Care England - The Big Energy Debate

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The BIG energy deba How providers can work effectively with brokers, renew contracts and understand the market

The energy markets have been unstable since the autumn of 2021 and providers faced higher energy costs, along with all the other rising costs involved with providing care. Richard Ayres, Social Care Advisor at Care England, caught up with David Woodward, Director at Focus Energy Services Ltd, to find out what care providers can do to ensure they obtain the best value and most suitable energy contracts when it comes to working with energy brokers and suppliers.

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At the time of writing, the biggest problem affecting energy prices is uncertainty both in terms of conflict and environmental factors – the latest cause of volatility in energy prices is the Israel-Hamas war.

Anything that affects the flow of ships through the Suez Canal will also cause the markets to spike; as the energy markets react to fear and uncertainty, renewal rates can change by 30% and more hourly. A consultative rather than a sales-orientated broker will advise on the factors currently affecting energy prices, to help understand when a care provider is best placed to make energy purchase decisions and what the full range of options available are. This type of broker will clearly show how much and how they are being paid their commission/fees so the care provider can make the best and most informed energy purchase decision.

The market at a glance A significant part of our electricity generation comes from gas. The UK is only able to store around four days’ worth of gas in a cold spell – most European countries can store 25 to 30 days of usage. A cold spell leaves the UK with no option other than to buy energy at whatever the market dictates and, with any cold spell likely to also be affecting some if not most of Europe, all countries are then in competition for supplies and prices increase.

The gas storage situation is easier to resolve than the inability of the UK to move electricity from where it’s generated to where it’s needed at the time it is needed, resolution of which will take considerable time and money and is thus unlikely to happen for many years, which will keep a floor under electricity costs and sustains the prices we experience today.

Finding the right broker A consultative and knowledgeable broker should understand the care sector as well as the provider’s needs and future plans. The care sector’s energy consumption isn’t the same as other sectors, something many brokers do not understand. For example, care services operate differently from hospitality or manufacturing. Care services operate 24/7 and 365 days a year – they are not nine-to-five businesses. As a result, different tariffs suit the care sector better than others. Care services differ greatly too and, therefore,

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energy brokers need to understand not only the nuances of the care sector but also the nuances within the care sector.

Care providers are not generally experts on buying energy and often do so only once every one to three years. It is therefore likely and appropriate to use the services of energy brokers who possess up-to-date information about how the energy markets are moving and changing, and can better advise care providers on the best possible purchase decision for their specific business.

Some brokers claim to be looking at the whole of the market when they aren’t. The best energy contract is one that is with a financially stable energy supplier, is suitable for the care provider’s needs, is competitively priced, is understood by the care provider, and is not based on how much commission the energy supplier allows the broker to add or hide in the quote. Transparency is the key. How much does an energy broker charge and what are they doing for it? Many energy brokers will try to sell the longest contract with the higher paying commission and look to speak to you again in three years for their next commission – many get away with it and have done so for many years. In my opinion, energy brokers should be regulated in a similar way to financial services or care providers. It’s ridiculous how care homes are regulated by the CQC, but the broker isn’t regulated

by Ofgem.

I think that every energy invoice should state how much the broker earned from that month’s bill. With regards to a broker fee, the absolute maximum should be a half pence per kWh for arranging the contract.

An extra cost may be added if the provider requires other services, such as monthly invoice validation, depending on the amount of work required to carry that out. Some large brokers have huge overheads to recover and, as such, big is not always best, especially if they are not offering the care provider the level of transparency necessary for a care provider to determine that they have been offered the best possible contract available on the market.

My questions to ask any broker before agreeing to a contract are: • Why have you recommended these energy suppliers, the contract type and term?

• Can I see the quotes received from the other energy suppliers?

• Have you checked that the energy consumption is correct and is suitable for our needs for the length of the contract?

• What will you do for us after we sign a contract?

• Have you clearly documented your charges/fees?

The contract offered by energy suppliers is subject to a care provider credit rating. We often see providers come to us who have perfect credit records but have been placed with a supplier with whom I would never even consider placing them. These supplier rates are aimed at those with poorer credit scores.

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A lot of providers wouldn’t realise that their quotes are often provided prior to credit checks being carried out and, as such, the best possible quote is not provided for them and they may not know for a few days that the quoted supplier won’t accept them after signing a contract once they have completed a credit score on the care provider. A knowledgeable broker will know your credit score before quoting and seek the best possible quotes for you. Being offered a contract that will later be incapable of acceptance due to credit scoring may see a care provider forced to accept a less viable contract due to time pressures or expiring contracts.

Renewing contracts In order to obtain the most suitable quotes, based on contract terms and price, your broker must know your credit score and should know (or ask) for your annual consumption (and consumption broken down into half-hour data, if you have a half-hour meter); renewal date, if you need to give notice to your current supplier; if you anticipate any significant changes to your consumption in the future (solar, extending the home, changing bulbs to LEDs, moving your laundry facility from in house to external or vice versa); the contract term you require; if you have smart meters and, if not, whether you would like them (some suppliers insist on them).

