Energy Broker's Days Are Numbered

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When I started amber in 2009 I spoke to a few energy brokers who disagreed with my opinion that what they were doing was 'money for old rope' & something they were making too much money from.

It's true all too often that the decision maker doesn't realise really what they are agreeing to or the work that has been done (or should have been done). On paper, a saving on energy costs seems like something that is delivering a great return; after all, you've not had to shop around to find this saving, and you wouldn't have had time to find this saving if the broker hadn't had come to you with it?

It's a bit of a "layer cake" with supplier margins, margins for 'credit', and margins for the intermediary....however there is actually quite a bit of work involved to get to the point of presenting results to you...well at least when the full market is considered, you have multiple suppliers, & your different options are considered in the full. Assuming a full exercise and analysis you are likely talking 5/6 days work for a 10 site portfolio. You need to be experienced and well trained to find the optimal set-up as this often involves understanding your business, the profile of your energy consumption, your future plans, and the market in which we operate...

It sounds like I'm now defending the 'Energy Broker' but actually the above description is much more of an energy consultancy role than the typical energy broker I've met over the years. Only this December I was gob-smacked, when I discovered an energy broker, who claimed he only dealt with 'big corporate accounts over £15M energy spends', & he didn't know what a 'FIT' charge was on an energy bill!?, or the difference between the current charges and those proposed by the EMR (electricity market reform) for Cfd's and CM's (this is standard stuff for those in the sector- a bit like a mechanic not knowing how to re-align your steering wheel because he only works on Bentleys!?).

At that time, we had just attended an energy conference & I couldn't help thinking that there was still a lot of 'old rope' being slung about under the noses of the ill-informed consumer (& still with no sight of the watchdog who claimed to be 'clamping down' on these rogue companies)!?

It's true to say that I've always classed what we do at amber energy as being anything but 'brokers'. In some industries, it's a term that represents a highly regulated (FSA) role with lots of screens, shouting, and technicals on the markets being dealt with day-by-day. The truth is most of these 'brokers' were 3 to 4 people in a room, switching a company from supplier A to supplier B, with absolutely no knowledge or even access to market data.

So why are their days numbered?

Well, in my opinion, there isn't actually any need for switching sites and 'brokers' for us to lower the price of energy to the end user. You need to be able to move supplier, and you need to be able to access new products, and/or take advantage of innovation in the market but switching on any given day purely on price - well it's often ill-advised.

I don't mean it's not worth switching supplier but what I do want to draw your attention to is the market movements.  Our new tech shows our clients where their budgets are for any given year by tracking the wholesale movements and changes in any other costs that comprise their end bill. Any day is an available 'fixing point' and as such, you can see the variations in next years budget a year or 2 in advance of when your future contract will start.

So what does this mean?

Well, the important thing to realise is that the difference between one supplier and another on a £50K energy contract (for example) will be no more than £3.5K (on the basis that you are on a competitive contract now and you then tender to the full market properly and take into account any 'too good to be true offers' and then adjust according to the inflation in pass-through costs that they can add each year).

In comparison, this £50K energy contract has moved to £40K in just over 1 month between the end of December 2014 and today (and it's been as high as £60K if you track back to earlier dates).

So consider would have been better off staying with your existing supplier and timing your purchase right than moving supplier at all!? It's true, but what's truer is that squeezing your margins to save the £3.5K and then selecting the right day which was £10K lower (due to the bearish market movements) is true energy consulting...

The reason I think that 'energy brokers' days are numbered is that some currently take roughly £2K of the £3.5K leaving you with only a small gain by switching. Much less than the optimised contract and for what service exactly?

Ofgem are unlikely to be the driving force that changes the market. The true force is educating business consumers so that they can buy right on the right days and can cut-out any inefficiencies. 

Nick Proctor