Focus Business Consultancy - An update on energy and utilities

"It’s been a while since I’ve given an update on energy and utilities. In that time the UK’s wholesale and retail costs for both electricity and gas have continued to rocket. The really bad news is I feel it will get worse before it gets much better. That said, there are still things that businesses can do to mitigate these increases.

Market overview:

There has never been a period in the UK’s energy market like the last 18 months. Wholesale costs for suppliers have rocketed and circa 30 suppliers have ceased trading within the period – mostly the more recent and less-well established companies who are either under-capitalised or who have not hedged well and so quickly faltered when the prices kept rising.

This has meant that OFGEM has stepped-in to re-allocate these customers to other, larger suppliers which, in turn, has brought its own raft of issues such as:

• Not as many suppliers in the marketplace to compete for new business resulting in less choice for the consumer.
• This is also an additional financial risk for the suppliers as they must commit to the national grid for the required energy which they need to service their customers
• Suppliers over-run with new customers handed-out by OFGEM.
• Suppliers now struggling to answer basic queries in 10-15 working days
• Suppliers dipping in and out of the market almost daily
• Suppliers are still being fussy post-pandemic about the type of businesses they’ll accept

Now, add-in some geopolitical things which always impact energy prices like Russia continuing to occupy parts of Ukraine and the UK’s political instability over the replacement of our Prime Minister. And let’s not forget the recent Nordstream 1 & 2 situation.

In the Winter the UK generates circa 45% of its monthly electricity requirements by burning liquid natural gas which we bring in from Norway. But if Asia, particularly Japan, has a hard Winter before us they will buy as much of Norway's LNG as they need and the resultant shortfall in the market spikes prices further for UK consumers, both domestic and business.

Things to consider with your energy procurement and usage:

Measure and monitor your usages – particularly for multi-site businesses. Look into LED bulbs, timers, heating system efficiencies – they ALL make a difference. Does your energy broker offer invoice validation for you? Some of my clients – particularly the multi-site ones – want me to review each month’s invoices and usages with the same month of the previous year to help to spot increases or anomalies.

Solar technological advances - have you considered solar as a way of mitigating your bills? There have been huge improvements in technology over the years and the period in which solar “pays back” is vastly reduced. Also, older installations had a feed-in tariff where you got the princely sum of just 5p per kWh generated (where you are now paying circa 75p per kWh). Newer installations allow you to either use what you generate or have a battery system to store it for use for insurance against power-cuts. Solar panels can be installed on the grounds of a property, in panels on the roof or even in panels on the side(s) of a property which gets most sunshine.

When to procure your energy – if your energy contracts are due for renewal between October and February (traditionally in the colder, darker months when demand on the grid is higher) then consider looking to tie-in in the warmer summer months.

Who to procure from – good utility brokers can most often put you back with your own supplier cheaper than the renewal price which your own supplier would offer. That said, be very mindful of utility brokers and energy consultants as (whilst still un-regulated) there is a vast range in the quality of information and advice. Two months ago, I onboarded a new residential care sector client who have 16 care homes in their portfolio. They had been with the same broker for 14 years, but the broker had only ever arranged a contract without providing on-going advice, support, economising measures or offering invoice validation. Following a like-for-like comparison it became apparent that the incumbent broker could not beat my prices (due to my lower overheads) or my personal level of service.

Multi-purchase contracts – businesses who use more than 3 million kWhs per annum either at one business location or in aggregate across their multi-site portfolio may be able to secure a multi-purchase contract. These are contracts - usually over a longer term - where you can decide when and how much energy you want to buy at any given point throughout the contract. The potential advantages of this are that rather than being in a fixed contract where the standing charge and unit rates are established and fixed at the outset (currently at the highest point ever) you can purchase your energy more flexibly throughout the duration.

All you are committing to the supplier is to buy your electricity from them for a stipulated period. Currently, I'd suggest 3 years minimum to obtain any real benefit in the current climate. What you are not committing to (unlike a fixed contract) is a particular price. You will receive support and market updates to assist you with you decision-making in the hope that rather than having a high fixed price for the 3 year duration of a fixed contract you can buy your energy in months, quarters, seasons and if the market calms down in 18 months’ time the drop in your energy costs will mitigate the higher costs of the first 18 months of a, say, 3 year contract but unlike the "fixed" version you are able to secure cheaper energy for the duration. Also, for example, if the price came down to something more reasonable or acceptable to you, say, next Summer you could - if desired - "lock-out" the remainder of your required energy at that price for the duration of your multi-purchase contract.

Two important things to bear in mind:

• OFGEM rules dictate that all Brokers get THE SAME PRICE when quoting clients
• Some Brokers have significantly higher overheads which ultimately their customers pay for as most Brokers add a margin onto the prices before they are offered to the customer. Thus, brokers with dozens (sometimes hundreds) of financially incentivised staff, call-centres, digital marketing costs etc tend to not be as competitive" Steve Wilson, Managing Director, Focus Business Consultancy