ENERGY PROCUREMENT –WHERE TO NOW?

The word ‘unprecedented’ has surely never been more applicable to the energy industry than in recent times. Energy spend, traditionally entrenched within the top five areas of a business’ expenditure is perhaps even more important to organisations than ever before, with anecdotal evidence pointing to business strategies being increasingly shaped and defined by higher energy costs.

Regardless of whether organisations are now approaching the end of a long-term fixed agreement and facing inflated prices for the first time, coming off a short-term contract secured last year and now eyeing up savings, or are in the midst of executing a flexible procurement strategy of any description, most organisations will require a renewal or some hedging activity in respect of their electric or gas agreements within the next year or so.

The million-dollar question around prevailing energy markets is surely where to now? With government support no longer applicable to the majority of commercial organisations and a multitude of considerations to take into account, seldom has having a clear and comprehensive energy strategy seemed more business critical.

The Current Situation

Wholesale energy prices can certainly be considered favourable relative to recent barometers, however let us not forget that these still constitute levels that are around double traditional norms.

The sentiment of late, punctuated by revised and reduced inflation forecasts of around 3%, appears to reflect renewed confidence that the market will continue on its current downward trajectory experienced in recent months. Healthy gas storage levels and other key fundamentals support this theory.

That said, significant risk undoubtedly remains prevalent with geo-political issues continuing to be of heightened concern, along with heavy reliance on LNG imports. If last year’s winter amounted to something of an idiom, with theories around higher prices and potential blackouts failing to materialise owing to favourable weather conditions and reduced demand from Asia (where covid restrictions were still being liberally applied), there can be no guarantee of a repeat this time around.

Then there are sustainability considerations. Despite everything that has happened in recent times, net zero is a subject that has never resided far from media or political attention, not to mention a growing awareness amongst the general public. Organisations from across the spectrum are increasingly coming under pressure from a variety of sources to reduce their carbon footprint.

Reducing Costs And Enhancing Sustainability

Herein perhaps lies the biggest opportunity for commercial energy consumers. Reducing costs and enhancing sustainability credentials don’t need to represent conflicting agendas.

Reducing grid reliance whilst also increasing self-sufficiency through well-planned and managed on-site generation technology such as solar PV, wind or heat pumps not only enhances an organisation’s environmental credentials, but also offers significant financial benefit. Furthermore, if capital outlay is an issue in itself, then the technology can often be accompanied by a raft of funding options, alleviating any adverse impact on cashflow.

Indeed, energy efficient technology such as voltage optimisation, LED lighting, HVAC optimisation, heat re-cycling technology and gas fuel optimisation are also both evolving and becoming more cost-effective.

Larger organisations should consider the value associated with a comprehensive, granular energy site audit. Many larger organisations will be obligated to undertake these imminently in order to comply with the Energy Savings Opportunity Scheme (ESOS) legislation. www.advantageutilities.com

If keeping grid consumption to a minimum should be considered an integral part of any strategy, the question then turns to what course of action to take in respect of the inevitable remaining grid requirements.

This decision is often subject to considerations unique to each business such as their appetite for risk, requirement for long-term budgetary certainty or any credit restraints. Fixing for at least a short-term period ahead of this winter would seem prudent, although flexible procurement is increasingly being adopted by, and proving beneficial to, many organisations. Whilst this involves sacrificing some element of budgetary certainty, the benefit derived in terms of offering flexibility and mitigating risk in the current climate is invaluable.

Other key considerations regardless of contract type would include whether to explore REGO energy or carbon offsets to further enhance environmental credentials, take/pay clauses to ensure businesses aren’t penalised for reducing their grid consumption and also reviewing options around non-commodity charges.

Making the right decisions now goes beyond competitive advantage and should surely take appropriate rank on any boardroom agenda. In the absence of any substantive in-house expertise, organisations should consider consulting with suitably qualified and experienced experts to discuss their options and ensure costs are mitigated as far as possible, whilst realising any net-zero or carbon reduction ambitions.