Energy Renewals – the work behind the scenes
04 Nov 2016
Over the last couple of energy renewals, with our broker’s guidance, we engineered the contract end dates so that we’re able to take advantage of a tender process in the summer months, with the best chance of achieving the most competitive rates. Supply and demand will always have a major impact on the markets, however purchasing in winter (when demand increases) would be likely to result in higher prices – sometimes above what has been anticipated if the weather is particularly bad. No-one has a crystal ball when it comes to energy markets but we have always been very pleased with the contract prices obtained using this strategy and there was no suggestion with this renewal that we should look to change tactic.
Work started in the early summer to ascertain if we should consider using a different approach with some of our lower consuming meters/sites (see previous blog). We carried out a preliminary analysis at the start August for the whole portfolio. We shared costings with leaseholders/owners and advised that we would carry out the actual tender on 30 August with a view to entering a 24 month contract providing similar prices could be achieved. LSI had advised that they did not envisage much movement as the markets were in a relatively stable period. All went according to plan and we secured new contracts with Southern Electric with a start date of 1 October.
LSI is one of the industry experts and our Account Manager knows our business and works with us to manage our renewals. Their advice has been invaluable and they provide guidance for us to be able to make the best decision available at the renewal date. We renewed at the end of August and managed to avoid a period of extreme volatility that has taken effect from mid-September. LSI confirmed that they have witnessed unprecedented rises in the energy market (close to the most drastic upward movement in the last 7 years) and a recovery isn’t looking likely at any time soon. Should we have been unlucky and not signed prior to this we would have been looking at some fairly hefty price increases and the fact that we have secured these prices for 2 year is particularly reassuring. There are a number of factors associated for this upward trend that include:
- unplanned outages and restricted imports from Norway
- plans to close 12 French nuclear plants early for maintenance
- Swiss nuclear station will be out of operation until mid-February
- 40% of German nuclear capacity taken offline for re-fuelling in Q1
- higher exports to Europe
- Asian demand for LNG is higher meaning weak supply or high price for UK
- OPEC restricting oil production for the first time in 8 years
- weakening pound sterling against the dollar
- colder forecast for winter 16 than anticipated, means supply fears are exaggerated while looking like we may have to export to Europe due to their problems
What does that look like?
The information in the graph below highlights the 4 buying periods that our new contract will cover (winter 16, summer 17, winter 17 and summer 18) and illustrates the upward trend that the markets are experiencing right now and how prices are being affected. LSI told us that from around 5 September the alarm bells began to ring and if we had not secured offers by this stage we would have been looking at making some really rapid decisions. Prices have increased day–on-day since then but fortunately we’ve not had to make any difficult decisions as to whether to ‘buy now’ or ‘ride out the storm’. That is the nature of energy procurement and it will never change but that’s why we prefer to work with an experienced, knowledgeable broker who not only understands our business but one with a level of expertise who monitor the markets on a daily basis from their live trading screens.
LSI will continue to monitor the markets over the coming months and we will update you periodically with our findings. If you do have any queries please feel free to contact me.
Gill Birch // Head of Services
Note: we appreciate the graph isn't very clear. If you would like to receive a copy via email or post please let us know. Thank you.