The UK has experienced soaring energy prices since March 2021. At the end of last year, power prices have hovered near the £220 per MWh tag.
Northern Gas and Power offers specialist energy management services for its 22,000 customers and is part of Global Procurement Group (GPG) – a global energy consultancy that helps businesses across three continents manage their energy more effectively on their journey to a net zero carbon future.
The company and its energy experts have watched closely as the energy crisis has developed and worked hard to support its customers navigate this complex situation. These record prices we are experiencing have troubled businesses across the UK. The food and beverage and fertiliser industries, for example, have struggled to meet product demands because of tight and expensive energy supplies. Power-hungry sectors such as steel, glass, and chemicals have battled soaring gas and electricity costs that have caused higher prices of goods.
Why are energy prices so high?
A combination of factors – low wind generation, low European storage, intermittent Russian supplies, post-pandemic demand surges, competitive LNG markets abroad, power system outages, and cold temperatures, to name a few -consistently pushed prices to record heights during the back half of 2021. These bullish trends are expected to continue in 2022. In the face of these challenges, businesses who either must renew their business energy contracts soon or in coming years can protect their budgets and bottom lines this winter and next year by procuring more wisely, adjusting operations during off-peak periods, powering down idle or unused equipment, and improving energy efficiency.
What can cause energy prices to dip?
With the Omicron challenge persisting, some European countries (at time of writing) have in place certain Covid restrictions and lockdown measures. Decreased energy demand in Europe reduces incentives for the UK to export to Europe, which in turn lowers prices in the UK. Warmer winter temperatures could cap some of the rises currently evident in the UK gas and power market. If demand falls below seasonal norms, drops in gas prices are likely outcomes.
What can your business do?
Procure the right contract type at the right time. If you are looking to procure a new contract in or after April 2022, pursuing a flexible contract is a viable option. Moving into the spring months mean less demand for heating. Ramnikh Kular, Energy Trader at Northern Gas and Power, notes that “The market could be ‘overvalued’ at this point, and, conditionally, a warmer winter will significantly reduce energy prices from April 2022 onwards.”
Latif Faiyaz, Head of Flexible Purchasing at Northern Gas and Power, added: “This gives you the option to sell back your energy and then rebuy it at a lower rate when the market does eventually fall.”
If you are needing to procure sooner (up to March 2022), opting for a long-term fixed contract will help reduce prices. This method of power purchasing is known as “cost averaging”. “If you take a three- or five-year deal,” says Latif Faiyaz, “the average unit rate you’ll pay will be significantly lower than that of a oneyear deal.”
Monitor your energy consumption and waste
Businesses right now can reduce their energy bills through energy management and monitoring. Energy management is the process of monitoring, controlling, and optimising energy in a building, site, or organisation to satisfy both economic and environmental requirements. “Businesses have the opportunity to identify where their energy is being consumed with advanced energy monitoring systems,” says Latif Faiyaz. “These can spot inefficiencies in seconds which businesses can address immediately, making significant savings in the long run.” Energy management systems, such as GPG’s ClearVUE allow businesses through data-rich and easy-to-use graphs and reports to gain visibility of exactly how much energy their business is using and losing, enabling them to improve cost and carbon efficiencies and their net zero credentials.
One of the easiest ways to reduce energy cost is to optimise the way in which it is already used. Businesses can become more efficient by reducing energy consumption – switching off lights and charging points, PCs and equipment, or using energy-intensive machinery only when required.