Businesses might not be surprised to see their energy bills continue to increase – last year marked the tenth successive year of rising business energy costs – but they shouldn’t resign themselves to higher bills. Here we take a look at what’s happening in the energy market, and how businesses can ensure their procurement strategy is robust enough to meet future challenges.
A changing energy market
After a period of relatively flat wholesale costs, we saw volatility return to the market in 2018. European gas storage levels were low, carbon prices increased and oil prices rallied, which all contributed to pushing commodity costs up to levels we hadn’t seen for almost two years. There were also concerns about security of supply, and Brexit uncertainty loomed large. This lead Ofgem to increase their price cap on standard variable and default tariffs, enabling suppliers to raise their prices and pushing bills up further for customers on these tariffs from 1st April.
Since February, however, commodity costs had fallen by 12% from December 2018. Mild weather and subdued demand in Europe and South East Asia enabled gas storage levels to remain healthy throughout winter 2018/19, which meant that we could meet demand over the winter.
Taking a unique approach to procurement
As we move into the summer months, it may not seem like the most pressing time to review your procurement strategy But the relatively low commodity prices we’ve seen in recent months are beginning to rise again, so energy managers should act now to make the most of this market opportunity.
Non-commodity costs are also continuing to rise; the Capacity Market levy is set to more than double this year (once reinstated) and the Climate Change Levy (CCL) has also increased significantly since the Carbon Reduction Commitment (CRC) ended on 1st April. As non-commodity costs now make up around 60% of business energy bills, energy managers are likely to be facing increasingly high energy costs.
This means that businesses should act now to perfect their approach to energy buying, while commodity costs are still low. Of course, there’s no ‘one size fits all’ when it comes to procurement, as every business has its own unique requirements. A risk-averse business might see the most benefit from securing a fixed energy contract while commodity costs are low, for example. An organisation that’s more open to taking controlled risks could set up a flexible energy strategy that enables them to take advantage if commodity costs continue to fall in future.
Talk to the experts
Whatever the right approach is for your business, Inenco’s experts can help you to find a procurement solution that delivers the best results for your unique needs.
We know that energy managers’ roles are becoming increasingly diverse, and when your responsibilities is ever-increasing it can be hard to find enough time to find the best procurement deal. That’s why over 8,000 business rely on Inenco’s support with procurement – we procure over £2.4bn in energy for our clients every year. With the latest technology and years of experience in the industry, we’re best placed to guide you through the procurement process and support you throughout your contract.
Is your procurement contract due for renewal? Talk to Inenco’s procurement experts to explore your options – give us a call on 01253 785110 or email email@example.com.