent of the overall cost of the bill, invoice validation is another important service offered by business energy consultants.

“Once you have the best offer in place, invoice validation and the suitability of fixed availability capacity charges require ongoing review,” he pointed out.

“And then there is the perceived black art of power factor correction, whereby the types of load connected can adversely affect the electricity supplies power factor, triggering additional costs which can be alleviated.”

Working with Energy Management can save companies valuable time and considerable amounts of money.

“Not only will you have peace of mind in the knowledge that you’re on the right contract, but that your energy costs are being managed professionally on a day-to-day basis,” Mr Weston added.

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.