Your broker should also discuss the benefits of moving your renewal date to the summer (if it’s currently in the winter), combining renewal dates if your contracts don’t renew on the same date and asking if you would like monthly or quarterly invoices.

When energy prices are high, we suggest you exercise caution regarding the length of the contract or only enter into these when financial certainty is essential for business planning purposes.

Sales-orientated brokers push longer term contracts as they will receive higher commissions for less work.

Unusual-term contracts are available but the broker must work harder to obtain them, so many only give the options of one, two or three years, which may not always be in the care provider's interest. Every renewal will require a broker to do the same amount of work and you can see why most would prefer to sell longer term contracts, which may not be in the care provider's best interest. Sadly, most care providers lack the detailed knowledge to know if a contract offered by a broker is or is not in their best interest and will rely on the advice given, knowing there is no recourse on the broker given they are not sufficiently regulated.

Care should be taken with the standing charge or cost per kWh, as it’s the total annual cost that’s important. Many brokers concentrate on the daily standing charge, but a high standing charge doesn’t matter if the cost per kWh is low and the annual cost is lower. Brokers often use this as a tactic to sell contracts which are a higher annual cost overall.

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→ Understanding usage Accurate usage figures are essential to obtain the most suitable contract/quote. Obtaining annual gas consumption is easy, as that’s available on a central database. Obtaining electricity consumption is more difficult. Some renewal offers from existing suppliers give a breakdown of your consumption as well as the annual total; however, many don’t and your broker will often need to obtain that for you, which can take 10 days. It is needed before an accurate quote can be achieved. As well as consumption, many electricity suppliers have a KVA rating (which is where you are charged for the maximum electricity that can be delivered via your meter at any one time).

Energy contracts often have a volume tolerance clause, which generates penalties if you use less than 80% or more than 120% of the contract volume. But some energy providers use 90% and 110%. Those lower tolerance figures can easily be breached during a cold winter or a hot summer, by closing a unit or rooms or changing bulbs to LEDs, for example. A good broker will help to negotiate these terms to reduce the risk on the care provider, especially if a large extension were to be built or solar was to be installed where a change in usage could result in significant uncontrollable penalties to the care provider.

Ways to buy energy Care providers can simply renew their contracts with the same energy suppliers or speak directly to other energy suppliers to seek pricing; however, most care providers would not possess the knowledge needed to compare one energy provider with another or one contract type to another. We have seen many contracts which have been arranged via a broker with the same energy supplier at significantly reduced rates. As such, an energy broker who is informed and knowledgeable in the care sector could be better placed to support energy purchase decisions, and to explain the language used and the costs associated with contracting for energy, better than a care provider seeking to tackle this on their own.

Energy brokers can put a care provider's energy usage to the whole market to establish the best possible energy deals available for the care provider which meet their current and future needs, along with advising the most suitable term and renewal window.

Ensuring a broker possesses the right knowledge and support to achieve the best possible contract (as opposed to the best possible commission to the broker) is the challenge faced by care providers.

To navigate these challenges, the Care England energy tender enables care providers to have access to the

best possible energy contracts available and has, to date, saved 100% of care providers money on their energy renewals and offers alternatives to fixed-price contracts that wouldn’t previously have been available to smaller care providers, due to consumption levels or meter types.

The increased staff cost of running your laundry at night can be outweighed by the saving in energy costs.

Energy efficiency A very helpful Energy Saving Guide on the Care England website, outlines how care providers can achieve energy efficiency in their homes. The suggestions include: • Getting someone less familiar with the care home to walk around the property – look at the light bulbs, are they LEDs? The cost of changing bulbs to LEDs can be recovered in as little as three days.

• Installing PIRs (motion detectors) – taking health and safety into account, installing these can substantially reduce costs.

• Doing laundry overnight – whilst it’s often not possible (if you have a half-hour meter), the increased staff cost of running your laundry at night can be outweighed by the saving in energy costs.

Future energy costs The UK needs to increase its gas storage capacity to prevent it from being forced to pay high prices during periods of increased consumption during cold spells.

This is something that should be achievable within two or three years if the Government has the will to do so/ force for it to be done.

The electricity system is broken and needs to have the one-price electricity model ended, moving to a two-price system – the first, cheap clean energy and the second, expensive dirty energy.

Additionally, the UK needs to be able to transport electricity from where it’s generated to where it’s consumed, something that will take many years and vast sums of money. Whilst the National Grid and its shareholders enjoy record profits, it remains to be seen if and how long the process takes to make a meaningful contribution.

David J. Woodward is the Director at Focus Energy Services Ltd. Email: david@focusenergyservices.co.uk 26

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