Archive for the ‘Energy procurement’ Category

There are a number of potentially misleading energy-related cold-calling techniques being used these days, often by offshore call centres, that businesses should be aware of to avoid signing contracts that aren’t in your best interests. Some of the more common include:

“I’m calling from your supplier – could you confirm your supply details?”

If the caller really is from your supplier they’ll have your electricity MPAN and gas MPR numbers, consumption and cost data; if they don’t treat with extreme caution as the caller is likely on a fishing expedition to gain your verbal agreement to an energy contract on which they’ll receive a hefty fee.

This only applies to smaller gas and electricity supplies (those on non-half-hourly meters), as contracts for larger gas and half-hourly electricity supplies cannot be agreed by phone.

“Our service is free”

Then ask the caller how they earn their money: if the answer is they get paid by the supplier then either they have an exclusive relationship with that supplier and you’re not getting a full market assessment (and probably paying a premium), or the commission they receive is added to your unit rates. Either way, you’re paying for the service.

“Working on behalf of…”

Beware of anyone who says they’re working on behalf of your supplier / the National Grid / distribution company or similar.

For instance, companies stating they work to support the National Grid by checking available capacity (kVa) on half-hourly electricity supplies are being economical with the truth at best.

Capacity assessments are a legitimate and useful cost saving exercise, but are completely independent of the National Grid – end users need agreement to reduce capacity from their local Distribution Network Operator (DNO) not the National Grid, who also don’t have arrangements with energy consultants to conduct this type of work.

Due diligence required

Ofgem’s initiative to introduce regulation to the energy consultancy/broker market has ended without resolution, so while there are many reputable consultants out there, Ofgem (and suppliers) have limited ability to crack down on the cowboys, putting the onus on businesses to conduct their own checks.

 

 

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The US Energy Information Administration (EIA) forecast in December that the 2017 oil price would average US$52, similar to current levels though double that of a year ago.

However, Forbes analysis recently found that past EIA forecasts varied from actual prices by 30-35%, and with other expert forecasts also not faring too well, predicting the future price of oil, gas and electricity is a pretty thankless task.

The variety and complexity of factors influencing energy prices mean it is increasingly difficult to provide confident price predictions, from the geo-politics of the Middle East, Opec and Russia to Brexit and Trump, the expansion of renewable energy and supply- and demand-side technological developments such as fracking, battery storage and energy efficiency.

While oil and gas prices may experience see relatively stable 2017, UK electricity prices are all but certain to see an increase:

  • The wholesale electricity element now accounts for less than 50% of your bill, so even if the commodity markets fall prices could still increase on the back of rising non-energy charges
  • These non-energy costs – transportation, distribution, government charges, taxes etc – will increase over the next few years, resulting in higher costs for all

What to do?

  • Understand your risk: what is the impact on your business if prices increase by 5, 10, 15% a year over the next few years?
  • Manage that risk: test the market early, don’t wait until near your renewal time when you could be hit by a price spike – contract when the market is in your favour
  • Focus on efficiency: cut costs and reduce exposure to volatile markets by using less

To no great surprise Ofgem announced that it had abandoned attempts to introduce a code of conduct for energy brokers/consultants, despite several years, numerous consultations and innumerable workshops.

The code was intended to be a set of standards that set a benchmark for high quality consultants acting as intermediaries between non-domestic energy users and suppliers, protecting businesses from unprofessional and misleading tactics. Initial plans from Ofgem indicating that suppliers would only be able to work with consultants who had signed up to the code of practice have now been scrapped.

Ofgem reported that they found inconclusive evidence of consultant malpractice, so has postponed further work on the code and instead said that consultants should take on voluntary principles to treat businesses fairly.

