How did the energy crisis come about?

With colder weather now arriving it’s easy to think that the energy crisis will get worse before it gets any better.

The demand for more heating in homes and offices will only put supply under more pressure and continue to push prices in an upward trajectory.

Gas prices in the UK have more than quadrupled over the last year to highs of 180 pence per therm, from around 40p/therm this time last year. In the last month alone, prices have climbed by 70 per cent.

But how did we get into this position in the first place?

Low storage volumes, disappointing Russian flows, North Sea glitches and limited LNG deliveries in the face of still-rising Asian prices alongside tightening coal markets, have all been contributory factors.

Rough decision

The decision to permanently close the U.K’s largest offshore storage facility, Rough, in the summer of 2017 deprived the country of 70 per cent of its total gas storage capacity and increased the dependence on imported gas by pipeline from Norway and Russia, or by LNG from the US and Qatar.

The slow boat to China

With China’s economy bouncing back as the country emerges from the after-effects of COVID-19, there has been record demand for gas to keep machinery running and the lights on.

To satisfy this, China’s imports of gas via super-chilled tankers were expected to surge by almost a fifth, meaning fewer shipments travelling to Europe from countries such as Qatar.

Russian gas roulette

Russia’s state-backed gas company, Gazprom, has refused to increase its exports to Europe, to help meet the high demand – despite record-high prices across the continent – in what is seen as a strategic move by Vladimir Putin.

Adding fuel to the fire

A large fire at the interconnector site, near Ashford in Kent, has severely impacted on electricity imports from the sub-sea cable that runs between France and Britain.

The IFA1 interconnector has been used to import electricity from France, to support the UK grid, since 1986. It was only operating at half capacity at the time of the fire because of planned maintenance work and is expected to continue to run at reduced capacity until the end of March due to this latest incident.

The energy mix

A more diversified energy mix mitigates against supply issues because there are more options to get around the problem. Countries that have prioritised domestic low-carbon energy are less prone to risk and able to ride out the storm easier.

But low wind output and a lack of investment in other forms of renewable energy, as some see it, means there isn’t enough green energy being produced in the U.K to meet demand without firing up environmentally damaging, fossil fuel-burning power stations or importing energy from abroad.

… but it’s not all bad news.

On 1 October, commercial electricity will start to flow on the 450-mile North Sea Link, the world’s longest sub-sea power cable, connecting British and Nordic power markets for the first time.

Supply will initially be limited to about half of its 1,400-megawatt capacity, with plans to gradually increase to full output by the start of next year.

Russian policy prompts energy supply crisis fears

Energy Procurement and Management

Daily Telegraph report warns of potential gas shortfalls in the UK if a ‘perfect storm’ materialises.

Depleted gas storage capacity combined with a host of other factors could result in factories being forced to shorten their working week due to power shortages. That is the potential doomsday scenario highlighted by a report in The Daily Telegraph.

In the report, Marco Alverà, chief executive of the Italian pipeline and infrastructure group SNAM, says the UK government may live to regret the decision not to fund the refurbishing cost of the UK’s biggest gas storage site at Rough on the Yorkshire coast.

Centrica subsequently shut down the facility which accounted for 70% of the UK’s gas storage in the summer of 2017, leaving Britain more dependent on imports and exposed to price spikes.

“The country is blessed with the geology of the North Sea but it hasn’t used those advantages, and now it has to rely on German and Dutch storage,” Mr Alverà said.

Russia president Vladimir Putin’s strategy of restricting the seasonal flows of pipeline gas into Europe for his own political gain has added to the sense of uneasiness.

“The UK is more vulnerable to a gas supply crisis than other Western European countries. It has way too little storage and it is buying more Russian gas than it realises through the Netherlands,” added Mr Alverà.

Energy procurement

With coal being phased out in the drive towards net zero carbon, gas has become the predominant source of energy for power plants. Gas prices have gone through the roof and the balancing act of energy procurement has arguably never been trickier.

The crunch has been compounded by voracious demand for liquefied natural gas (LNG) in Asia, the report states, along with a host of complications in the global gas industry linked to Covid. “The storage situation in Europe has turned increasingly dire, with winter quickly approaching,” said Francisco Blanch, chief energy strategist at Bank of America.

