Whilst energy costs are a recurring expense that impact organisational profitability each and every month, many companies fail to take these costs seriously or fail to understand that many of the costs are within your control.

This article explores some of the misconceptions and looks at how you can start to bring energy costs down without changing the way do business.

Rule 1    Have a strategy

When considering energy spend it is not simply enough to want the lowest price.  Lowest price also means highest market volatility and risk.  By following the market, suppliers will reduce their risk premiums however buyers will need to be aware that prices are highly volatile.  Many government organisations for example choose a guaranteed price option, this ensures there won’t be any surprises and that budgets will be able to be set 12 months in advance.  Commercial organisations may choose a more market driven strategy but should be aware that prices may rise.

Also, many organisations need to consider ‘Green’ options.  Often a comprehensive ‘Green’ strategy can be accommodated at no extra or minimal extra cost by purchasing smarter and understanding how your energy costs are consumed. 

Whilst there are a range of strategic considerations, these are two of the most high profile corporate considerations.

Rule 2    Aggregate

As with many areas of spend, energy is a volume game.  The more volume you put through a supplier the more they will reduce their costs.  Aggregation can come in a variety of forms, from aggregating the spend of all the stores in the company to engaging with other non-competing companies to aggregate spend.

Rule 3    Know your spend

Most companies fail to ensure metre readings are accurate.  Energy company’s are required by law to read a metre at least once per year but in many cases metre reading company’s simply estimate the metre’s reading if they can’t find it within a minute or two of arriving at the property.  We’ve seen situations where the metre has been based on estimates for nearly 7 years.  Beware though, this is usually a very labour intensive process and providing the correct locations in a format of use to energy suppliers is as important as the actual reading.

Rule 4    Know when and how to buy

Many organisations have set processes for purchasing and tendering.  Traditional processes however don’t suit the purchase of energy and will generally lead to higher costs.  Reducing your contract timeframes will reduce your overall costs.  Tools such as e-tendering and e-auctions can be extremely useful in the energy market.

Also, understanding when to buy is also critical.  Energy suppliers will often purchase all of your contractual energy requirements when you sign your contract (some times for 3 years in advance – if signing for a 3 year contract).  It is critical to understand what is happening in the energy market.  If costs are coming down, sign into a shorter term contract and ‘lock in’ at a price you are comfortable with.  If prices are going up determine if a medium or long term contract will best suit the company based on overall market price of energy.  Also consider the cyclical seasonal nature of energy purchasing.  Purchasing at the start of winter is usually not the best time to purchase.

Rule 5    Billing (Increase accuracy, decrease number)

Companies with large amount of sites, often have to process large numbers of energy invoices. Being able reduce your number of invoices will decrease the costs of processing both for your own organisation and also for the Energy supplier.  But this comes at a cost if not controlled correctly.  If energy company’s don’t correctly read the metre your company’s can be paying extra in advance.  It is usually advisable to combine a billing strategy with an ‘Energy Management’ or ‘Bureau’ service to review all bills and check for anomalies prior to processing.

For further information contact us directly.