ENERGY


Why you should look at your energy contracts NOW


B


uying energy is complex, with prices fluctuating on a daily basis. Energy is often a company’s biggest expense after salary, yet it is seen as a distress purchase and proper forward planning and management of this large item of expenditure is not given the priority it deserves.


So here are Paul Garrett’s top tips to help reduce energy costs and plan for the year ahead:


Act Now


It’s never too early. Statistically the lowest fixed energy prices are available prior to the end of Q1 for an October renewal. Equally if you decide to opt for a flexible purchasing option, you will want to sign as early as you can in order to take advantage of prices when they are at their lowest.


Set a Budget


In order to budget for next year you need to gain a good understanding of current market conditions. All too often we see clients who just add a percentage to last year’s spend to arrive at this year's anticipated cost. A good way to provide a robust figure for budgetary purposes is to ask your existing supplier to send you a renewal offer. You will not be committing yourself to this price, as at this stage it is just an indicative offer.


Understand Your Contract Options


There are a number of different ways to purchase energy and one method is not necessarily better than another. You need to examine all the options and weigh up all the pros and cons in order to decide the method that best suits your organisation.


In broad terms energy purchasing is based on two options: fixed or flexible. A fixed contract is just that. The contract terms are agreed prior to the


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Paul Garratt, energyTEAM’s Head of Procurement, outlines the key considerations.


contract start date and the price remains fixed throughout the contract duration. The only variable is the amount of energy consumed (unless the supplier decides to change the goalposts mid-contact which is not unknown.)


The main benefits of a fixed contract are budget certainty and a transparent and auditable process. Prices are gained from all interested suppliers via a negotiation process, the various offers are compared and the best, usually but not always the cheapest, option is chosen. Picking the right day to fix the contract when prices fluctuate wildly is the single biggest element in getting the best fixed price.


Statistically however a fixed contract is not the cheapest way to purchase energy. We at energyTEAM have analysed prices and five out of the last seven years a flexible contract was the cheaper option, one year it was budget neutral and one year a fixed contract would have proved cheaper.


A flexible contract allows


purchasing energy on the wholesale market ideally taking advantage of market lows. You have to be a very large energy user to purchase energy on the wholesale market in your own right, but smaller organisations can still opt for this method by joining part of a buying consortium or ‘basket’.


As the price is not fixed up front you are relying on choosing a reliable energy partner. Check the consultant’s credentials, ask such things as what type of purchasing strategy they adopt, how much market information they provide and generally try to get a feel for the service you will receive from them. A third option, not provided by all energy consultants, is what we call a ‘fixed muti-purchase’ option. This product involves energy being purchased via multiple purchase points prior to contract commencement. As all the purchases will have been made before your renewal date, you will know exactly what your costs are going to be for the year ahead


PUBLIC SECTOR SUSTAINABILITY • VOLUME 3 ISSUE 3


at the commencement of the contract but with the benefit of access to the wholesale market.


Optimise Your Consumption


The first step for any company looking at their energy should be a comprehensive understanding of their current usage and purchasing strategy.


Energy management should always start with an energy audit, so that you can find ways of both reducing and optimising your energy consumption. An energy audit will provide your organisation with an ‘opportunities list’ for saving money and targeting the actions that make the most sense for your particular needs. Energy saving initiatives varies from implementing physical measures to reduce energy, changing the lighting or heating system for example, to staff awareness campaigns, to installing renewable energy.


Measure Your Usage


It is important to install some form of monitoring and targeting to ensure you understand where energy is used, or more accurately – misused. This does not have to be an expensive, highly sophisticated system, unless you want it to be. As previously mentioned, purchasing energy and managing energy usage is intrinsically linked.


A good example of this is ‘take or


pay’ clauses where an organisation is penalised for using less than the contracted amount of energy. Informing your supplier early of the likelihood of any shortfall in anticipated energy usage could help to mitigate these charges


Please visit www.energyteam.co.uk for more informaton.


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