Should the UK be hit by another Beast from East cold weather blast and heating demand goes up as a result, added pressure would be placed on the UK’s diminished storage and it is likely prices that are already at record levels will continue to climb.

Buying in gas may become so expensive that businesses will have to reconsider how they operate. Also, this year’s disrupted shipping market may mean that shipments do not arrive in time to meet demand in the coldest months.

Gas and electricity interconnectors with mainland Europe could meet the demand but these too have become politicised post-Brexit and supply through this network of pipes is not as straightforward as once was. Other countries could be prioritised over the UK, for example, if there is an energy shortfall elsewhere on the continent.

While the report concludes by saying that a three-day working week is unlikely, it does highlight the myriad of factors that can affect supply and subsequently the energy price markets.

By signing up to our free Market Intelligence monthly bulletin (at the bottom of the page), you will be able to keep abreast of all the geopolitical and meteorological factors that influence business energy prices and subsequently your energy procurement strategy.

Energy procurement frameworks allow for flexibility

Choice Energy Framework - Brochure Cover

A blog on edie.net outlines the benefits of public sector energy procurement frameworks as a means of encouraging energy efficiency.

Control, choice and competitive pricing are some of the key benefits of an energy procurement framework.

But a blog written by Ranjit Singh, utility framework sourcing manager at HealthTrust Europe, outlines another advantage – they can help public sector bodies become greener without putting added pressure on already tight budgets.

Singh argues that investment in green technology and energy efficiency measures such as installing LED lighting and carbon compliance monitoring can pay off in the long term.

“One of the most effective ways for public sector bodies to access these high-value goods and services to unlock green energy and utilities lies within developing accessible procurement frameworks,” he reasons.

“Flexibility is the key – allowing public sector bodies more flexibility in selecting the solutions that fit their organisation best will encourage more bodies to make the switch to greener alternatives. Increased flexibility also means the public sector can be more receptive to change and innovation, able to access the most energy-efficient solutions as soon as they are available – putting the public sector at the forefront of cutting-edge green technology.

“Investing in green products will not only enhance energy efficiency but will also generate significant monetary savings, enabling local authorities to focus on other urgent priorities.”

If you would like to benefit from having multiple suppliers to choose from in the energy procurement process, please get in touch with one of our consultants on 01225-867722

Cutting down on cost through smart energy procurement

Smart Energy Procurement

Businesses of any size can keep their energy spend in check simply by using less energy.

Identifying energy efficiency opportunities and then implementing measures to address them will reduce the amount of gas and electricity used.

Encouraging an energy efficiency culture at your company is one way of doing this, so that staff are conscious of the need to turn off computers and equipment when idle and lower consumption that way.

Physical measures such as the installation of LED lighting or more efficient heating or cooling system are other steps that can be taken.

Not one solution will fit all, however. Some businesses may operate on a single site, others across multiple sites, whilst working hours may differ.

Businesses that operate largely during daylight hours and have a lot of natural light coming into the building, for example, will spend less on lighting than one that largely operates at night.

Proactive smart energy procurement

But one thing that all businesses should have in common is a desire to get the best business energy deal possible.

In the early days of the energy management industry, businesses tended to wait until they had a month left on their present deal before contacting energy suppliers and then renewing.

But energy procurement has moved on and it is smart business nowadays to be much more proactive in the process.

Whilst no business owner or energy manager in charge of the energy procurement process can be expected to plot the future course of energy prices – an impossible task given there are so many factors affecting prices – they can arm themselves with enough market information to make as informed a choice as possible.

Timing is key

Knowing when to put pen to paper and whether to fix the energy price or remain flexible are key to smart energy procurement and a successful outcome.

At times such as these, where there is a lot of upward volatility, it is more important than ever to make the right decision.

“It is all about knowing when to procure, what type of procurement and then getting on and doing it,” said Energy Management consultant Malcolm Barrington.

“We have signed up people a year-and-a-half ahead of when their current energy deal expires because the markets are in such a position at that time it is of benefit to do so.”

