Energy Procurement

When it comes to electricity procurement a basic knowledge of the industry can make a big difference to the price you pay. The following is offered as a guide to help NIPA members get the best deal.

Around one third of your costs are controlled by the Energy Regulator including NIE’s network charges, various market charges and levies. These are the same for all suppliers who usually treat them as ‘pass through.’

Climate Change Levy (CCL) adds around 5% and is set by HM Revenue & Customs. It is possible to avoid some/all of this levy if you have a Climate Change Agreement (CCA) or by buying ‘green’ energy from approved renewable and CHP sources. For more information contact HMRC.

Energy costs

The remainder of your bill (about 60%) is made up of wholesale energy and supplier costs. The final price you pay will depend on your procurement strategy and the finer details of your contract with your chosen electricity supplier.

Wholesale electricity is traded between generators and suppliers in the all-island Single Electricity Market where prices vary every half hour depending on supply and demand and the price of fuel (mainly gas) in world markets.

Alan Egner, Power NI’s Business Sales and Marketing Manager offers some advice to those considering their procurement strategy

“As with all major purchases it is always best to shop around and see what’s on offer from all suppliers before you decide which one is best for you.

Fixed or variable?

“A crucial decision is whether to go for a Fixed Price or a Variable Price contract. Fixed Price deals offer some stability for the duration of the contract. However they usually carry a premium and if your timing is not well judged you risk being tied to out of date prices that are higher than the market rate. You also may incur penalty charges if your consumption changes significantly. On the other hand a Variable Price contract that tracks the wholesale market gives you more flexibility on volume and allows you to benefit should prices fall. The flip side is that you are also exposed to price increases.

One solution may be a new ‘hybrid’ product which offers the benefits of a variable price deal but with the option of fixing costs for an agreed ‘window’ during the contract term. These options are generally only available to those using high volumes of electricity.

Data gathering

“To help with your decision making it’s always best to gather some basic information. A quick web search will tell you what happened to wholesale electricity prices last year and what the forecast is for the coming year. You will also need to review your production plans and forecast how they will impact on the amount of electricity you expect to use in the coming year. You may also wish to do some price modelling to assess both the risk and benefit of choosing a Variable Price contract. You will also have to factor in the impact of any energy saving/renewable projects planned for the coming year.

Added value

“When talking to suppliers it also always good to establish the price difference between ‘green’ and ‘brown’ energy and if you can get a better deal for a longer contract. Lastly it’s also important to establish what after-sales support you will get from your supplier and whether they offer any energy saving support or advice.

Additional help

“Procuring electricity may seem a little daunting but hopefully the above gives you a few pointers on how best to proceed. However if you feel that the risk of making the wrong decision is simply too great then you may wish to avail of the services of an experienced, independent energy consultant to help you manage the process.”