WHY ENERGY SHOULD BE A PRICE RISK MANAGEMENT PROJECT

Public sector organisations often find themselves with the unenviable task of trying to reduce costs without impacting on service delivery. This becomes even more acute in periods of recession or slow growth.

One essential area to look at is energy management. Regardless of sector, every business has an energy profile, and more often than not there is room for improvement. Smarter energy management will reduce costs without impacting on service, and also help organisation’s reach their Net Zero and sustainability goals.

This may feel like a daunting task, especially in buildings with high usage or multi-site organisations. However, an energy profile is critical in building the baseline and identifying opportunities for energy reduction – and the cheapest kWh is the one you don’t use.

Organisations can create their energy profiles through granular data collection and modelling, and then manage it through a proprietary data platform or Building Management System (BMS) control system. The first aspect of the strategy will be to look at baseload management. Initiatives such as night walk rounds are useful to help define the baseload and see where reductions can be made.

In a post-pandemic world facility managers need to consider sensors and greater automation to better manage erratic occupancy patterns in their buildings. This will allow HVAC systems to be more demand driven, enabling the smarter use of energy whilst also extending the life of building services assets.

A university library may be open 24 hours, but only sparsely occupied during the night. Sensors will reveal exact occupancy levels so that heating, cooling and lighting systems can respond accordingly.

Some energy reduction efforts will also need support from building users. Sticking with the library example, an awareness campaign for students would be an integral part of the energy management strategy encouraging things like switching off computers and monitors.

A recent study by the National Union of Students found that 87 per cent of all students agreed that their university should take sustainability more seriously. So, it’s likely most will be happy to help with energy reduction – they just need some guidance.

All of these efforts can add up across the entirety of an estate to make a noticeable impact. Yet there is more than can be done to help organisations further reduce costs.

Though energy prices have been particularly turbulent recently, the fact is that the energy market is a volatile one at the best of times. There are hundreds of factors that can impact prices on any given day.

As such, energy should be treated as a long-term price risk management project rather than a procurement activity. This can be a departure from the norm for many businesses and may not always be easy for some in the public sector, but as a strategic decision it should be an objective for every business.

There are countless examples of organisations using protracted procurement processes to appoint energy brokers whilst not appreciating that the cost of the service is relatively small in comparison with their actual energy spend, and in the intervening period the price of energy has moved so much that the small savings made on the broker contract are totally wiped out. Procurement also tends to focus on the cheapest deal at the time, as opposed to taking a longer-term view that is required from a risk management standpoint. What appears to be a more attractive fixed price deal at first can have a sting in the tail when it’s time to renew the contract and prices have surged.

I have met many organisations that take different approaches to energy management. One company bought out energy when the markets were historically low in spring 2016 and then again at the start of the pandemic. As a result they have been shielded from the turbulent prices since early 2016 and will be until the end of this year. Conversely, another company that took the “traditional” route with energy contracts paid £10m for electricity in 2021, £22m in 2022 and likely more this year for its campus HQ alone.

For those businesses that do not have the in-house expertise for energy price risk management, I recommend finding a partner or energy broker that offers the best risk management strategies and complete transparency in their fee structure to ensure there are no undisclosed payments. The expertise is well worth the investment and will be made back many times over with the new energy strategy.

Working with the right partners could help your business save huge amounts on its energy bills. We work with expert partners, such as Verco and LG Energy, to support our clients on their energy management and Net Zero journeys.

Changing the approach to energy management may not happen overnight, but there’s no better time to start the conversation – the numerous benefits are simply too good to ignore.

https://www.emcoruk.com/

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