If you would like to draw on our vast experience, to help you in the energy procurement process, please get in touch on 01225-867722.

EM-Powered: Understanding energy price inflation

Management of Business Energy Consumption

With wholesale gas and electricity energy prices rocketing ahead of the October peak month for switching, it now more important than ever for businesses to monitor and review their energy consumption and devise an effective energy procurement strategy.

Electricity prices have surged to their highest level in over a decade according to data from the Department for Business, Energy & Industrial Strategy (BEIS), while average gas prices for Q2’21 are up 30% year-on-year for medium-sized businesses on one to five-year contracts.

According to BEIS’ survey of non-domestic gas prices in Q1’21(3), large and very large companies saw quarter-on-quarter increases of 3.5% and 3.2% respectively and further increases are anticipated in Q2’21 due to tight market conditions and increased demand for gas globally.

It is interesting to note, however, that there have been marginal declines in Third-Party Costs (TPCs) as a proportion of all energy costs over the last three months in both the electricity and gas sectors.

Amid such volatility in the business energy markets, energy management portals such as EM-Powered can be an invaluable resource for monitoring how the overall picture is shaping up in the UK and mainland European countries.

Em-Powered enables users to access historical wholesale gas and electricity price graphs to get a better understanding of whether the current trends are likely to be short or long-term – invaluable when it comes down to energy contract negotiations.

If you would like to find out more about EM-Powered and the many benefits it brings to the energy procurement process, please get in touch with one of our consultants on 01225-867722

Stay informed with the Market Intelligence bulletin

esos phase 3 reporting

What the first half of the year has reminded us of is that there are multiple variables affecting business energy prices, some predictable and others not.

Having as much insight as possible into the way different factors may lead to bullish or bearish runs in the business energy price markets is essential to good energy procurement, which is why we produce a free to download energy Market Intelligence monthly bulletin.

Available in PDF format, Market Intelligence helpfully breaks down the trends in the Gas, Oil and Electricity markets, whist giving updates on significant changes in areas such as legislation and compliance and information about Third-Party Costs (TPCs), enabling energy managers and business owners to make informed decisions when it comes to signing energy contracts with suppliers.

Whilst the business energy markets have always had the capacity to be volatile in nature, from January to June 2021 prices have arguably been influenced by a greater array of factors than ever before.

Who’d have thought that a giant cargo ship would have run aground in the Suez Canal and brought the world’s busiest trade route to a standstill for over a week, for example?

Politics has played a part too, with President Biden being sworn in and making some statement policies over carbon net-zero, whilst Brexit has been put into action over here in the UK.

Factor in decisions from OPEC+ countries over levels of oil production, cyberattacks on US oil pipelines, the maintenance season in the North Sea, the ups and downs of the British weather as well as the ever-changing picture over natural gas storage levels, and it is not hard to see why business energy prices can fluctuate so wildly.

If you feel you would like to be more informed about what shapes the business energy markets, just fill in the short form at the bottom of our home page and we will notify you as soon as the latest report is released.

The reasons for outsourcing energy procurement

Energy Procurement Reporting Graph

Predicting the business energy price markets has been a fairly straightforward exercise over the summer months with the general trend being upward.

However, due to a number of factors directly related to the energy industry or not, this is not always the case.

Geopolitical issues can also play their part in affecting supply and demand for gas and oil, and therefore prices, which makes forecasting the markets anything but an exact science.

Industry knowledge and the right energy market tracking tools and software, however, can mitigate against some of the uncertainty and help ensure companies pay the right price for their business energy, at the right time.

Not all businesses have the necessary in-house expertise or the time or staff dedicated to identifying the peaks and troughs of power prices, which is where reputable energy consultancies come into their own, especially ones with access to bespoke energy management portals such as EM-Powered.

Outsourcing energy procurement to 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 Third-Party Costs (TPCs) now making up the majority of a business’s overall energy bill, an understanding of energy legislation and keeping abreast of all the latest developments in compliance is also vital.

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.

If you would like to speak to one of our consultants about energy procurement, invoice validation, compliance or any other energy-related matter, you can contact us on 01225-867722,

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.