For many energy buyers, their company’s energy procurement strategy (if they have one) incorporates a review of the energy budget at a specific time of year. This is generally done around 3-6 months prior to the expiry of their current supply agreement or whenever they find the time to look at their energy budget for another year. At that point, a benchmarking exercise is undertaken with the objective to secure energy from the cheapest supplier on the day.
Whilst the procurement strategy detailed above provides some assurance that a ‘competitive price’ has been achieved at the time, it is far from the best practice to ensure that the ‘lowest price’ has been achieved across a longer purchasing window.
In hindsight, appointing an energy consultant would have been a better idea.
Lower energy prices offer competitive advantages to energy users, who can procure their energy for less than their competitors. They can make significant savings when the price of energy drops, even by as little as 2%.
Considering that the UK wholesale energy prices for the year ahead of delivery dropped by around 10% since the beginning of 2017, it’s clear that buying energy at the right time from the right supplier can noticeably reduce consumer’s energy costs.
You can't just consider a single day for truly competitive rates
Energy prices are determined as far as 5 years forward on the wholesale market, which is affected by a number of drivers - from supply, demand, flows, spare capacity, storage, outages, weather, the price of crude oil, coal, carbon, metals, currencies and economics to geopolitical conflicts just to name a few!
With so many different drivers, there can be major fluctuations in prices over time, which presents both opportunities and risks. While prices can experience very high volatility over a short period of time, as seen in November 2016 when the annual month-ahead electricity price volatility reached 80%, over a longer time horizon volatility falls to around 20% for seasonal purchases. Thus a longer purchasing window flattens the spikes in energy prices and lowers the risk of locking energy with the cheapest supplier on an expensive day.
Managing risk is a crucial part of an energy buyer’s role, and to do it effectively, they need a clear understanding of the organisation’s risk exposure. Ultimately, both the appetite for risk and the need for budget certainty must be assessed and different strategies, products, contracts and suitable energy suppliers considered.
The goal of any energy procurement strategy should be to provide the ability to maximise opportunities and to minimise the risks presented by the volatile energy markets. A fully integrated energy risk management solution will demonstrate a proven track record of outperforming the market and lead to quantifiable savings.
To achieve a clear procurement strategy, we'd recommend a review 24 months prior to the expiry of existing energy supply agreement.
We recommend reviewing and implementing a procurement strategy with a clear plan at least 24 months prior to the expiry of an existing energy supply agreement. This provides an adequate window of opportunity to undertake an energy strategy audit, to complete a comprehensive risk management assessment, to tailor risk management strategy to the business goals and to implement the agreed plan and strategy.
If you're not looking further ahead, unique market opportunities and price falls could be missed, which would mean that users risk losing out to more nimble rivals who can take advantage of market price changes. To help inform these decisions, the market-leading procurement and trading teams at amber energy keep a close eye on the procurement strategies of clients and on the fluctuating markets.
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In order to undertake an energy strategy audit and to advise on suitable procurement products and suppliers, we would need to obtain a signed letter of authority, estate list including contracting entity and company number, full meter point reference numbers (MPRNs) and meter point administration numbers (MPANs), addresses and post codes, current suppliers, contract end dates, KVAs, commodity type – natural gas or electricity (half-hourly or non-half hourly metered), actual consumption data in annual, monthly, daily or half-hourly granularity, existing meter point operator, data collector and data aggregator agreements, credit assessments and completed risk management assessment.
We would apply the letter of authority to all associated energy supplier accounts, cross reference and data cleanse the estate list, analyse the consumption data to identify trends and opportunities, analyse existing energy strategies to identify pros, cons, opportunities and risks, generate a bespoke energy procurement strategy, optimise contracts, amend KVAs and AQs, create comprehensive energy procurement tender, analyse costs and set up clients on our market tracking online tool “amber insight” if clients wish to pursue fixed procurement or set them up on our energy trading and risk management system if they chose a flexible energy procurement strategy.
Foresight is better than hindsight and whether via a fixed market tracker through “amber insight” or a flexible energy risk management and trading solution through our best-in-class trading desk, ensuring our clients always have visibility of their future energy costs and the ability to access the market will increase the probability the lowest cost of energy is achieved on long-term sustainable basis. For more information on how amber energy can help review, formulate and implement successful energy procurement strategy, energy users can email us at firstname.lastname@example.org.