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FEATURE MANAGING ENERGY RISK


Creating certainty in an uncertain world


Kate Gallagher, energy procurement specialist at consultant Inenco, offers five tips to help businesses take control of their energy costs and reduce risk


U


ncertainty is the word of the moment for UK industry. With Brexit far from


resolved and a new leadership team at the top of government, political upheaval is creating ongoing pressures for our nation’s businesses. Marry this with worrying news of plant closures and financial difficulties from across industrial sectors, such as steel and automotive, and it is little wonder that businesses are increasingly looking at ways they can control cost and mitigate risk. For many businesses in these energy


intensive sectors, energy may provide an opportunity to take back some control - using market insight to carefully rethink energy strategies can make a significant difference to the bottom line and help to build resilience for the future. That said, the energy market continues to pose its own uncertainties. Our evolving infrastructure and increased reliance on renewables is good news for the long term but is giving businesses rafts of new policy and cost changes to deal with. In addition, increased commodity and non-commodity costs mean that organisations are facing the ‘double whammy’ of a rise on both sides of the bill. However, by having an integrated strategy that takes a savvy approach to procurement and focuses on energy management, businesses can effectively mitigate the impact of future cost increases. What is important to note is that one


size doesn’t fit all. The best procurement strategy will be different for every business, as it will depend on an organisation’s unique requirements. For some, focusing purely on unit rate will be the best option to drive down costs, while others may be looking to boost their sustainability credentials by securing renewable supplies.


6 AUTUMN 2019 | ENERGY MANAGEMENT


Creating an optimum procurement strategy can be complex, but it doesn’t have to be. In its recent buying guide, Inenco has pulled together five top tips to help businesses take control of their energy costs and reduce risk:


REDUCE CONSUMPTION The best way to minimise the risk of increasing costs is to reduce overall consumption. If an organisation is captured by ESOS (the Environment Agency’s mandatory energy assessment scheme), make the most of the energy efficiency recommendations. The recommendations can only turn into savings if they are put into action – however, Ineco’s recent research showed that just 39 per cent of organisations have acted upon the energy saving opportunities identified in Phase 1. Start with those with a short ROI to see savings as soon as possible, for example, investing in energy management or installing improved lighting. The deadline for ESOS Phase 2 is 5 December 2019.


SHOP AROUND While Ofgem has enforced an energy price cap, this does not apply to commercial customers, which means that many businesses are paying well above the market price for their energy. If customers don’t switch suppliers before the current deal runs out, they are likely to be automatically switched to their supplier’s out-of-contract rates – which can increase their energy bills by up to 50 per cent. That’s why it’s important to shop around a few months before the contract expires, to make sure they have the best deal for their business.


EMBRACE FLEXIBILITY Flexible buying strategies are often a good choice for larger businesses. They typically allows businesses to hedge out when prices are low and can potentially protect them from short or medium term increases in wholesale market costs. A flexible approach won’t be right for every business, but it’s wise to fully explore whether the organisation could benefit from a flexible strategy. The business may need to change its corporate governance or increase credit exposure, for example, but if it gives it more control over its energy buying, it may be worth it.


REVIEW YOUR DEMAND PROFILE Now that non-commodity costs make up around 60 per cent of business energy bills, when energy is used can make as much of an impact on bills as how much energy is used. While Triad charges are set to become more balanced in the next few years, there are still savings to be made by reducing demand between the peak demand period of 4pm-7pm – particularly during the winter. Take a look at typical operations to identify any activity that could be shifted from peak charging periods to off-peak times.


UNDERSTAND CONSUMPTION A business may have a half-hourly electricity meter that accurately measures its consumption in real time, but if it doesn’t also have a sub-meter, it may not have the level of data it needs to really get to grips with its consumption. Consider investing in a sub-meter if possible, as with access to the more detailed information on consumption, a business can make more well-informed energy management decisions.


Ensuring a business has an optimum energy procurement strategy provides a degree of certainty in an economic and politically uncertain world. It can help manage costs, limit risk and reduce carbon emissions – all of which will directly impact on the bottom line.


Ineco inenco.com/experts 


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