When I first came into the energy industry, longer ago than I care to remember, electricity commodity costs were at least 75% of the overall cost of supply, and focus was very much on procurement. So, to ensure that your employer’s operational costs were minimised to maximise profitability or performance and, for commercial organisations, the valuation of the business in the market, procurement was the be all and end all. Sure, carbon management was talked about, but when there was an honest show of hands at energy user meetings, it all came down to money. Energy efficiency is still struggling to find a voice as the fallout from ESOS in 2015 attests. Are there now, however, clearer drivers of the need to broaden our focus to control cost as we approach the end of the current decade?
The fully delivered cost of an electricity invoice is typically the sum of three parts, the commodity cost, the network cost, and the policies or taxes levied by the government to cover for initiatives like the smart meter rollout or the decarbonisation of the UK. The complexity and percentage of delivered costs relating to network and policy costs are being brought sharply into focus, and our forecasts show that future changes in policy costs mean the average energy user should prepare for significant increases in overall costs. Where network costs are concerned, for example with the recent changes to the recovery of TNUoS charges seeing a greater proportion of cost being placed on end users, the challenge of being able to manage energy costs through procurement alone is compounded.
So, notwithstanding the fact that pass-through costs increase by 20% from this April alone , surely we need to become more energised about understanding energy use and energy cost management within our operations? With lower wholesale prices being secured last year for a period, we’re being asked why power prices are increasing. The answer is evident from the above, but where lies the answer to the problem? There is a clear need to broaden our focus and start to look at energy as it comes into our business so that no stone is left unturned to ensure our operational costs, where consumption and payment of energy supply are concerned, are fully understood and under control. Where organisations demand transparency in procurement, the same principle is not always applied to consumption and payment.
It is critical for energy users, if they are not already doing so, to incorporate energy data management solutions into the management of their operations, identifying energy waste, maintaining cash flow and cost control, ensuring their solutions are in step with the increased complexity of charging, and going right back to procurement to ensure that increasing pass-through costs are both understood and analysed, so that effective forward budgeting positions can be achieved and then maintained.
Energy Data Management at Alfa Energy is about applying the principles of energy risk management to our operations for consumption and payment management to optimise how we understand, consume, and pay for what we have so diligently purchased. The balance of power is changing, are you?
Written By – Nick Barrance