Energy procurement – a game changer for your year ahead

As we enter the twilight moments of 2017 and watch the sun set on another transformative year, it’s an ideal time to reflect on the things which have changed most for our nation’s manufacturing businesses. We can also reflect on the lessons learnt over the past 12 months, and on how we can use what we’ve learned to plan for a successful 2018.

In the manufacturing world, the ups and downs of politics have created financial uncertainty for many businesses. However, there have been many positive changes, such as the rise of Industry 4.0 and a dazzling choice of associated technological innovations.

From our perspective here at Ørsted, one of the most positive and exciting changes of the last year is the transformation of our UK energy markets and the opportunity this has created for those business consumers ready to adapt the way they procure and manage their power. This change affects every business in the UK and is particularly relevant to the manufacturing industry.

In recent years, the energy procurement process has evolved from something of a one-way conversation, in which businesses can to some extent drive competitive pricing but are at the mercy of fluctuating market conditions, to a more balanced dialogue. Consumers have become actively engaged ‘prosumers’, with energy suppliers extending their service offering to better meet business needs, and businesses unlocking new benefits from energy flexibility – which in turn helps to balance the grid.

Ongoing innovation is a backdrop; more and more energy management tools are becoming available, and new procurement solutions are entering the marketplace for businesses of all sizes. This sets the scene for rethinking your energy procurement processes and getting a robust plan in place that could make all the difference to your business in 2018.

 

An unpredictable wholesale energy market

When you have procurement responsibility and are budgeting for the year ahead, it pays to have a wider understanding of marketplace conditions and trends. This is particularly true where energy is concerned.

Energy buyers here in the UK are inevitably seeing increased price volatility, driven largely by a changeable pound. It’s the primary reason why Ørsted’s traders review market movements in euros first. This allows us to separate market fundamentals from currency changes, giving a more accurate view of what’s really going on.

Looking back over the past year, the winter of 2016/2017 saw increased fluctuation in energy prices alongside – and in part caused by – a significantly increased demand for gas. The rise in gas demand was largely for power production, due to lowered availability of French nuclear production. In addition, the carbon price floor made UK coal production more costly. This high demand caused some price spikes and culminated in depleted gas reserves for the winter months. Since then, reserve levels have returned ready for this coming winter, but the closure of the Rough storage facility and our changing energy mix is expected to have the combined result of greater uncertainty for gas and power prices going forward. With relatively little gas storage in the country, the UK could be more reliant on interconnector flows and a particularly cold winter this year could put prices under pressure, which would spell more risk for energy buyers.

With all of this in mind, our traders’ recommendation is for businesses to define an energy purchasing strategy spanning at least three or four seasons – and to stick to it. Using this longer-term approach can ensure some pricing stability, so shielding businesses from the shorter-term price spikes associated with market shortages.

Your approach to energy procurement will obviously depend on your appetite for risk – and for the businesses who use our services, we work hard to strike the right balance between exposure to risk and ensuring the best possible price. Life’s easier with an expert team of energy traders on your side!

 

Responding to change

For a growing number of businesses, the key to managing costs during periods of intense market volatility will lie with energy flexibility. Most businesses have the ability to adapt their consumption patterns in response to market conditions, at least to some extent, and many are starting to reap the rewards.

Flexibility provides an opportunity for businesses to lower energy spend and – by participating in Demand Side Response (DSR) – to earn revenue. Thanks to an increased range of schemes and ever-lowering thresholds, it’s an opportunity open to almost any business that can switch down or turn off their grid consumption, or indeed export electricity, when extra support is needed to balance the system. A business that responds directly to market conditions, for example by exporting power or switching to on-site generation when wholesale prices are high, is one that will see budgets stretch further. They’ll also be helping to ensure a greener energy future here in the UK, as such flexibility enables an increased reliance on renewables in our nation’s generation mix.

Tools such as Ørsted’s Site Optimisation make responding to a changing market easy. It analyses inputs, including wholesale prices, peak cost periods and consumption asset specifications, to produce bespoke, optimised run schedules. This turns a potentially time-consuming task into an easy-to-implement reality. With organisations such as Kodak Alaris saving 11% on energy costs using the tool, it has proven credibility.

Smart solutions for complex demands

Today’s energy manager has so much more to factor into their procurement strategy than just the price of power. There are new non-commodity charges and altered exemption requirements, along with the reworking of peak period Distribution Use of System (DUoS) charges and the looming amendments expected to reduce Triad and Transmission Network Use of System (TNUoS) benefits next year. Managing budgets and softening the blow of increased costs in the face of these changes is more complex than ever before.

That’s one of the reasons we’ve developed a range of solutions to help businesses better manage their energy – one of their largest and most complex business necessities.

Whatever the scale of involvement needed, we want to make sure our customers can count on us for really valuable advice and assistance.  This could be a straightforward Triad alert solution, or perhaps access to revenue streams from the rising imbalance market. Or it could be help devising a full energy strategy, with the higher level of involvement offered by our Energy as a Service team, who can help with generation assets installation and optimization of sites. Whatever the need, we’re on hand and ready to help them face the changes that are already happening and those which may be awaiting them beyond the horizon of a brand-new year.