Here at Energy-Smarts, we're all about working with our clients to save them as much money, time and resources as possible when it comes to their corporate energy. This is the reason that we exist as a company and what drives us on daily in the work that we do. So it's incredibly pleasing for us to be able to release our results for the past year and share with you what we have achieved for the range of clients that we work with. We are very proud of the results and extremely pleased that the overall savings have been very large and will make a very significant difference to each of the organisations that we are currently working with. Let's delve into some of these results now and examine how it's helping our clients to run their businesses in a more efficient and productive way.
How much have we saved our clients on average this year?
The figure of "more than 100%" savings in the title of this post relates to the comparison between actual prices secured and the market cost of energy pricing in the run up to the contract start date of October 2021.
But how much exactly have our clients saved, on average? This is the figure that you are no doubt interested in, especially if you have just recently received your energy bills and there has been a sharp increase (as is highly likely considering the state of the current energy market).
We're pleased to announce that clients in our risk-managed baskets on average have saved 120% . By way of example, one group of SME clients spending up to £121k per annum have seen an average saving equating to £73,519. This is amazing news for the clients involved.
This figure is arrived at by looking at what each of our clients has ended up paying this year for their energy, and comparing it to what they would have ended up paying, if they had not been using our energy risk-management services. The calculation was made using realistic estimates and metrics. You can request further information here.
To add some more context and weight to these figures, the reality for most of the clients we work with, is that if they had not employed us to manage their energy for them, then in most cases, their energy bill(s) would have more than doubled in cost this year, in almost all cases.
In contrast, by using our services, our risk-managed clients have been able to keep the cost of their energy bill similar to last year, with many experiencing decreases, or just a small increase!
When you consider that many of our clients have an annual energy spend in excess of £100k, this equates to some very significant savings, that are of enormous benefit to these companies. It has served to save a huge outlay of operational expenditure which can now be invested in other mission-critical areas of their organisations.
How have we achieved these savings for our clients?
So how have we managed to make such significant savings for our clients?
In a nutshell, we have achieved these results for each of these organisations we work with by implementing the risk-managed approach to energy procurement. This is the bedrock of what we do as a company.
One important part of the strategy is that we take a long-term approach to our clients energy costs and procurement. Broadly speaking, we can break down the strategy into a couple of key areas that we have implemented for these clients in order to get them such great results:
Start locking in wholesale pricing for our clients early
The professional energy trading team start the process often years in advance, which means that when wholesale prices are favourable we can start to lock pricing in for our clients, to provide protection from their increasing prices. In this year's case the process started back in 2018!
This enabled us to secure wholesale energy for these clients that was procured well below the peak of the market, which provided over 70% risk-avoidance, and proved to be over 8% cheaper than the market average over the trading period.
Keep optimising price over time
Another key aspect of what we have done here to obtain these great savings for our clients, focused on optimising the wholesale price over time across both their gas and electricity. This means where opportunities to trade energy under tight risk-managed parameters can help to improve price over time.
With regards to electricity, as an example, for one group of clients we managed to achieve a final wholesale price of £49.78/MWh on average across all our clients, whereas the market price near the contract start date was around £165/MWh, for the year ahead.
In relation to gas, this was similar to electricity, in the sense that the hedging strategy protected our clients from price rises, and ended up getting significantly better than market average prices - achieving a final wholesale price of 46.28p/therm, whereas the market price near the start date was around £1.46/therm, for the year ahead.
Want to learn more about how our strategy works? Watch the following video.
Want to learn even more? Watch this much more detailed video (20 mins duration).
How does this compare to what other organisations are experiencing in relation to their energy costs?
You are no doubt keen to know some specific figures regarding exactly how these savings compare to what other organisations across various industries and sectors are set to have to pay for their energy this coming year. Let us explore that now.
So if we compare these results to other organisations who have left contracting to the last minute and did not have a suitable strategy in place - these other organisations will have faced wholesale prices of up to 3 times what our clients are now paying, perhaps in some cases, even more.
In a similar vein, final contract pricing achieved for electricity and gas respectively, is estimated as 51% and 36% of equivalent market peak contract pricing - which is 1.9 times and 2.8 times the cost that we have managed to secure overall for our clients.
We are very proud of the extent of these savings that we've managed to secure for our clients, and we hope that this starts to give you some idea as to just how much you might be able to save your organisation in future years if you were to switch to a similar strategy now.
What kinds of businesses are we helping to make these savings?
You're probably keen to know more about the types of businesses and organisations that we are working with and helping to make these very significant savings, in order to get a better feel for whether you might also be able to see similar results from adopting the same type of approach towards your energy procurement.
Whilst our clients span a large number of different sectors and industries, they are predominantly made up from the following types of businesses:
- charity organisations
- educational institutions such as schools and multi-academy trusts
Can your business hope to achieve the same type of results?
As a general rule of thumb, our advice would be that it would be well worth learning more about this type of approach to energy procurement and how it might benefit your business, if your company currently has an energy spend in excess of £50k per annum.