Things to be aware of when working with a consultant…

  • some consultants may represent a single or small group of suppliers rather than the whole market
  • you’re not obliged to accept an offer from a consultant: ensure you understand their services, fees and T&Cs before accepting
  • make sure you’re comparing like-for-like: supplier and consultant price offers may not be presented in the same way, some charges may be pass-though and therefore vary during the contract lifetime, while others are fixed

Questions for your consultant…

  • how many suppliers will be approached for prices?
  • what will you do to help switch supplier?
  • what other services are included during the life of the contract?
  • how do you charge for your services – a direct fee or an indirect commission?

Although Ofgem doesn’t licence consultants, they must comply with consumer protection legislation such as the Business Protection from Misleading Marketing Regulations (BPMMRs) – and since November 2013 Ofgem has the power to apply to the courts for an injunction to prevent breaches of the BPMMRs.

Eight years after water deregulation was introduced in Scotland, April 2017 marks the opening of the English water market to competition. From next year businesses in England can choose their water supplier, opening up opportunities for price cuts and service improvements.

Experience from Scotland shows that savings of up to 25% may be possible, while competition should stimulate water companies to improve their service, billing systems and value added offers (eg around water efficiency). At a minimum, consolidating multiple supplies with a single provider should simplify things.

From October this year businesses will be able to give notice to their incumbent water company that they intend to switch supplier (or at least look at alternatives).

This means now’s the time to audit your water supplies, consumption and cost data to firstly ensure you’re paying the correct rates and haven’t been overcharged, and secondly to ensure you’re best placed to switch supplier next April.

For Thames Water customers change is definitely coming, after the supplier announced it would be transferring all business customers to a new supplier, Scotland-based Castle Water, and withdrawing from the commercial market. Thames will remain a domestic supplier and run the water infrastructure, but from the end of 2016 Castle will take over billing and customer service.

Do get in touch to discuss how E&CM can help.

UK energy markets spiked in the immediate aftermath of the Brexit vote, mainly due to the weakness of the pound making fossil fuel imports more expensive. They’ve since fallen back a little though remain up from their Jan-April 2016 lows.

In the next few years a number of issues will impact the price paid on your next energy contracts:

  • Informal discussions between Opec and non-Opec countries may result in some kind of agreement to cut back oil production (many leading producers, including Saudi Arabia and Russia, are suffering from the current low price), which would increase the oil price from its current US$45-50 level, and could in turn would push up gas and electricity prices
  • Exchange rate: if the pound continues to strengthen against the dollar and Euro those increases may be negated, but with the exact nature of Brexit still to be confirmed there remains a significant level of currency uncertainty and risk
  • In the longer-term the market sees wholesale electricity costs falling on the back of reduced demand (due to efficiency improvements) and a greater contribution from renewables
  • However, this possible easing will likely be countered by increases in non-energy chargestransmission, distribution and government charges/taxes (including those subsidising renewables)

Despite recent market fluctuations it remains a good time to be looking at longer term contracts, taking advantage of the relative market lows while minimising the risk from price spikes.

The implementation of Ofgem regulation P272 from April 2017 means that around 155,000 electricity supply points will move to half-hourly billing from next April (if not before).

The new ruling affects supply points with Meter Point Administration Number (MPAN) profile classes beginning 05, 06, 07 or 08 (the first 2 digits of the 22-digit supply identification MPAN). Those beginning with 00, 01, 02, 03 and 04 will see no change.

While the intention is to offer these businesses cheaper off-peak electricity and therefore incentivise them to cut consumption at peak periods, it could lead to higher costs for those which have little choice on when they use power (eg schools).

In the short-term those renewing supply contracts for 05-08 supplies should prepare for and understand the changes…

  1. Suppliers are taking different approaches to the change, with some transferring supplies to half-hourly rates within 45 days of a new contract starting, while others are waiting until nearer April 2017. As P272 means new charges apply to your supply it’s important to understand the approach being taken by your supplier.
  2. Supplies renewing in the next few months should receive a non-half hourly (as before) offer, along with a half-hourly price, which means you should be able to compare the change in overall cost.
  3. The principle new cost you’ll see is a capacity charge, which is the maximum electricity you can draw from the grid at any one moment, determined by the local Distribution Network Operator (DNO). The capacity level should reflect your actual demand so needs to be monitored to ensure you’re not paying for something you’re not using.
  4. Half-Hourly supplies also incur Meter Operating (MOP) and Data Collector/Aggregator (DC/DC) charges: the MOP covers the installation and maintenance of the meter, while the DC/DA pays for the collection of meter data and passing it to the supplier. These charges can vary widely, particularly if you’re put onto default contracts, so do shop around for the best options.

