Growing media coverage and public outrage about rising domestic energy prices has shone an important spotlight on the impact of these spiralling costs in our homes. However, unlike for households, there is no price cap on business energy. This means that suppliers can increase their out of contract rates by as much as they see necessary to cover their increased costs, creating a worrying scenario for businesses come contract renewal dates in October.
Latest predictions show the average energy bill is now expected to rise by 78% this October when the energy price cap changes. Although the majority of households will get a £400 energy grant to help ease the pressure, there is currently no such grant or cap for businesses.
Andrew Grover, Founder and CEO of Advantage Utilities, one of Caspia’s clients, states, “Our clients tell us frequently that they will have to make sacrifices elsewhere to be able to afford the new energy costs: personnel cuts, investment cuts and passing on increased costs to their customers. Energy costs are now defining business strategy and sadly, in some cases, the current energy climate jeopardises businesses’ very existence.”
Grover continues, “during my career in the sector, I have never seen businesses encountering such intense, challenging trading conditions, with rising energy costs more often than not being the key factor. And this is not scaremongering – one real life example will see one of our clients in the retail sector face an increase in their energy bills, come October contract renewal, from their current annual cost of £461,000 to over £1.3 MILLION. That’s an almost TREBLING of energy costs.”
- What can be done to mitigate the sharp price increases?
- Alternatives to traditional fixed price agreements?
- Is there any light at the end of the tunnel?
Historically, the most effective method to manage the cost of energy for a business was through competitive procurement processes. However, over the past decade there has been development and commercial integration of new technologies which has coincided with a dramatic increase in the whole-sale energy market. As a result, new energy-saving opportunities have become commercially viable on a variety of scales. These new technologies centre around decreasing the amount of gas and electricity consumed from the main grid through increasing the amount of onsite generation and improving the efficiency of the infrastructure.
In a serendipitous alignment of market forces, these cost-saving technologies centre around CO2 (and other green-house-gas) reducing technologies. As a result, cost saving, emission reduction and the transition into a net-zero economy are now all closely linked. Therefore, economic and environmental sustainability targets of business’ can be approached through a centralised strategy.
At Advantage Utilities, they have been working with clients to integrate new technologies into their day-to-day operations. These technologies will assist them with navigating the current energy crisis and fulfilling their long-term environmental sustainability goals. For onsite generation, they have been working with many different clients towards the implementation of:
Solar Photovoltaic (PV)
Combined Heat and Power Units
Rainwater Harvesting Systems
Increasingly, customers reluctant to fix their prices at current rates are turning to the alternatives on the market. These include flexible procurement strategies which offer the opportunity to capitalise on any dips in the market, whilst reducing risk premiums associated with traditional fixed price agreements and negating the risk associated with purchasing at least on any given day.
Other customers are securing ‘Blend & Extend’ offers, which provide the security of a fixed price agreement whilst offering at least 1 mid-term review, whereby the price maybe lowered subject to both the market having fallen and the consumer agreeing to extend their contract term with the respective supplier.
Exploring peer-to-peer purchasing arrangements has also grown in popularity. This scheme provides the opportunity to procure directly from independent generators themselves, which can prove cost effective whilst also aligning with any carbon reduction objectives.
Whilst there is no silver bullet, regardless of the scale of your organisation, your appetite for risk or need for budgetary certainty, why not speak to one of Advantage’s procurement team and discuss what strategy may be best for you.