Archive for January, 2016

Energy procurement sounds like it should be a pretty straightforward process, yet there are a number of costly pitfalls that the unwary business can fall into…

1. Don’t wait until you receive your supplier renewal letter: prices fluctuate, so it’s essential to have a long-term strategy that ensures you’re buying when the wholesale energy market is in your favour, not just when your contract terminates.

2. Don’t assume you can get the best price: are you tendering your business to all suppliers, not just the big 6 or your current supplier and a couple of others? With the number of suppliers and complexity of energy products growing all the time, it’s unlikely that most businesses have the time or industry expertise to access the full market and product range, which means you could be missing out on the best product for your business.

3. Don’t forget to monitor your consumption: suppliers price on the basis of predicted demand so its important to understand your energy usage patterns – penalties can be imposed if you use significantly more or less energy than expected (take or pay clauses), so check those T&Cs as well as your consumption. For businesses implementing energy savings programmes it’s also useful to check that your supply capacity is set at the right level – if it isn’t you could be paying for something you’re not using.

4. Don’t just focus on the unit price: a headline unit price might look competitive, but what about the standing charge, and does it exclude charges such as the Feed-in-Tariff and Renewables Obligation, which other suppliers have incorporated into the unit rate? Commercial energy tariffs are complex, made more so by each supplier presenting their prices differently, so it’s crucial to make sure you’re comparing like-for-like.

5. Don’t assume your energy invoices are correct: billing errors are surprisingly common, yet the complexity of energy tariffs can make it difficult to spot, let alone rectify mistakes. Historic audits can uncover past mistakes, while ongoing invoice validation means you’ll only pay what is due.

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Record low oil prices pushed electricity and gas prices to new lows during 2015, despite continued conflict in the Middle East.

Whether oil remains at its current level – currently about US$31 a barrel compared to US$55 this time last year – is the key question, with the usual range of predictions as to what happens next.

A slowing Chinese economy and the relaxation of sanctions on Iran are expected to maintain downward pressures during 2016 however, which is good news, though there’s always scope for the unexpected to reverse this. Issues to watch include OPEC reversing its current stance and cutting output, or a renewed flare-up between Ukraine and Russia leading to disruption of supply to Europe.

Commercial electricity prices are increasingly determined by non-energy costs, however, with low carbon policies and investment in transmission and distribution infrastructure now accounting for over 50% of electricity costs. This means that changes in the wholesale markets have less influence than previously, but as these non-energy costs will definitely rise over the next few years even a small increase in wholesale markets will start to see prices pushing higher quite quickly.

What to do?

  • While wholesale prices remain low it continues to be a good time to check renewal options for any contract due to terminate during 2016
  • Fixed or pass-through? When comparing prices make sure you know whether the offer is for a fixed contract (one that includes future increases in charges such as the Feed-in-Tariff) or pass-through (where future increases are passed-through to you)
  • Whenever possible go for the fixed option as it ensures you’re not hit with unexpected charges, while also ensuring that you select the best overall price, as a low-priced pass-through contract may turn out to be more expensive in the long-term