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It’s time to optimise your procurement strategy

By Reemesh Patel

Managing Consultant

SK Energy

IN 2018, energy managers and business owners faced pressure on both sides of their bills as both commodity and non-commodity costs pushed energy bills higher. Now, we’ve started to see commodity costs fall and SK Energy is encouraging all businesses to take the opportunity to optimise their procurement strategy.

Last year, volatility returned to the wholesale market, driven by a number of factors including European gas demand, rising carbon prices and bullish oil markets. This combination pushed wholesale prices back to levels we hadn’t seen for almost two years, increasing energy costs for many businesses.

Since February, however, wholesale costs have fallen, as European gas storage levels were healthy enough to enable us to meet demand over a mild winter. According to the ICIS Power Index (IPI), wholesale costs have seen a ‘substantial reduction’ in recent months, with average IPI values falling from £61.15/MWh to £52.71/MWh. But this doesn’t mean that businesses can become complacent.

That’s because while commodity prices are softening, non-commodity costs continue to rise. In 2018, the Contracts for Difference (CfD) levy, Renewable Obligation (RO) levy and feed-in tariff all rose at rates well above inflation, so businesses are already feeling the impact of spiralling non-commodity costs. With the Capacity Market levy set to more than double this year (once reinstated), and the Climate Change Levy (CCL) also increasing significantly since the end of the Carbon Reduction Commitment (CRC) on 1 April, this trend is set to continue.

As non-commodity costs now make up around 60 per cent of business energy bills, finding ways to mitigate the effects of rising non-commodity costs will be a key concern for many energy managers. While energy management will be key, taking the optimum approach to energy procurement is just as important for businesses that are looking to keep their energy bills down.

With commodity costs falling, it’s a good time for energy managers and business owners to review their current energy buying strategy and decide whether it’s delivering the best deal for their business. If they can secure a low-cost fixed deal for their energy now, or take a more flexible approach to procurement, then they should be able to mitigate the effects on their bill if wholesale costs begin to climb again.

Of course, there are a range of factors involved in buying energy – businesses need to take into account their appetite for risk, in-house capability and resources, as well as their budget. If your contract is up for renewal this year or in the next 12 months or so, SK Energy can help find the right solution for your business without bombarding or hassling you. The team do not pressure sell or dictate what you should do but guide and advise, so you can make the right decisions for your business.

Visit www.skenergy.co.uk or call 01933 448622 to find out how SK Energy could help you change how you procure and view energy.

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