Communal Electricity and Gas Contracts
30 Aug 2018
The Elm Group corporate energy contract is due for renewal on 1 October 2018. As we recognise that our expertise is not within the energy markets we opt to work with an experienced broker for our energy procurement. We have partnered with LSI for a number of years but wanted test the market by carrying out a bench-marking exercise prior to our renewal this year.
Work started earlier in the summer and the preliminary costings from all parties have given us a flavour of the markets, whilst confirming that LSI continue to offer a comprehensive, fully inclusive service and very competitive rates. In the past we have deliberately engineered the renewal dates to take advantage of a tender process during the summer months to place us in a positon to achieve the most competitive prices.
What are the markets doing now?
Our existing contract was negotiated on a 24 month basis so it is inevitable that we will be faced with increased prices across the portfolio as these fixed prices come to an end. Our brokers have advised that the markets are experiencing a 7 year high, with the ongoing uncertainty around the Brexit outcome causing much volatility and an unusually long, hot summer pushing up demand in the power markets , for example the use of air conditioning units, all having a ‘knock-on’ effect.
It’s an interesting fact that prices within the energy markets consist of the wholesale power price and a number of 3rd party costs. The 3rd party costs are non-negotiable, made up of supply costs and government taxes and levies, and in the power market (electricity) these non-commodity costs equate to 65% of the overall price offered. It’s a similar scenario within the gas market, however the 3rd party costs incurred are marginally lower.
To sum up, our broker’s advice is that it’s very unlikely that the wholesale power price would be able to reduce substantially to counter the effect of the 3rd party prices and it would be beneficial to ‘fix’ the 3rd party prices for a period in excess of 12 month. By securing all non-commodity rates and agreeing a 2 year contract we are protected from planned increases to take effect in April 2019 and April 2020, whilst taking advantage of the lower commodity price we are seeing in markets further out ie October 2019 annual contracts.
Facts and Figures
With LSI’s help we have analysed data from some of the major energy providers having determined that each can provide the level of service we require, reducing those invited to tender to the 3 most competitive; SSE, OPUS and EDF in the electricity tender and SSE, OPUS and TOTAL in the gas tender. Separate gas and electricity analyses are enclosed although it should be noted that the figures enclosed are not the final contract offer. Our broker will use their negotiating skills to drive prices to their most competitive level when we approach the suppliers for the final time, whether this be with the current supplier or by switching to a new provider. At this point we must be clear that indicative electricity prices sourced to date are suggesting a 34% increase on the price secured 24 months ago, whilst the gas renewal offers only a 6% increase against current prices. Please see attached graph detailing the price changes during this period
What happens next?
Energy prices will only ever be valid for a very short space of time and for this reason we are unable to follow a normal consultation process. In the week commencing Monday 10 September we propose to request revised prices from the 3 energy suppliers with a view to agreeing a fixed 24 month contract as we believe this is the most cost-effective decision in the current climate.
You’re welcome to make written observations or provide us with any comments by sending them to Elm Group, 2nd Floor, Victoria House, Victoria Road, Aldershot GU11 1EJ or by email to firstname.lastname@example.org, by no later than Monday 10 September.