Stuart Lea, Head of Energy Procurement, Inenco
Business energy costs have risen year-on-year for the past decade, so it may come as no surprise to energy managers that their bills are expected to continue to rise. But by perfecting their procurement strategy now, businesses may be able to mitigate future cost increases.
In 2018, both commodity and non-commodity costs spiralled, which meant businesses were confronted by a ‘double whammy’ of rising energy costs. In recent months, however, we have seen wholesale costs fall significantly –so savvy energy managers should take the opportunity to optimise their approach to energy buying now.
An opportunity to save
Following a period of relatively flat commodity costs, volatility returned to the energy market in 2018. Driven by a combination of low European gas storage levels, high carbon prices and rallying oil prices, along with ongoing Brexit uncertainty, wholesale costs rose to levels we hadn’t seen for almost two years.
At the beginning of 2019, however, commodity costs started to fall. Mild weather and subdued demand in Europe and South East Asia enabled us to maintain healthy gas storage levels throughout the winter months, so we could sufficiently meet demand over the winter. Boosted gas storage levels lead to a substantial reduction in wholesale costs – in fact, by February 2019 they had fallen by 12% from December 2018.
Act now to save
Currently, commodity costs are relatively low compared to the high costs we saw in 2018 – but this doesn’t mean that they will stay that way. Energy managers must act quickly to optimise their procurement strategy, as in the past few weeks we have started to see wholesale costs rise again.
The ideal approach for an individual business will depend on their unique requirements, but there are a wide range of procurement options available, so every organisation should be able to take advantage of the bearish market. Risk-averse organisations may want to lock into a fixed energy contract while wholesale costs are low, for example. Businesses that are open to a level of risk may take a different approach, setting up a flexible energy strategy that enables them to make the most of future opportunities in the energy market.
Hear from the experts
Optimising your energy buying strategy isn’t easy – you need to take into account a wide range of factors, from your appetite for risk and in-house capability to your budget. But a robust energy strategy can deliver long-term cost and carbon savings for your business and provide you will revenue-generating opportunities.
Find out how to develop a future-proofed energy strategy in Inenco’s upcoming webinar ‘Capitalise on rising energy costs: Five ways to transform your energy buying strategy in 2019’. Our experts will be exploring all elements of energy strategy, from choosing the right procurement tools and optimising your consumption patterns.
Click here to sign up for the webinar today.
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