Landlords should be getting flexible with energy

Over 90 per cent of social landlords purchase their energy through fixed-price contracts. Magnus Walker, director of trading
and risk at Inprova Energy, believes a more flexible method would produce greater savings and reduce risk.

While the price of most goods and services we buy is driven by inflation and is reasonably easy to predict, energy is clearly a different kettle of fish.

Yet so many local authorities and housing associations go about their energy purchasing – one of their biggest spend areas– in much the same way as they’d buy paper clips. This one-dimensional approach prevents them from getting the value that many leading private companies achieve.

At a time when the sector is facing unprecedented financial constraints, public bodies could make significant savings and bring greater certainty to their budgets by rethinking their approach to procuring energy and overcoming a number of barriers.

One issue is transparency. The complexity of wholesale energy markets is too often mirrored at the purchasing end. Some brokers and consultants are guilty of using jargon that simply serves to confuse customers. It makes what was already a difficult task more challenging for those responsible for their organisation’s energy purchasing. Education is key here – working with public sector officers to develop understanding and knowledge of this complex marketplace.

These same officers are faced with a conundrum – how to secure the best prices while minimising risk. That’s the primary reason why so many organisations go for a fixed rate direct from an energy supplier. It gives a sense of certainty, but they are agreeing to the best price on any given day.

On top of that, they will be paying a ‘risk premium’ that’s incorporated into the price to protect the supplier should the market move up. It’s difficult to put a figure on the premium but it will be in the order of 6-8 per cent above the current market rate. Suppliers buy their energy needs over a long period and not all on one day so why wouldn’t our customers take a similar approach?

All in all, buying everything on one day with unknown prices is not a sophisticated way to purchase energy and immediately omits any possibility of getting a better deal when the market falls.

Procurement for Housing drives efficiencies and improves procurement practice for more than 850 social housing providers throughout the UK. More than 90 per cent of social landlords buy fixed price energy. That means in this one sector alone, the vast majority of organisations are paying more than they should for their energy supply. Some landlords are also passing the consequences of their deals onto tenants in the shape of gas and electricity bills that could be reduced through better energy procurement.

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