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.

How green is your energy?

Choosing a green energy tariff is a valuable step towards making your business more sustainable.

Renewable energy Purchase Power Agreements (PPAs) are becoming increasingly popular as the corporate world acknowledges the role it can play in helping the UK to meet its carbon-zero targets.

However, some of the green tariffs on the market – and there is plenty of choice – are greener than others in terms of how much they directly support investment in the UK renewables industry.

A third of domestic customers surveyed by Which, for example, believe that if an energy tariff is marked ‘green’ or ‘renewable’ then they expect to get 100% renewable electricity into their homes. That is not always the case.

Rest assured, all supplied contracts issued under Energy Management’s Green Energy Framework will be accompanied by a Renewable Energy Guarantee of Origin (REGO) certificate which lays out the source of the energy in black and white.

The REGO scheme provides transparency to consumers about the proportion of electricity that suppliers source from renewable generation. All EU Member States are required to have such a scheme.

Read more about our Green Energy Framework>>

Renewables making headway in USA energy mix

The United States’ reliance on coal-fired power generation appears to be diminishing, despite President Trump’s best efforts to support the industry through favourable legislation.

On more days than not this year, utilities got more electricity from renewables – hydro, wind and solar – than from fossil fuel.

Last year, there were just 38 days when this was the case; however in 2020 already, the number is up to 122 days, including the whole of the month of April and all but three days in May.

While this is encouraging news in the global fight against harmful carbon dioxide emissions, the US is still lagging behind other nations in terms of cleaning up its act.

The UK, for example, went a record 67 days without any coal-fired power generation between April and June this year, when demand at the peak of the Covid-19 lockdown was admittedly low because of business closures.

Even so, that 67-day record represented the longest run without coal power since 1882.

In the US, government intervention does not seem capable of reversing the trend from coal to renewables, as natural gas is a cheaper alternative due to an increase in supply.

Hydraulic fracturing and horizontal drilling have enabled an 80 per cent increase in U.S. gas production since 2006, and about a 50 per cent decline in price. By contrast, coal prices have risen modestly over that period.

Sourcing green energy

Green business energy is proving more popular than ever as businesses increasingly set out a procurement energy strategy aligned to sustainability as well as cost.

While not all businesses are able to generate their own energy – a sustainable way of putting less pressure on the national grid – green energy contracts are widely available.

But what exactly is a green energy contract?

Basically, the gas and electricity that powers your premises of work comes from a supplier who has sourced it through a renewable energy generator such as wind or solar farms, hydroelectric power stations or biomass plants.

The amount of energy from renewable sources differs from supplier to supplier; however, it is a legal requirement for them to publish details of their fuel mix.

The more businesses (and households) that adopt this policy, the more renewable energy is fed back into the grid, and the country’s dependence on fossil fuels reduces, helping to alleviate the onset of climate change as a result.

If you’d like some advice on the range of green energy contracts that are currently being offered on the market, please get in touch with one of our energy consultants on 01225-867722

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.

An energy framework designed to tackle the climate change emergency

The climate change emergency was at the front and centre of the news agenda before Covid-19, and even while we are still in the grip of the pandemic, it is an issue that has rightfully refused to go away.

We have found that in our discussions with clients and potential new customers that the drive towards a carbon-neutral position – by 2050, or even 2030 in some cases – is still a key focus.

Figures released by BloombergNEF showed how purchasing green energy contracts rose by 40% on the previous year in 2019, reaching almost 20 gigawatts (GW), and that appetite for change is still there if our experience is anything to go by.

Our Choice Energy Framework is proving to be a popular option for those public sector organisations looking to not only save money in their energy procurement but also be more ethical in the way they power their facilities.

There has been tremendous interest in securing green energy contracts – ones that use wind and solar energy, for example – as opposed to traditional brown energy that relies on fossil fuel power generation.

The Choice Energy Framework involves up to six energy suppliers who have been shortlisted on the basis of tariff competitiveness, billing accuracy, max/min volume threshold restrictions and terms and conditions.

Fixed and flexible contracts will be offered by the suppliers with the length of the contract varying from 12 months to as long as four years.

If you would like to find out more, please contact one of our team on 01225-867722

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.

Another boost for solar energy in the UK

The UK, like many parts of Europe, has seen solar power generation records broken in the second half of April, with reduced levels of air pollution and clearer skies due to the lockdown said to be contributory factors.

And there was further good news for the industry with this week’s announcement from the Department for Business, Energy and Industrial Strategy (BEIS) that a new solar farm in Kent has been approved.

The farm is set to be the largest of its kind in the UK and will be located just outside of Faversham.

The subsidy-free project would begin next year, with electricity generation expected to start by 2023. The 350MW farm would feature almost 900,000 solar panels across 900 acres of farmland.

The developers claim that the farm would generate enough renewable electricity to power 91,000 homes, would reduce UK carbon emissions by 68,000 tonnes annually and generate £1m annually for the Kent and Swale councils.

 

IEA report on Covid-19 impact

Beyond the immediate impact on health, the current Covid-19 crisis has major implications for global economies, energy use and CO2 emissions.

Analysis of daily data through to mid-April by the International Energy Agency (IEA) shows that countries in full lockdown during this period experienced an average 25% decline in energy demand per week and countries in partial lockdown an average 18% decline.

Daily data collected for 30 countries until 14 April, representing over two-thirds of global energy demand, show that demand depression depends on duration and stringency of lockdowns.

Global energy demand declined by 3.8% in the first quarter of 2020, with most of the impact felt in March as confinement measures were enforced in Europe, North America and elsewhere.

At the start of 2020, it was forecast that global energy investment would grow by 2%; instead, it has fallen by 20% – a fall in spending of $400billion.

Covid-19 impact: the IEA’s sector-by-sector energy breakdown (for the first quarter of 2020)

  • Global coal demand was hit the hardest, falling by almost 8% compared with the first quarter of 2019. Three reasons converged to explain this drop. China – a coal-based economy – was the country the hardest hit by Covid‑19 in the first quarter; cheap gas and continued growth in renewables elsewhere challenged coal, and mild weather also capped coal use.
  • Oil demand was also hit strongly, down nearly 5% in the first quarter, mostly by curtailment in mobility and aviation, which account for nearly 60% of global oil demand. By the end of March, global road transport activity was almost 50% below the 2019 average and aviation 60% below.
  • The impact of the pandemic on gas demand was more moderate, at around 2%, as gas-based economies were not strongly affected in the first quarter of 2020.
  • Renewables were the only source that posted growth in demand, driven by larger installed capacity and priority dispatch.
  • Electricity demand has been significantly reduced as a result of lockdown measures, with knock-on effects on the power mix. Electricity demand has been depressed by 20% or more during periods of full lockdown in several countries, as upticks for residential demand are far outweighed by reductions in commercial and industrial operations. For weeks, the shape of demand resembled that of a prolonged Sunday. Demand reductions have lifted the share of renewables in the electricity supply, as their output is largely unaffected by demand. Demand fell for all other sources of electricity, including coal, gas and nuclear power.

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.