Today’s energy market is volatile to say the least. Small and medium sized businesses have seen their gas bills rise by anything from 250% to 500% in the last year and it’s getting more challenging for organisations to know how to best procure energy. Here, Michael Dugdale, MD at Trident Utilities, discusses how businesses can navigate today’s market and mitigate the pressures they face through managing risk, saving money and reducing carbon.
Today’s energy market is volatile to say the least. Small and medium sized businesses have seen their gas bills rise by anything from 250% to 500% in the last year and it’s getting more challenging for organisations to know how to best procure energy. Here, Michael Dugdale, MD at Trident Utilities, discusses how businesses can navigate today’s market and mitigate the pressures they face through managing risk, saving money and reducing carbon.
Energy market volatility is impacting us all and if it’s your role to manage energy for your business, then you’re probably facing challenges you’ve never experienced before. But, there are steps all businesses can take to gain control of energy and help ride out the storm.
Firstly, it’s important to understand what’s causing the unprecedented energy price rises. It helps with perspective and confirms that we are facing a perfect storm here, one we haven’t faced before and hopefully won’t face on this scale again. The factors causing wholesale price increases include, energy demand rising as countries emerged from the Covid-19 lockdown, increased demand in winter 2020/21, dwindling North Sea gas reserves, low winds leading to less renewable generation and the war in Ukraine.
Looking ahead, we don’t expect to see a huge amount of change in energy prices any time soon. Although day-ahead prices for gas and electricity have seen some short-lived drops, rolling average prices support suggestions of an expensive winter ahead for business energy users. While it’s impossible to predict every eventuality, energy market signals suggest that wholesale price volatility could be around for a further 12-24 months. But through being proactive, businesses can manage their risk and make a positive difference to their energy costs.
Making the right energy choices
It’s vital all businesses make sure they’re on the right energy contract. Unlike for consumers, businesses aren’t protected by Ofgem’s energy price cap, so if your contract is coming to an end, it’s time to take action so you don’t roll over onto an expensive standard variable rate tariff.
When choosing an energy contract try and balance short-term needs with long-term benefits. We may be facing price hikes today but no one knows for certain what the picture will be for the duration of your contract. The most effective approach is to look at your likely consumption profile over a three year period and break it down by the various elements that make up your bill. For example, can you reduce non-commodity charges?
In fact, non-commodity costs are one area that is often overlooked. These costs are all charges aside from wholesale energy costs, such as Transmission Use of System (TUoS) charges, Meter Operator (MOP) charges and Capacity Market (CM) charges. There is the potential to make thousands of pounds of savings every year through negotiating fixed or pass through terms and taking advantage of energy policy incentives and subsidies available to your business.
Finally, when it comes to energy contracts, have you considered whether you are better off on a fixed or flexible contract? Many SMEs are likely to have opted for fixed contracts for budget certainty but with the help of the right partner, and innovative purchasing framework solutions, flexible contracts and the benefits of increased purchasing power aren’t just for bigger businesses. A proactive energy partner will be able to group businesses with a similar level of energy demand and risk approach into a single purchasing framework, allowing them to negotiate contract terms with suppliers as if they were one single larger consumer. An expert will be able to help with all of this and advise which is the best solution for an individual organisation for today and for the longer-term.
At least annually revisit your energy contract terms to check they meet your current usage profile, business plans, working patterns and approach to energy efficiency. You don’t have to wait until it’s about to expire.
Embracing the benefits of net zero
When thinking about energy, don’t forget to prioritise the net zero goal for 2050. While it may feel like there are bigger energy related topics to tackle, decarbonisation makes commercial sense now and is one way businesses can help manage overall energy costs. If businesses can optimise their energy costs, not only is this going to put them in the best possible position today, when we do see energy prices settle, it will help their business thrive.
Many organisations have embraced basic energy efficiency measures but there’s almost always more that can be done to cut consumption. A good place to start is with an energy audit so you have a clear picture of where you’re using energy and then how you can reduce it. Organisations can then look at whether they can lower their energy use from the grid further and increase energy resilience with on-site generation. This includes measures such as solar PV, air source heat pumps, LED lighting and combined heat & power.
Taking a joined up approach
As we look forward none of us – unfortunately – can foresee what is going to happen with energy market volatility but I can say with certainty that it is possible to make a difference to how a business is impacted through embracing measures to take control of energy. To reap the most benefits in terms of reducing energy risk, businesses should take a more holistic approach to energy management, that aligns to broader business objectives. Make sure your organisation’s energy strategy is a board level concern and that everyone is engaged. Then measures such as getting the right energy contract, reducing consumption and installing on-site generation will have the maximum impact when it comes to reducing energy costs and helping weather the current energy market storm. The future is a bright, more energy efficient one.
For more information visit www.tridentutilities.co.uk