Whilst we work with many different kinds of companies and have achieved great results for all of them across many different industries and sectors, this is the one constant that all our clients have in common - their energy spend is above this threshold.
So no matter what industry or sector you are in, if your annual energy spend exceeds this threshold of £50k per annum, and you don't have a long-term risk-managed strategy in place for your energy - then chances are you can make some very significant savings indeed by looking to implement this type of strategy.
It's definitely something that we would recommend as warranting further investigation for you if you are currently meeting this criteria - it would be wise to get some further expert advice and guidance in this area to see whether you too might be able to benefit from these type of savings.
What key developments have happened in the market this year?
Of course, the conditions of the market and exactly what is happening within the energy industry and sector has a big effect on what happens to energy costs and how we have to adapt our strategy when working with our clients to save them as much money as possible as well as avoid unacceptable exposure to volatile wholesale pricing.
So let's take a brief look at the key developments this past year that have shaped the market and influenced the decisions made on behalf of clients to help manage energy contract pricing over the next 12 months and beyond.
COVID and the lockdown
In early 2020, lockdown caused gas and power prices to drop to very low levels, due to low levels of demand. Later in the year, when countries began to ease restrictions, demand increased again and therefore prices went back up to near-normal levels.
In Q1 and Q2 of 2021, despite rising infections and tightening Covid restrictions, optimism following positive announcements about vaccines and colder than usual temperatures across the Northern Hemisphere, drove prices higher.
The significant relaxation of Covid restrictions, a huge rally in the carbon allowance prices, heavily depleted gas storage facilities following a cold winter, strong competition in the global LNG market, a heavy maintenance schedule, and limited imports from Russia all combine to drive prices to record highs.
What's happened since we came out of lockdown?
The last 12-months have seen unprecedented increases in wholesale market pricing. For example, April 2020 saw the lowest prices the market has seen for many years, and within 18 months the market rose to almost unprecedented peaks, and remains very high.
This demonstrates the need for good risk-management well in advance of contract renewal periods / end dates. Over the last 12 months, there have continued to be increases in non-commodity costs (network, industry and UK Government costs).
What factors are continuing to effect prices?
Overall, market prices have shown significant increase since May 2020. The market is following a similar cycle to that seen in 2018.
This has been driven by a number of factors, including:
- COVID recovery
- Unseasonably low weather forecasts
- Low Gas storage levels
- Lack of LNG delivery and increases in carbon emission costs.
What is expected to happen in the next 12 months?
In order to fully understand how our energy procurement strategy is working for clients and how we are managing to achieve such great results from them, we need to examine not just what has happened in the last 12 months, but also what is expected to happen in the next year or so within the markets. So let's take a brief look at that aspect of things now.
Prices are expected to remain high
As of October 2021, prices are expected to remain high and possibly increase further as we move into the autumn. This is driven by the cost of landing LNG to fill storage. The price spike seen may not be a short term blip.
If we have a mild start to the winter, then prices may dip during October, but if we have a colder start to the winter, we forecast prices to continue to increase.
What is driving these continued price increases?
Continued high prices are being driven by the cost of landing LNG to fill storage. If we have a mild start to the winter, then prices may dip during October, but if we have a colder start to the winter, we forecast prices to continue to increase.
With a likely sustained increase in carbon prices, it is probable that the Electricity commodity price will reflect a £10/MWh premium versus the market cycle average price.
What should you do if you don't have a suitable strategy in place, and when should you do it?
If you've read through the above and are wondering when might be the appropriate time to learn more about this, then we hope to clear this up for you now. If you have just been hit hard by the very steep increases in energy that we've just experienced, then you are no doubt keen to try and ensure that the same thing does not happen again, but it is of course crucial that you act at the right time and make the required preparations to avoid a repeat scenario in the future.
The simple answer is this. If your organisation does not currently have a suitable strategy in place to risk-manage the potential for continued prices increases, then you should ensure this is planned for in your budgets as soon as possible.
Ideally you will want to protect your organisation from future price rises now through the implementation of a suitable procurement strategy. Past performance indicates that early adopters maximise the benefits of the risk-managed strategy, so the sooner this can be implemented the better the results are likely to be.
As high as prices are at the moment, implementing this as soon as possible will provide protection from further increases and also put you in the best position to take advantage of any future potential commodity cost dips as well as enable you to optimise pricing moving forward.
Electricity and gas prices are currently tradable for 5 years or more so there will be plenty of opportunity to start the locking in advantageous energy pricing for years to come as suitable market conditions prevail, by being proactive now.
With this in mind, if you are interested in joining one of our groups of client and benefitting from our smart strategies, please contact us now.
IMPORTANT NOTE: As commodity and non-commodity costs are increasing, and the building drive towards sustainability, using less energy is also an effective approach to reduce costs that should be considered. If this is something you wish to look at, please take our energy efficiency awareness survey here - https://energy-smarts.co.uk/carbon-reduction- strategy and we'll come back to you with the results as soon as possible.
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