A robust energy strategy, executed well, should shelter you from rising commodity and non-commodity energy costs and, through a holistic approach, could even provide you with long term cost and carbon savings and revenue generating opportunities. It should also be a living, breathing document, revisited frequently to ensure it is fit for purpose in a rapidly changing world. As markets remain volatile and non-commodity costs rise, the time is ripe to revisit, review and refresh your energy strategy to make sure it reflects each organisation’s unique requirements.
One of the key considerations for any organisation is their appetite for risk, but this too should also be reviewed frequently, particularly in rising markets: some organisations who prioritise price certainty above all else opt to lock in their annual energy budget through ‘fixed’ contracts. These are often seen as the best fit for the most ‘risk-averse’, but this can be a myth – particularly if prices are fixed at the top of the market and fall again. This is particularly true when contracts are renewed just before the contract end date, leaving businesses no choice but to settle for the prevailing market price which, can be far higher than the average over a contract period.
Re-assessing products on the market can also help to determine whether a shift in risk appetite is merited. A number of energy consultants like Inenco offer portfolio products where businesses with small / medium energy spends can take advantage of flexible purchasing arrangements, rather than fixed. Organisations can also choose to apply strategies such as a capped strategy that delivers price certainty whilst also providing the potential to capture benefit from falling prices.
Finding the most suitable contract type can be tricky. Inenco has recently published a Guide to Transforming Your Energy Buying Strategy to help businesses understand the key differences between different energy procurement strategies and what to consider before renewing your organisation’s contract, which could help to simplify things.
A robust strategy should consider all elements of an organisation’s energy usage. The total cost of energy is the unit rate multiplied by volume: whilst securing the best possible commodity price for each unit of energy is vital, managing non-commodity charges and reducing total consumption is key to mitigating rising prices.
Many organisations will find that they have an element of flexibility in their energy usage to help avoid some of the highest rates of non-commodity charges. Transmission Network Use of System (TNUoS), Distribution Use of System (DUoS) and Capacity Market charges are charged depending on what time businesses use energy, so finding ways to reduce even a small percentage of consumption during periods of peak demand can make a big difference to the bottom line.
Similarly, acting on the energy saving recommendations that the ESOS audits will uncover for thousands of businesses this year could also help to reduce overall consumption. Getting to grips with energy data to understand your consumption will also help to make well-informed energy management decisions.
Business energy is becoming increasingly complex, but an up-to-date and holistic energy strategy can provide the framework to guide organisations through volatile markets and act on opportunities. Seeking external support can help, particularly for those organisations with limited resource or internal expertise. Inenco’s procurement team currently procure more than £2.4 billion on behalf of clients each year, making them well-placed to provide businesses with expert impartial advice.
To find out more about how to revisit your organisation’s energy strategy, Inenco’s Guide to Transforming Your Energy Buying Strategy offers businesses an overview of the different elements that make up a strategy and what to consider in today’s evolving market, including five steps to creating an optimum energy strategy, from procurement to reducing consumption.
To speak to an energy expert about energy in your sector and how we can help your business, visit www.inenco.com/experts or call 01253 785 110.