Business Energy Procurement Guide

What is Energy Procurement?

Energy Procurement can be broken down into four key elements:

  • Planning
  • Developing your risk strategy
  • Going to Market
  • Using a Broker

Planning the Procurement Strategy

The planning phase is one of the most important stages of energy procurement. During the planning phase you will need to gather relevant information which falls into two categories; Energy Cost Analysis and Administrative.

Energy Cost Analysis identifies overall consumption, spend and contract structure. Whilst many organisations have most of this information to hand, a professional Energy Partner should undertake a full no-cost site audit to build this important picture and present this back to you in an easy-to-understand report. Information reviewed may include:

  • Current Supplier Information
  • Account Numbers
  • Supply points, Addresses / MPAN / MPRN for all your supplies
  • Assessment of AMR, including MOP and DEC Agreements
  • Existing contract end dates
  • Unit rates, standing charges and annual cost for each supply
  • Annual consumption for all supplies as a whole and by meter
  • Types of supply Half-Hourly (HH), Non-Half-Hourly (NHH) and Gas
  • Review of VAT Declarations, where applicable
  • Review of Climate Change Levy Exemptions or abatements

The Administrative element ensures contracts are set up in the correct legal entity and all account information for management of the account is maintained, including:

  • Contracting Company Details, often where organisations have multiple child relationships
  • The authorised signatories
  • Any organisational requirements, such as fuel mix
  • Emergency Contact Details for larger gas supplies
  • Preferred payment method(s) Direct Debit / BACS, this will also be dependent on credit rating, as to whether suppliers will offer BACS payments
  • Account information & billing addresses
  • Customer contacts and escalation points

How do I develop a Risk Strategy?

A risk strategy will require the organisation to evaluate their appetite for risk, as this will determine the most appropriate type and duration of contract(s) for their energy supplies. For example, whilst there may be an intuitive attraction towards so-called flexible contracts, this must be balanced against the exposure to risk embedded within them and the management of them. Conversely, a fixed contract must be the result of a full and competitive tender to ensure the supplier and rates are Best Value at the outset.

What are the different types of business energy contracts I can agree?

The two main types of contract available to you as a business are fixed and flexible with each having their own pros and cons:

Fixed Contracts

  • Cost Certainty and when underpinned by Full Competitive Tender, will deliver Best Value at the time
  • Budget set on day of contracting
  • Uniform pricing
  • Rates fixed for contract duration
  • Protection from spikes in markets but no access to price drops
  • Easier to Maintain

Flexible Contracts

  • Greater exposure to change and with no Competitive Tender, some difficulty in demonstrating Best Value
  • Budget uncertainty, set to highest limit to allow for trading
  • Prices may be more aligned with market conditions, dependant on when and volume of untraded exposure.
  • Variable pricing options and multiple purchase decisions requires agile decision making
  • Price drops exposure to uncertainty in markets, such as price spikes, drops could provide benefit depending on previous trades
  • Requires active management

How do I go to market with my supply contracts?

Not all supplier products are equal, so robust analysis is required to ensure any contract offers are showing genuine like-for-like comparisons which are clearly identified. This is particularly challenging since the energy supply market is unregulated with no standard contract for either supplier or Broker. Failure to compare like-for-like offers may result in unexpected rate changes, additional pass through or other unexpected costs which can be very considerable.

Deciding when you should go to market is difficult, and a sensible strategy is to tender very early, if only to gain a forward vision of prices. The tender can be repeated prior to contracting but this can also yield considerable opportunities for savings based upon a prevailing weak market for example.

Short term global economic and climatic events can radically transform market conditions, with potential supply disruption, unplanned consumption increases, or decreases, and political events or economic influences. Hence an early tender for a fixed rate contract in a favourable market can eliminate these unwelcome variables.

Always ensure the consumption data is up to date and correct as it is essential for a supplier to make an offer based on the data provided. Errors on data and consumption, may result in pricing errors in the proposals.

When going to market you should have prepared your wish list, which includes the organisations intended outcomes:

  • Preferred payment method Direct Debit / BACS (although these maybe limited by credit scores)
  • Billing and transparency requirements
  • Duration of contract(s)
  • Fuel mix – as this cannot be changed later
  • Volume tolerance
  • Reporting and Accounting preferences (including billing address if not supply address /
  • Registered Office)
  • Any additional benefits you may require from a supplier
  • Contract type
    – Fixed or flexible commodity pricing
    – Fixed, Fully Assured or Pass-through on non-commodity

Why should I use Powerful Allies for my energy procurement?

With over 50 business energy suppliers in the UK Business Energy Market, it is a complex and time-consuming undertaking to ensure you are obtaining the right product for your business at the best energy price. This is particularly relevant where multiple suppliers and sites are being tendered and the subsequent results analysis is required.

To help reduce the burden on your business, Powerful Allies has a wealth of knowledge and expertise available to you, enabling us to quickly obtain, review, benchmark and present offers to you at a time when market conditions are advantageous, ensuring you secure the best possible deal which is tailored to your business. We aspire to become a valued and trusted Energy Partner to your business in the fullest sense, providing a high level of support and guidance so always ask what added value they can provide to your organisation beyond procurement.

How do I know Powerful Allies is the right energy broker for me?

With over 2500 unregulated Energy Brokerages in the UK, it is always advisable to undertake some basic checks to help you gauge the reputability of who you are dealing with. Some of the basics we would advise are;

  • Check Companies House for their accounts and business history
  • Undertake a Google check on the business and their directors
  • Do they have affiliations with professional trade bodies?
  • Do they have recommendations from professionals within your sector?

Also seek written confirmation that:

  • Their Letter of Authority DOES NOT include consent to sign contracts on behalf of your organisation
  • The Broker has neutrality when dealing with suppliers and does not have a specific allegiance to any particular supplier
  • They have a Code of Conduct governing their activities and are Approved by an independent supplier vetting service such as Achilles.

Are you looking for more information?

The Powerful Allies team are here to help, please get in touch or call us on 01380 860196.