Member Article

Five ways to manage your energy costs

Does it make you seethe to read about the £780m of 3rd quarter profits declared this week by oil giant BP?*

Or do you simply shrug and accept the figures with a sense of resignation, thinking your own business’ energy bills may be sky high but there’s not a lot you can do about them, and you should just concentrate on ensuring your own business is successful?

Either way – there’s a better action to take than blazing anger or cold resignation, writes Steve Malone of procurement services business Inprova Group.

Good businesses examine costs across the operation and throughout the supply chain. Energy should be no exception. While the energy market is volatile, whatever the size of your business and whatever your energy requirements, (manufacturers are clearly going to have significantly different energy purchasing requirements than lawyers), you can plan to buy energy advantageously and manage risk.

Top tips to reduce risk or save money:

1. Understand the difference between cost certainty – achieved by fixing a cost for, say, two to three years; and the lowest cost. Fixing your price doesn’t necessarily achieve the lowest cost. But it does enable you to manage risk: you know exactly what you’ll be paying.
2. Want to reduce your costs? Then learn what your energy prices include. For example, the cost of your gas and of your electricity includes the wholesale cost, transport costs and taxes. For your electricity, the transport costs make up a much higher proportion of the overall cost than they do for your gas. You can try to achieve a lower cost by signing your energy purchasing contracts when the wholesale cost of supply is low. And you may well be able to reduce your transport costs by practising ‘demand management’.
3. Use tools to monitor the market, and tools to manage risk.
4. Mix and match. You could buy some of your energy at a price you fix, but some in blocks you buy throughout the lifecycle of your contract. This provides the ability to achieve some level of certainty and risk management, and still benefit when wholesale prices are low.
5. Get hold of specialist sector knowledge. Good practices in procurement are common across purchasing categories. But energy is complicated – with volatility of as much as 10% in wholesale price moves in a single day. Timing and risk management are essential and the wholesale energy market can be daunting without effective planning.

Inprova’s energy division has a free downloadable e-guide, which you can use to learn how to access better energy prices without increasing your risk.

* That said – their Q3 profits have halved for Q3 this year compared with the same period last year, so if you are seething now then you must have been incandescent last year!

This was posted in Bdaily's Members' News section by Steve Malone .