Evolving approaches to public sector energy buying

By Mark Doyle, Senior Corporate Account Manager at Gazprom Energy

The Department of Business, Energy and Industry Strategy’s (BEIS) pledge to invest £295million in improving the energy efficiency of public sector buildings by 2020, and its increase in innovation spending, demonstrate the government’s commitment to radically improving the efficiency of public sector energy consumption.

This perhaps suggests a time of change ahead in the way public sector organisations buy energy too. There’s long been legislation regulating this area, with organisations naturally having to conform to OJEU (Official Journal of the European Union) compliant processes in their procurement. As a result public sector energy frameworks have also been a popular choice. But with the energy supply market in constant flux, we’re beginning to see public sector organisations review their options, taking a more active approach to reviewing the market.

We’re seeing more examples of organisations surveying the different options available to them and becoming much more switched on when it comes to monitoring consumption. Low risk and competitive prices are still important to public sector organisations, but it’s not the only thing governing their energy choices.

Fixed vs. flexible contracts

Let’s look at that traditional buying choice a little deeper. For very valid reasons public sector organisations may have opted for a fixed pricing model. Being billed for the same amount over the duration of the contract means having budget certainty, and any risk-averse organisation that needs a high level of budget certainty can see the appeal of not having to worry about spikes in price until a contract’s end date.

While fixed rate contracts are a popular and effective way to purchase energy, some organisations in the sector are exploring other options such as flexible purchasing contracts, due to the potential cost savings these can bring, particularly in periods of low energy prices as was the case recently.

With an effective flexible purchasing strategy, energy buyers can take more control of their energy procurement, given that a contract of this type enables them to buy and sell set volumes of energy in response to market fluctuations. Immediately after a flexible energy purchasing contract has been agreed with a supplier, the buyer can begin to purchase the future energy their organisation will consume, even if the supply isn’t due to start for another 12 months or more. This method of purchasing allows the buyer to spread their energy decisions across months or years, which is why it is popular with organisations that consider energy as a strategic decision and therefore don’t want to commit to a price at one point in time in case the market changes significantly.

Framework divergence

Another convention that some public sector organisations are beginning to move away from is the use of pre-agreed energy frameworks offered by public buying organisations, and instead proactively choosing their own supplier. While much of the public sector has long enjoyed the benefits of frameworks – including their buying power, their financial and security assurance, and their pre-agreed terms – some are now looking for other factors in their energy choice such as customer service. To many, selecting the right energy supplier is about finding a provider who can deliver ongoing maintenance and support. The added value that a supplier gives, such as advanced reporting and access to experienced market analysts, can give the customer better control of their energy costs.

Monitoring energy consumption

There’s also been a move towards using automated meter reading (AMR) technology in the public sector, which has reshaped its approach to energy management by enabling it to focus on energy consumption. This eradicates the need for estimated billing, as energy consumption is monitored using a device, meaning that organisations only have to pay for energy that they’ve used. It also makes it very easy to understand how much energy is being consumed across a complex property estate. For example, the London Borough of Merton has 166 sites making it difficult for energy managers to monitor energy usage across the whole of the local authority. Installing AMR devices on each of their meters enables the organisation to closely monitor collective energy consumption thanks to regular access to meter readings. Anomalies can be easily addressed too, with AMR identifying buildings currently not in use, such as schools during holiday breaks, that may be consuming more energy than they should be for example due to heating being left switched on.

Biting the bullet

Cabinet Office minister Francis Maude once claimed that the public sector is too risk-averse in nature. But energy buying is one area where the sector seem to be becoming more open to choice. Taking the initiative with much of the energy procurement process, from finding a supplier to managing consumption in-house, is how some public sector organisations are now looking to reduce energy costs. But to be truly confident that they’re making the right decision, the public sector should still consider looking for advice from other sources, like references and accreditations, when selecting suppliers. Of course, there’s nothing wrong with continuing to take the same approach to energy buying and management, but it’s important that whatever route an organisation chooses to go down that they factor in more than just price and convenience, and find the right provider for their needs.