Brexit is on the horizon, costs of energy are rising following the fall in sterling and an increase in taxation, and it appears that the UK’s energy generators can only just meet energy demands. It’s not hard to see why firms should be keenly aware of the impact of energy usage on their bottom line.
According to the Carbon Trust in a December 2013 document, Better business guide to energy saving, most firms could –with low- or no-cost changes – bring bills down by 10%.
Make a saving
Chris Caffery, an advisor at Utilityoptions.co.uk, an independent energy consultancy, reckons that 95% of firms can save either on their upcoming contract renewal or their current pricing. He finds it irritating that there are still too many businesses on uncompetitive contracts or paying high non-contract prices.
From his point of view firms should understand that being ‘out of contract’ – that is, not signed up to a deal but instead, paying standard pricing – is not a smart idea. He says: “Having no energy supply contract may give flexibility, but it also means that customers will be charged out of contract pricing that can carry a 20%-30% premium over standard tariffs.
“Suppliers say they have to buy energy on an ad-hoc basis, paying the wholesale rates for that anticipated energy on a daily basis. They will build extra margin in to these tariffs to cover large wholesale increases. On a fixed contract, the supplier buys the energy for the whole contract at the price agreed. This way they know their margin and this can’t change for the period of the contract.”
BPIF commercial products manager Steve Walker is well aware of energy price volatility: “The energy market is far less static than for other markets such as insurance, and with the prices constantly moving it’s unlikely that even the largest companies will have someone who can become an energy expert and keep their eyes on the price movements.”
Thankfully rollover contracts have been abolished. They were nasty and effectively trapped firms into a given supplier and tariff if notice wasn’t served in the prescribed manner.
So, when should firms give notice if they want to leave? Caffery says two to three months prior to the contract renewal is usually good timing. “The new system requires a standard 30 days but termination can be served to a supplier before this time as long as the customer doesn’t try to switch before the renewal date. Should they go past the renewal date they will usually revert to the standard tariff which they can leave at any time by giving 30 days notice.”
How to switch
Of course, it’s entirely possible to find and switch to a new supplier without any external help – especially if a customer contacts a supplier directly on the right day when rates are low or the sales department have a target to hit so are able to reduce their margin.
But there are better solutions than the DIY option from Caffery’s point of view. The first is to either use a broker that can obtain a better rate because they already deal with suppliers in bulk and in return suppliers offer tariffs with already low margins. The other is to use a consultant who can do the same but adds other benefits such as bill analysis to confirm correct low rates, contract renewal notification and reminders, and non-tariff related savings such as meter downgrades/installations.
Of the options, it’s the broker route that Walker recommends. He says that the BPIF is currently in discussions with Inenco, a large energy broker to offer its services to its member companies. This move is because, as Walker says, “brokers provide the necessary industry expertise to help the company make the correct purchasing decision.” He does add one note of caution – that even with constant vigilance on prices it’s not easy to predict which way the market will go and brokers don’t always get it right.
Consider third-party help
Unlike the domestic market, because of the way that business energy supply works, making a quick online comparison is not simple. While the domestic market is largely based on location, Caffery says the commercial market uses a number of elements that determine the tariff cost: “There is a varied mix of wholesale rates, transportation costs, government taxes and levies and, of course, profit for the suppliers. Generators still rely heavily on coal, oil and gas, so actual or anticipated costs of these fuels can create large differences in retail prices.”
Going online to make a comparison isn’t easy. There are a great many more online comparison websites for domestic energy than there are for commercial suppliers. “One of the main reasons for this,” says Caffery, “is that domestic tariffs set by suppliers have a longer shelf-life usually due to a slightly higher margin placed on domestic for this very reason.”
Other factors are considered such as credit rating (because firms are effectively borrowing from the supplier), and the length of contract (a deal may be poorer at first but over time this improves as market prices rise).
But using a broker or consultant doesn’t always guarantee price transparency. As Walker sees it, brokers “are loath to offer an off-the-cuff price unless the company has given them an authority to negotiate and will commit to buying from them. That’s because the energy market is like any other, no one wants to go the effort of getting a good price for their customer just for it to be used as a bargaining tool to get their existing supplier to reduce or match the price.”
He also says that it’s not easy to compare the price that’s being offered unless brokers are changed, particularly if the negotiations are happening close to the renewal date. His advice? Don’t leave negotiations until just before the renewal is due, as it doesn’t give an opportunity to shop around.
As to what could be saved, Caffery offers two examples; “The first features a printing company based in Sheffield with 18 employees. The typical savings here, year on year, equated to around 15% which for them was around £950 per annum.” The second involved a smaller print company in Wisbech. “When they first came to us we managed to correct their billing problems and negotiated a 23% saving per annum. We also negotiated a backdate of the bills with the supplier for a 6-month period which appeared as an instant credit on the customer’s bill of around £400.”
Caffery says that using a consultant isn’t just about the rates that are negotiated. It’s about saving time and not having to deal with suppliers – “sometimes the extra added services can far outweigh the visual savings on the utility bills”.
For many, the concept of going green and self-generation is a utopian ideal. Assuming, of course, there’s space, are the likes of roof-mounted solar panels and ground source heat pumps (pumps that circulate liquid through an underground loop, bringing warmer or cooler temperatures to a building depending on the season) worth the investment?
According to Caffery, the deals that were available a few years were very good as the government needed to hit EU targets. “The problem is that with the reduction of feed-in-tariffs the payback is much longer. For example, in 2012 solar panels would normally have paid for themselves in five to seven years. After that, it would be profit for the end-user. With current tariffs, it would take 15 to 20 years to repay the cost.” He says that alternative energy investment is now more of a gamble as it the technology used for generation needs to last longer for it to become viable.
