As any seasoned procurement person will know, that buying energy is quite unlike buying anything else. Unlike domestic energy, where there are a relatively small number of products and tariffs to choose between and even price caps to safeguard consumers, then commercial energy procurement is a completely different ball game. There are so many different products, services and pricing combinations its more analogous to the mobile phone market where the sheer number of price points and options simply serve to confuse & bewilder the buyer and make true like for like price comparisons almost impossible.
Energy is also a commodity, traded on a daily basis where prices can be highly volatile and influenced by supply and demand in the markets, weather, geography and world events far more than any other factors. So achieving the best value in energy procurement for your school or organisation is as much about timing i.e. when you buy as it is about how you buy. Simply relying on the usual procurement tools of competitive tendering to deliver the best pricing or the usual drivers of bulk buying & economies of scale, simply don’t apply in this market. So how do you know when to buy and why is now a good time.
Although energy prices are volatile on a daily and short-term basis, they do also follow a reasonably predictable pattern. Short-term energy prices tend to react to seasonal supply and demand with prices increasing during the winter when consumption is highest and falling in the spring and summer when consumption is lowest. Each year this pattern plays out and the winter pricing premium starts to drop out around now, typically in late February or early March, and this is particularly true for Gas, where depending on the severity of winter and the remaining gas reserves, you can often find a large fall-off in prices in early spring. So historically buying your energy in Spring is cheaper than during autumn and it, therefore, pays to align your buying cycle with the seasons.
The Office of Gas and Electricity Markets (Ofgem) regulates the UK energy markets and part of its remit is to gather and make available market data which it does through interactive wholesale market indicators and reports. These reports are easily accessible online and are an invaluable source of information for any buyer https://www.ofgem.gov.uk/data-portal/wholesale-market-indicators.
Whereas short-term prices are driven often by the seasons then long-term electricity trading prices are established less according to supply and demand and more on forecast market development: availability and cost of supply, forecast demand, etc. COVID 19 and the reduction in world energy usage that has accompanied the pandemic, has clearly had the impact of suppressing the markets and both Gas and Electric prices have been at a historical low point, and in fact, Gas is at a ten year low currently https://www.ofgem.gov.uk/data-portal/wholesale-market-indicators
So buying Gas and Electric now and locking into a fixed price contract for two to three years would be a sensible buying strategy, but you need to act quickly as the market has been moving up since Oct 20 on optimism around the vaccine, carbon and oil price increases and we are experiencing a colder winter than in previous years which has driven up short term demand.
We are now on a step-by-step plan out of lockdown which signals recovery in the market and increasing energy usage as a return to work will likely push prices higher. Prices were subdued for most of 2020 until Oct 20 when they started to rise on vaccine optimism and winter risk premium. As temperatures have eased in the last week or so, then prices have followed the seasonal norm, dipping briefly before they are likely to resuming a recovery and increase for the rest of this year.
If you are looking to re-procure your School’s energy and would like information about enFrame’s unique OJEU Energy Procurement Framework for Schools, Academies and Trusts or how enFrame can help you carbon offset your energy consumption, then please visit our procurement page.