Let’s go to our experts…
The cost of inaction with Kevin Jackson, Lead Consultant
Kevin Jackson, starts us off with how much our energy is going to cost us in the future.
The energy market is ever changing and so is the price of our energy. Business energy prices are now increasing at a higher rate than ever before, with more legislation and levies adding to that cost.
With rising energy costs it is essential that energy managers look at the rise of non-commodity costs from the Renewables Obligation (RO) Levy, to the Feed-in-Tariff (FiT) Levy and more, all of which will add around £41/MWh (4.1p/kWh) to a typical energy bill.
We’ve already seen many new developments. Last year, for example, we saw the introduction of the Capacity Market Levy. The Capacity Market (CM) was predicted to cost around £380 million in 2017, and this is expected to rise to almost £1 billion in 2018 and 2019. This means that the CM levy for half-hourly consumption on weekdays between 4-7pm will increase from £40/MWh to £100/MWh in 2018/19. We’re also likely to see the Contract for Difference (CfD) Demand levy, which is designed to support large renewable projects, rise from £2.94/MWh in 2017/18 to £8.41/MWh in 2019/20.
When it comes to buying energy, there are a lot of options out there for businesses from day-ahead purchasing to quarterly and seasonal buying, but with each comes a level of risk.
This means your business needs to understand what its priority is, do you want the best price, budget certainty, or just to simply keep the lights on? This will shape what purchasing strategy is best for your business.
But taking no action in the current market simply isn’t an option for businesses, especially those who need to reduce their outgoing costs. Businesses must prepare themselves for the future.
Understanding the energy market & strategy development with Matthew Osborne, Principle Energy Trader
Now onto Matthew Osborne to talk us through understanding the market and strategy development.
Firstly, to understand energy we need to get a full view of the market, the drivers behind it and how they affect its movements. Current market drivers include macroeconomics, energy fundamentals – such as liquified natural gas (LNG), weather, storage, geopolitics, technical analysis and longer-term drivers like shale development, all influence the minute by minute price of energy.
When it comes to pricing you need to be aware of your business objectives and your appetite for risk, but you must also keep your businesses price projection in mind. With the cost of energy continuing to rise due to non-commodity costs, wholesale prices and more, businesses need to ensure that they take action to ensure the best price for their energy now and in the future.
There are various strategies to be used when purchasing, such as locking and unlocking your energy at certain times, which helps to limit exposure in a rising market and expose volume in a falling market. You could also invoke collars within your energy strategy and introduce a cap level to defend against further market rises, and a floor level to protect your energy’s value in the market.
These tools can then help you to build a coherent energy buying strategy which may include fixed, capped, trend or prompt strategies, but ultimately whichever you choose needs to be right for your businesses aims, as well as help you mitigate the rising costs of energy to protect your business in the future.
From inaction to action with Robin Preston, Sales Director
And to finish off, Robin Preston covers how your business can go from inaction to action.
Your business’s energy procurement needs to be part of an integrated strategy to meet your business’ objectives while reducing costs and preparing yourself for the future.
The cost of inaction will be significantly higher than if you were to act now to build the correct strategy for your business; and with commodity prices having risen 45% since April 2016, inaction could have significant financial consequences for your business.
To access the presentation slides from the seminars, please click here. If you would like to speak to our experts about mitigating the rising energy costs, call us on 08451 46 36 26 or email email@example.com