How to protect your organisation from soaring energy prices

Scott Parlett, Head of Public Sector at BiU explains how organisations can make savings in a volatile market.

It has been a perfect storm for energy prices. Thanks to mild weather, the UK has generated much less wind power than usual this year and also less solar. This is in the context of an ongoing move away from coal-fired power generation, which has been so successful that in June the government announced it would be phasing out coal a year ahead of schedule. Coal now makes up just 1.8% of the UK’s electricity mix.

The fossil fuel we are still reliant on is natural gas, which not only heats most of the UK’s buildings but also produces around 50% of our electricity. And this year, Asian demand for liquefied natural gas has meant less available for European countries. To make things worse, Russia has been exporting less gas than usual. The UK is one of the most gas-dependent countries in Europe, so we have been hit by this shortage harder than most.

As we head further into winter, wholesale gas prices are likely to keep rising. Most public sector organisations are already operating on tight budgets and can’t absorb the impact of soaring energy prices without making cuts elsewhere. So what should your organisation be doing today to protect its budget?

Pro-active risk management

Prices for energy contracts reflect the fact that shortages are happening right now. This means that contracts for summer 22 are higher than those for summer 23 – but prices for summer 23 are also rising. This trend is unlikely to change, which means energy users who sort out their supply contracts now will pay less in the long term.

Energy supply contracts fall into two categories: fixed and flexible. With a fixed contract, you agree a price with the supplier for each unit of energy and that is what you pay for the duration of the contract. This offers certainty, but might mean paying over the odds for your energy if prices fall after you sign. Flexible contracts offer more potential to protect your organisation from the volatility of the energy market, but they require expertise to manage.

BiU offers a risk management service in which we watch the energy markets, make pro-active decisions and manage suppliers on your behalf. We can create a strategy that is tailored to the needs of your organisation, so you get a level of budget certainty without being locked into a fixed-price contract.

If your organisation does prefer a fixed contract, we can help with the annual tendering exercise to help you get the best price in a changing market.

Other options for lower prices

Your organisation might be used to renewing its energy supply contract annually, but by doing this you are limiting your options. Consider a longer-term contract (three years or more) to take advantage of the fact that pricing well into the future tends to be cheaper than prices in the near term.

Another increasingly popular option is a power purchase agreement (PPA) where you make an agreement directly with the generator for them to supply your organisation with power. This usually means paying significantly below market price. Most PPAs involve renewable energy, which means they can also help your organisation make significant progress towards its net zero goals.

On the horizon

A significant proportion of your organisation’s energy bill is made up of so-called non-commodity costs. These are charges separate to the energy itself, to help cover costs such as keeping the electricity grid running and developing renewable energy. Most people don’t pay much attention to them, but the UK government’s Heat and Buildings Strategy, published in October, pledged to shake them up. It is likely that future non-commodity costs will make gas more expensive and electricity cheaper, as the government tries to incentivise energy users to electrify their heating. It is important to take this into account when doing the sums on future heating system upgrades.

Make sure you’ve done the basics

Even if you have secured the best possible price, you could still be paying more than you need to for energy – because you’re using more than you need to. Is your organisation already doing everything it can to reduce energy waste? Energy efficiency is about more than upgrades to the fabric of the building; it is also about how the buildings and equipment are used, which may mean changing working patterns and doing more to get colleagues on board.

BiU has extensive experience of working with public sector organisations to get the most out of limited budgets while complying with existing policy and procurement processes. Whether you need a risk management strategy, advice on PPAs or help with energy efficiency, we have the expertise to help your organisation. Contact us on hello@biu.com or 01253 789 816 to start the conversation.