Another problem for firms wanting to go green is their ability to pay for installation. The situation isn’t helped by the fact that grants and financial help for installation are complex and patchy throughout the UK. For example, the Carbon Trust lists grants of up to £10,000 to SMEs wanting to invest in green equipment as well as interest free loans for firms in Wales and Northern Ireland. The Energy Saving Trust has a page that outlines what is available. It’s a question of searching.
Further, as Walker points out, green technologies lost their exemption from the Climate Change Levy in 2015, an exemption that helped to offset the premium for buying green energy. That said, there are other advantages of buying green.
“A company,” he says, “can utilise its green credentials as a marketing tool and of course self-generated energy will generally be more cost effective and can provide income when selling to the National Grid.”
He also points out that the BPIF’s process engineers can offer general advice on energy efficiency (the other part of the energy equation) which forms part of wider advice on improving processes. BPIF’s Vision in Print service provides an industry-specific service to help printers and packaging manufacturers to proactively improve their own sustainability and competitive advantage.
As an aside, the BPIF runs the printing industry Climate Change Levy Reduction scheme, which allows printing companies to reduce the climate change levy that appears on all companies’ energy bills. The discount is worth 90% off the electricity levy and 65% off the gas levy. Walker notes that 250 of the larger companies are already on the scheme. However, for companies with a turnover under £7m their consumption is simply not large enough to cover the costs of being on the scheme.
Clearly, there are a number of lessons that can be drawn. Printers – any firm for that matter – should plan well in advance for benchmarking and renewing (switching) contracts. The energy companies would much prefer customers on standard tariffs, but with some planning and effort, decent savings can be made.
GET THE MOST FROM YOUR SUPPLIER
Choosing a new supplier
No supplier is perfect and it’s only natural that companies base their first choice on price as it’s the bottom line that matters to 99% of firms. However, some suppliers are more customer-service focused than others, but that only really matters if a problem arises. Service is, of course, where the energy consultancy or broker can help with their experience.
When searching for external help, as with most trades or service providers, there are going to be some that take advantage of their clients so an internet search could possibly be a little bit like a lottery. If the business is a member of a trade or business support organisation then it may be best to ask them who their chosen consultant is for their members.
In the majority of instances the energy supply relationship works out well, but where there’s a suspicion of unfair treatment, and the relationship breaks down, there is a natural inclination to ask about rights of redress.
There are two avenues of complaint open to firms who think they have been unfairly treated. All suppliers have an in-house complaints process. But having exhausted that route, the next step is to try the Energy Ombudsman to have a complaint taken further. The ombudsman can only help microbusinesses (defined as having an annual consumption of electricity of not more than 100,000kWh, or gas consumption of not more than 293,000kWh; or fewer than 10 employees (or their full-time equivalent), and an annual turnover or annual balance sheet total not exceeding €2m (£1.76m). Ofgem doesn’t get involved with individual complaints but it does have plenty of information on its website that may prove useful.
It is worth noting that help with seeking redress is a service that most consultants and brokers provide to customers. They take up queries with suppliers and use their contacts and knowledge to obtain a swift solution.
Simple energy saving tips
Maintenance issues Regularly walk around the premises looking for maintenance issues. Take different routes at different times of day (and on different days) looking for broken devices and incorrectly set timers and thermostats. There’s a checklist that can act as an aide memoire from the Carbon Trust.
People Hold briefings on automatic control systems in offices and how to use them to get the most efficient lighting/heating/cooling performance. Also encourage ‘lean thinking’ through communication with staff as to how they think efficiency can be improved. Create ‘Energy reduction teams’ and/or ‘energy champions’ so that staff have a specific responsibility and adequate time and resource to concentrate on identifying and implementing efficiency measures.
Heating Many commercial premises are overheated with some parts heated needlessly and/or poorly insulated; consider whether all areas need equal heating. Fit seven-day thermostats that allow greater control. The Carbon Trust believes that a badly maintained boiler can increase costs by 30%. Similarly, portable heaters are expensive to run and should be fitted with 30-minute timers. And rather than pumping hot water around a whole building, see if in-situ on-demand boilers would be more efficient.
Lighting Fluorescent tubes are popular but few realise that slimline (26mm diameter) tubes use 10% less power than larger (38mm) tubes. See if there’s an opportunity to use LED lights to drastically slash lighting costs. As for lighting use, ensure that lights are only on when needed and look to fit motion detectors to turn off lights when no one’s around. Obvious as it sounds, check if windows and skylights are clean – natural light is free.
Office According to the Carbon Trust, in an air-conditioned office it can take half as much energy again to remove the heat generated by office equipment as it takes to run the equipment in the first place. Look for equipment with an Energy Star rating as it’ll enter a low power mode quickly. Ensure that unused computers are switched off overnight while turning off monitors when not in use (screen savers don’t save energy, they just protect screens from burn in). Place photocopiers in cooler areas to save having to cool the copier area unnecessarily and switch it off overnight – this applies to any equipment not in use.
Production Compressed air systems should be checked for leaks (apparently 20%-50% loss is usual) and as with other parts of a business switch off compressors – and other machines such as conveyors – when not in use. Where motors are used, see if they can be replaced with higher efficiency units. Presses with energy saving modes should have them turned on. As with boilers, maintain cooling plants. Note that premises are sometimes heated in the belief that this reduces humidity, but hot air holds more moisture than cold and can be more damaging. Apply springs to doors so that they are kept closed to reduce the need for heating and cooling.
The Carbon trust has a number of tools and guides online that include specific guidance for SMEs and how firms can raise awareness of energy issue among staff.
Sources of help and advice