The risks
Procuring energy for a business is much more complex than buying energy for your home. Public sector organisations have to follow EU Procurement Directives, and many establishments don’t have the time or the experience of buying energy that is compliant with this legislation.
In particular, some academies have chosen to move away from local authority control, and are new to procuring their own goods and services. Many of these academies are being targeted by brokers who offer a fixed 12 or 24 month price for energy.
However, this fixed price is based on the market on that specific day. In 12 months’ time the academy would be forced to sign up to a new contract, wherever the market pricing is or face out of contract rates. Academies have reported that they have had unexpected jumps in their energy prices by up to 25%.
Academies not on a contract may also be subjected to out of contract rates. These rates can be three or four times higher than standard rates and transfers between suppliers can take up to 28 days. Therefore, ensure you give your existing supplier and new supplier enough notice.
Case Study: Academy trust resolves energy crisis and inflated premiums with dedicated contractual support from YPO.
How to avoid the risks of switching
The risks of buying in a volatile energy market can be minimised through following a flexible procurement strategy with a public buying organisation, such as YPO. A flexible strategy aggregates the volume of energy that all the organisations in that framework contract will use, and then buy chunks from the market in advance of supply. Individual customers then receive the average price of those chunks of energy for 12 months.
It is a risk adverse approach, and means your organisation will never have to buy your energy at the top price in the market. With some flexible procurement frameworks you can have access to budget tools helping you to plan and prepare your future budgets.
The price of your energy is made up of a number of factors:
- The actual energy or commodity price.
- Distribution charges for using networks.
- Taxes and charges from the government.
- Administration charges from the supplier.
The actual energy or commodity price and the distribution charges for using networks will be the same whichever energy supplier you choose. These are known as ‘pass through charges’. Not all suppliers include all these aspects in their quotes and may add these onto the bills once you have signed up. Make sure you are comparing like for like when looking at alternative suppliers.
Unlike buying at home, throughout an energy contract you may need support and advice on energy issues. YPO and our suppliers have dedicated contacts helping provide guidance on issues you may not have dealt with before. The importance of customer support in your energy contracts should not to be underestimated.
For more information on our energy frameworks please contact our specialist team on [email protected].
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