How to avoid getting stung by rising energy prices
Sponsored: Independent schools face twin trouble: energy cost rises and market turbulence. By Richard King, of educational energy aces, Inprova Energy
Schools must take a smarter, less risky approach to energy buying to weather the storm. After 2 to 3 years of relatively low wholesale energy costs – prices are rising. This is exacerbated by a sharp and sustained increase in non-commodity, third-party energy charges, which now account for more than half of a typical bill.
Nothing’s ever certain in the highly volatile energy markets, but it’s doubtful that the low wholesale energy prices of winter 2016 will return. That’s mainly because the price of oil has increased so dramatically. Nevertheless, it is still possible to profit from the large fluctuation in market costs by using smarter collective energy purchasing strategies.
Collective energy purchasing
Many schools are already de-risking their energy purchasing and getting a better deal by joining collectives. By combining spend as part of a purchasing group, they increase their buying power and greatly reduce suppliers’ margins, which can typically add 6-8% to an energy bill.
With a large aggregated spend, schools can move from higher risk fixed contracts to flexible, fully managed purchasing strategies. In this way, they gain access to the expert live trading and risk management teams that are only usually available to large corporate energy buyers.
It’s often believed that fixed rate contracts are less risky than flexible procurement, but this is wrong. Fixed contracts offer budget certainty, but extremely low (1:365) odds of picking the right day to lock in a price when the market is lowest. Those choosing the wrong time in the current volatile markets can get badly stung.
Inprova Energy’s managed collectives enable schools to exploit market volatility by purchasing gas and electricity flexibly in multiple chunks on the wholesale markets when prices slump, while avoiding costly spikes. All purchasing is protected by a robust risk management system and trading strategy.
Collective purchasing removes the administrative headache of going it alone in evaluating and negotiating energy contracts. Instead, schools benefit from an end-to-end managed service. Although purchasing is centralised, contracts, billing and validation are provided individually meaning each school retains visibility of bills and control of payment.
Types of collective
Schools can choose between two key types of collective, dependent on whether they use half-hourly meters and their attitude to risk and budgeting.
1. Fully flexible collectives – our trading experts buy opportunely when wholesale prices are most advantageous. This may include forward purchasing, enabling attractive future prices to be hedged at a rate that’s lower than an agreed target price. This can be topped up with near-term buying as the market dips, thereby spreading the risk and increasing opportunities to secure a good deal.
2. Fixed-flex collectives – we purchase all your required energy in multiple tranches ahead of supply. This locks in attractive future wholesale prices and provides budget certainty. For added certainty, non-commodity charges can be included as pass-through costs.
Fully managed service
Inprova Energy provides a fully-managed service, which includes agreeing a trading and risk management strategy for each school. Our analysts constantly monitor the live gas and electricity markets and manage all purchases throughout the contract period. We align purchasing with a detailed risk management strategy that supports decision making and sets pre-defined risk limits to prevent losses. Our service also includes a full invoice validation service to ensure accuracy of billing.
Find out how Inprova Energy can help your school save time and money on your energy purchasing and support your energy efficiency and onsite generation strategies.
Call 0330 166 4444 or visit inprovaenergy.com