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The future of energy
procurement
Magnus Walker MEI
Procurement for Housing
Head of Energy Services
PfH Energy: Presentation
What makes up an energy bill?
Where are prices now?
What drives energy wholesale commodity prices?
What will the energy markets look like going forward?
How can you manage your energy costs?
What parts of your energy bill can be influenced?
Non-
commodity
costs
Commodity
costs
Supplier costs
Total Electricity costs to rise…regardless
Cheapest energy is the energy you don’t use
2011 2013 2015 2017 2019
non-commodity % 35 40 48 52 55
commodity % 65 60 52 48 45
0
10
20
30
40
50
60
70
80
90
100
ELECTRICITY INVOICE SPLIT
• Share of commodity cost as part of overall bill diminishing
• Falling energy prices overwhelmed by costs of government decarbonisation
initiatives
• Likely to be double digit growth in non-commodity costs for next few years
• Increases need for customers to utilise professional buyers, monitor
markets and time purchases
• Also look at overall consumption through efficiency programmes- will
become increasingly cost effective
Wholesale electricity prices
Current levels annual electricity: £43.00/MWh (or 4.30p/KWh)
**Final bills will include shaping +non-commodity costs
40.00
42.00
44.00
46.00
48.00
50.00
52.00
54.00
56.00
58.00
60.00
Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15
£/M
Wh
Electricity Baseload Annual price
Oct-13 Oct-14 Oct-15
Wholesale gas prices
Current levels annual gas: 42.80p/Th (or 1.461p/KWh)
**Final bills will include shaping +non-commodity costs
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
Oct/12 Jan/13 Apr/13 Jul/13 Oct/13 Jan/14 Apr/14 Jul/14 Oct/14 Jan/15 Apr/15 Jul/15
p/Th
Gas: Wholesale Annual prices
Oct-13 Oct-14 Oct-15
Commodity Market Drivers
Markets trading Gas: Seasons, Quarters, Months, Weeks, Days
Electricity: Seasons, Quarters, Months, Weeks, Days, 4hr, HH
2015 2016 2017 Jan 2018 March 2018
Oil Weather
European Markets (Elec, Gas, Coal, Emissions)
Fundamental supply and demand
Energy
Delivery
April
2018
Cash out
Foreign Exchange rates (£, $,€)
Short term changes to
supply and demand
Global markets (Coal, LNG)
Market traders expectations
(Regulatory, political, economic, technological)
Electricity market price drivers: Next few years
National
Usage
Generation
2010-15
2015+
2020+
External drivers: Regulation, Political, Legislation Regulation (Ofgem)
• Competition in wholesale
traded markets has fallen
• Big 6 investigation by
Competition and Markets
Authority
Legislation
• DECC: Energy bill 2014
• Trilemma: Decarbonisation, Security of supply,
Affordability
• Renewables: Contracts for Differences: Wind,
Solar
• Nuclear 35 year contracts (£92.50/MWh)
• DECC forecast ever rising oil price
• Capacity auctions for fossil fuel availability
• Upgraded network to support renewables
• Cost supported through general levy on all
energy users p.a. (2014 £3.5bn, 2020 £8bn,
2021+ £?bn)
• Vs. cheaper gas, coal for fossil fuel legislation
2023
Political • International agreements on
long term Climate Change
measures
• Tough UK targets for Carbon
reductions from energy
sector
2015
Current electricity generation
Long term electricity generation mix
Fundamental changes to
electricity generation
Scenario shows impact
of generation switch
from fossil fuels to
intermittent
renewables
Forward prices may not
be driven by
predictable links to
coal, gas or oil
Increased premiums to
cover risk
More volatile short term
prices> opportunities
NGC UK forecast
TWh
All energy purchased on a single
day determined by customer.
Delivery starts 01/10/14
Price set by market
conditions on day of
purchase.
No variation to pricing
once purchasing
completed.
Budget certainty over
cost from start of energy
delivery.
Immune to short term
price spikes during
delivery period.
1. Spot (Fixed Price Fixed Term)
Single customer purchasing
50.00
52.00
54.00
56.00
58.00
60.00
62.00
64.00
66.00
68.00
70.00
Oct/13 Jan/14 Apr/14 Jul/14 Oct/14
p/Th
Gas: Wholesale Annual prices
Oct 14 Annual price
Gas
delivery
01/10/14-
30/09/15
Purchase window: 1 day
12 month range:
High 67.60
Low 53.45
Average 61.53
21st March 62.28p/Th
Example : 12 month Locked basket
All energy must be purchased
before delivery starts 01/10/14
Updates on basket
volumes bought through
purchase window.
No variation to pricing
once purchasing
completed.
Budget certainty over
cost from start of energy
delivery.
Immune to short term
price spikes during
delivery period.
2. Price risk managed basket
Multiple customers purchasing collectively
50.00
52.00
54.00
56.00
58.00
60.00
62.00
64.00
66.00
68.00
70.00
Oct/13 Jan/14 Apr/14 Jul/14 Oct/14
p/Th
Gas: Wholesale Annual prices
Oct 14 Annual price
Purchase window:12months
01/10/13- 30/09/14
Gas
delivery
01/10/14-
30/09/15
No energy
purchased
12 month range:
High 67.60
Low 53.45
Average 61.53
61.12p/Th
The Future for GB electricity markets ?
2023
Possibly:
Internet of things- everything connected and
controllable?
Energy consumers paying market tracking prices,
invoiced near real time from dynamic data ?
Household battery systems storing day time solar
output and discharging at night becoming common?
Greater use of electricity for heating as relative
costs drop?
Almost certain:
• No longer solely a fossil fuel driven market price
• Short term price volatility- even negative market
prices on some summer days
• Much higher non-commodity costs (60%+?) of
electricity bill
• Higher relative cost of off peak periods because
uneconomic to run fossil fuel plants
Energy: continuous cycle of improvement
Energy
service
Understanding changing customer
needs
Framework, contractual
improvements
Energy markets, smarter
purchasing
Data interrogation
Portfolio development,
minimised costs
Increased savings, reduced demand
PfH Energy support for the social housing sector 1. Offer professional guidance when contracting
2. Ongoing customer engagement from procurement and throughout the contract
3. Service desk with experienced professional energy individuals from energy procurement and
energy trading backgrounds
4. Development of offering through understanding of other buying models and competition
5. Working with customer panel to develop next energy solution
6. Demystifying energy areas through education and transparency
7. Exploring removal of barriers to smarter buying e.g. Section 20
8. Building smarter collaborative buying options for social housing organisations to manage risk
9. Investment in systems to aid customers manage their energy usage through data analysis
10. Evaluating purchasing performance against independent market data
PfH: Managing suppliers, providing procurement advice, supporting customers
Energy suppliers: Market cross section providing competitive fixed prices
What are the conclusions? Commodity prices
are low at the
moment
Non-Commodity
costs are going to
keep going up
The market will
become more
unpredictable and
volatile
PfH Energy offer
professional
guidance and help
throughout the
journey
Reducing energy
usage through data
analysis is the
future
Contact details
Procurement Manager-Energy
adickaty@procurementforhousing.co.uk
Tel: 01925 286 379
Mob: 07834 529 792
Magnus Walker
Head of Energy Services
mwalker@procurementforhousing.co.uk
Tel: 01925 286 368
Mob: 07943 807 415
procurementforhousing.co.uk
Andrea Dickaty
Team: energy@procurementforhousing.co.uk
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