Do get in touch to find out more about how P272 could impact your organisation.

Even before the Brexit vote on 23 June the energy markets had experienced a couple of months of steady increases after a lengthy period of stability. Between April and the referendum wholesale market rises equated to increases of approximately 25% in the cost of gas and 18% in the cost of electricity.

The immediate aftermath of the leave vote saw suppliers pull prices in the midst of currency falls and general surprise and uncertainty. This short-term volatility could well continue, although in the longer-term underlying factors such as the price of oil, new generation capacity, policy changes and investor confidence are likely to be the main drivers.

Energy prices

The fall in the value of the pound will inevitably result in more expensive imports (on which the UK is increasingly reliant).

How long this will last is very difficult to predict, though fears over the UK and European economies could also lead to a weakening of oil prices, stalling their recent rises and negating some of these exchange rate costs.

Energy investment

Of concern is also the impact Brexit will have on the much needed investment in the UK’s energy infrastructure – around £19 billion a year is required until 2020, much of which is expected to come from foreign sources to fund new nuclear, offshore wind and gas power stations.

Until there’s clarity on new trade agreements this investment would well be put on hold, threatening security of supply and carbon reduction targets, which in turn could push up prices.

In particular, the future of the Hinkley nuclear power plant in development by EDF with Chinese backing remains uncertain: will the French Government facing their own economic and political challenges really back a massive and possibly risky investment in a non-EU British project?

In the absence of a new Prime Minister and clarity on a timetable for Brexit – let alone what that actually means – energy prices are likely to continue their recent upward trend, based on an unhealthy mix of uncertainty and volatility.

 

 

After a lengthy period of declining energy markets the last couple of weeks have seen wholesale electricity prices spike to around £40 p/MWH compared to January lows of £33.

A mix of Sterling falling against the US dollar and Euro on the back of Brexit uncertainties has pushed up the cost of energy imports, rising oil prices (nearing $48 p/barrel against lows of $27), along with the recent cold snap increasing demand, have created a volatility not seen for some time.

In the longer-term the expectation is that the market will remain suppressed, but the current volatility highlights the importance of monitoring the market well in advance of renewing your energy contracts – buying at the wrong time could turn out to be an expensive mistake.

It’s therefore important not to wait until you receive your supplier renewal letter: prices fluctuate, so implementing a long-term strategy ensures you’re buying when the wholesale energy market is in your favour, not just when your contract terminates.

 

 

 

The long-awaited report from the Competition and Markets Authority (CMA) into the UK energy market has found that the big six energy companies have made excess profits on supplies to SME customers of around £280 million a year.

This equates to a roughly 6% premium on gas and electricity than in a better functioning market according to the CMA.

Of the £280 million a year around £230 million is estimated to be related to micro-businesses i.e. those organisations using less than 293,000 kWh of gas or 100,000 kWh of electricity a year, or with fewer than 10 employees and an annual turnover total not exceeding 2 million euros.

In an effort to improve the market the CMA proposed a number of long-needed measures focused mainly around price transparency:

  • suppliers should be required to disclose all available prices to micro-business customers
  • out-of-contract rates and deemed contract prices should be disclosed on supplier websites
  • auto-rollover contracts should not be permitted
  • micro-businesses should have longer notice periods with no termination fees

 

Greater transparency and contract flexibility should certainly level the playing field for smaller business energy users, though it will remain important that these businesses shop around and don’t just accept their current supplier’s renewal offer.

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.