Why Use a Commercial Energy Broker

A Bit of Background: How are energy prices determined?

Energy costs are broken down into two components, non-commodity and commodity. Non-commodity costs refer to the essential overheads necessary for use, for example, transportation, distribution, Feed in Tariff (FiT), Renewable Obligation (RO) and meter standing charge. Commodity quite simply refers to the cost of the actual power.

The Rising Cost of Energy

Pre-Covid, a typical price of 14.5p would have been made up of 10p for non-commodity costs and 4.5p for commodity costs. At the time, as the risk was low, energy providers were more than happy to offer longer term contracts, typically for two, three or even five years.

As Covid took hold, however, supply exceeded demand and energy prices went into free-fall. At its lowest, electricity went down as low as 3p, gas 1p and oil went to zero. Then, as restrictions lifted and demand began to increase, there was a staggering 45% increase in both gas and electricity.

On top of this, the normal added KWh for non-commodity, which includes a risk premium, is soaring. At the start of the year, 15p was the average non-commodity that was added to the wholesale price. During 2022, it rose to 35p.

Additional Setbacks

Unfortunately, a long and harsh winter in 2020/21 left gas storage levels in Europe and Asia at their lowest point for years. 

Earlier in 2022 planned maintenance of gas fields over ran and Nord Stream 1 (the pipeline channeling natural gas from Russia to Europe) looked like it wouldn’t be running at full capacity in the near future. Issues with documentation for a repaired turbine and imposed sanctions from the EU and UK hhad been cited as the reasons for preventing maintenance from being completed at a compressor station. With only one of the six turbines in operation, capacity was down to only 20%. 

This was swiftly followed by a drop in pressure from both Nord Stream 1 and 2 suggesting leaks in both pipelines. As both pipelines had also been extensively ruptured by explosives it was uncertain if they would be running anytime in the near future.

Renewable energy sources (wind and solar) halso delivered less than expected.

The Russian conflict with Ukraine has escalated prices even further, and, between August 2021 and August 2022 we have seen an astounding 683% increase in the cost of energy.

Add to this the trail of destruction that was left in the wake of the failed suppliers earlier in the year and the cost of smearing the fees across the remaining companies and it’s easy to understand how the energy market is in such turmoil.

Not All Doom and Gloom

There is some good news on the horizon though, as wholesale gas prices fell to their lowest level since February 2022. This will, in turn, mean better purchasing opportunities in the February – April buying window, which should cascade down to businesses in the second half of 2023.

Prices do, though, fluctuate daily. If your contract is coming up for renewal, you may well be nervous about the cost of renewing it, especially in light of the recent energy crisis. So what are your options? Have you considered talking to an energy and procurement specialist?

The Benefits

Trained specialists, they have market intelligence and will be able to find the most effective and competitive tariff to suit your needs.

Expertise:
Commercial energy brokers have specialised knowledge of the energy market and can provide valuable insights into energy pricing, trends, and regulations. They can help businesses navigate complex energy contracts and identify opportunities to save money on energy costs

Time-saving:
Managing energy procurement can be time-consuming and complicated. A specialist will save you valuable time by handling the entire procurement process, including negotiating with energy suppliers, managing contracts, and resolving billing issues

Cost-saving:
Leveraging their expertise and relationships with energy suppliers, your energy specialist will be able to negotiate better pricing and contract terms. This can result in significant cost savings for your business

Risk management:
Energy procurement involves risks such as volatile energy markets, price fluctuations, and supply disruptions. Your broker can help you to manage these risks by providing market intelligence, hedging strategies, and contingency planning

Sustainability:
Your energy specialist can help you to develop and implement sustainable energy strategies that could reduce your carbon footprint and support your corporate social responsibility goals

Choose Carefully

If you can, we suggest working with a procurement partner who has preferably been referred or recommended, has a good track record and who can look after every aspect of your energy needs, especially if you have more than one location.

Your consultant should be asking you specific questions to ascertain your current energy supply, for example:
Do you have mains gas as well as electricity?
Do you have LPG or oil?

If you are already in a contract, they should be checking:
Who your current supplier is
When the renewal date is
If you have more than one location
What type of meter you have
If you are on hourly or half-hour meter readings
If you are on Day/Night or Weekday/Weekend rates
In cases like Care Homes, if you have an in-house laundry. And if so, how it is operated (day or night)

A Word of Caution

If you do have a contract coming up for renewal, it is essential that you provide accurate readings to your supplier or energy consultant. If the supplier has underestimated your usage, you could end up paying at new rates (which could be higher) as opposed to your current rates for the under-estimation.

Overall, using a commercial energy broker can provide you with valuable expertise, time-saving benefits, cost savings, risk management, and sustainability benefits.