Understanding Energy Procurement Costs

The volatile energy marketplace where electricity and gas prices can fluctuate alarmingly

, at times by as much as 50% in one calendar year, highlights the necessity to properly understand the procurement processes and appreciate exactly how costs are arrived at. This is a crucial factor in the commercial sector and establishing a progressive strategy can make the difference between success and failure.

Irrespective of whether the energy is to be sourced for a single site, a multi-site or even a brand new connection, crucial decisions have to be made particularly on whether to commit to risk-managed fixed or flexible energy supply. With a fixed price the cost is secured at a competitive rate for a specified time frame allowing a customer to accurately conduct forecasts, aiding cash flow and acquisition planning. A third party broker can look into these type of facilities, monitoring variations, advising on best practice and choosing dynamic times to make a purchase to suit the company and where that company has more than one site, it can ensure uniformity across the board.

A more flexible solution enables the buying of gas and electricity to take place within the lifespan of a contract and thus permitting exploitation of any market changes. Outside assistance via a consultancy specialist can unlock optimal credit terms with skilful negotiating, ensuring transparency which in turn allows a firm to stay in control of all consumption matters and associated costs. It also saves man-hours and frees up the workforce to direct their expertise into the right channels.

Typically data is collected and scrutinized for any inconsistencies before a report is drawn up detailing recommendations to ensure that important requirements are met. Analytical studies will reveal the best supplier to fit with company responsibilities. Account Management is vital and a consultant using market intelligence will take on the post-contract service with online reporting, billing validation and product management.

Company objectives with regard to procurement will always vary dependent upon size and resources, but adopting a risk management strategy via a consultancy will guarantee that energy solutions will mirror the needs of an organisation within an agreed framework. A proactive approach is always encouraged as it is all about striking deals at the right time. Patterns of usage vary throughout the seasons and this has to be taken into consideration when negotiating with suppliers.

Price movements can severely complicate fiscal planning so price risk is something that needs to be accounted for. This is the short period between the offer to buy energy and actual transaction. There is very often a movement, which, if operating on tight budgets, can have a detrimental effect. This, however, will always be at the forefront of an advisers mind and they will structure the procedure accordingly.

There will always be an element of risk with price spikes from the energy suppliers seemingly around every corner. However, a company that focuses its attention on the management of its procurement through a consultancy are protecting themselves against potential financial embarrassment and consequently it is recognised as a necessary component going forward.

by: Anne M.

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