Buying Energy: What should you expect from your advisors?
Company: EXPENSE REDUCTION ANALYSTS
With increasing complexity in the energy market, more and more businesses are engaging the services of TPIs (Third Party Intermediaries) to guide them through the process of energy procurement.
During more than a decade of sometimes confused energy policy in pursuit of managing the so-called “trilemma” (security of supply, affordable costs and a transition to a low carbon system to meet climate change targets), we have seen layer upon layer of legislation and the introduction of several new levies and subsidies.
In a typical power bill, non-commodity or “pass through” costs now exceed the cost of energy and are anticipated to comprise 60% of the total bill before too long. Energy suppliers have had to respond to these changes, developing a range of different products – particularly in terms of electricity contracts – to suit different needs. At the same time, there has been a proliferation of new entrants to the supply market in both the commercial and domestic arenas.
It is no wonder then that consumers turn to TPIs for guidance when facing the (normally) annual review process. But as a business, what should you look for when you are choosing a TPI?
- A Proactive Approach: Nobody can tell what the future market holds, but it pays to start the contract review and renewal process well in advance of contract anniversary dates. Leaving renewals to the last minute renders the consumer a hostage to prevailing market forces. Equally your TPI should discuss and understand your needs and attitude to risk, to ensure that you select the right product. A fully fixed product will likely cost more up front but give you budgetary certainty and no risk, whereas a pass through contract will have a far lower risk premium built in but could expose the consumer to unforeseen costs.
- Market Knowledge: A TPI should be able to put you in a position of taking well informed purchasing decisions based on a thorough knowledge of the dynamics driving the wholesale energy market. So the real value comes in choosing WHEN to buy, the ideal contract length, how far ahead to approach the market and product type.
- Transparency and Independence: This seems almost too obvious to state, but the consumer should have absolute clarity as to the cost of engaging a TPI. Oddly enough this is often not the case and therefore the customer has no real way to determine if they are achieving value for money. There should be a clear delineation between the cost of energy and the TPI’s cost to serve which should be agreed and understood before any work begins. It should also go without saying that the TPI should cover the market as widely as is appropriate for the enquiry.
- Ongoing Support and Portfolio Management: There is no “one size fits all” approach, but once the energy procurement has been done the sometimes less glamorous but no less important work of portfolio management should be given equal attention. This may involve portfolio alignment, troubleshooting supplier issues, managing changes of tenancy, bill checking and cost and consumption reporting as required.
- A Good Partnership: No matter what business sector you are in from SME to Industrial and Commercial, you should seek a good working partnership with your TPI. Energy costs are far too important to simply delegate, but the intricacies of energy procurement do require specialist assistance and can help free up valuable time for the client to focus on their core business.