How to get the best Energy contract for your school(s).
The energy market has changed considerably in recent years, making it harder for the end user to have clear visibility of exactly what they are buying when signing a new contract. Steve Bolt, Director at BCR Associates provides some best practice advice for those with procurement responsibilities to help with the energy buying process.
What’s the first step to securing the best contract?
When seeking a new energy contract, the most important thing is to look beyond the headline rate or the estimated annual value. Make sure that you ask for the quotations to include selected suppliers contract together with the terms and conditions for the specific supply. It is important that you are quoted the total cost of the contract over its lifetime.
Why is this important?
It’s a complex subject and the easiest way to explain is to use a real-life example. Below are three electricity quotes recently provided to a school by an Energy broker:
These are three very reputable suppliers and looking at the table, Eon would be the best option for the school as this is the cheapest, and this was what the school selected.
The price of business energy is split into two parts – one element, the commodity (wholesale) cost, and a second element known as the non-commodity price, which consists of the levies and taxes needed to pay for the infrastructure and generate revenue to bring more renewable and low carbon generators online.
The non-commodity element for electricity currently equates to about 60% of the unit rate, and this is forecast to rise to about 70% by 2023.
New legislation has made it harder for suppliers to forecast the impact of these levies. Suppliers use their terms and conditions to control how these levies are treated during the lifetime of the contract. Shortfalls in revenue from non-energy costs can occur when less consumption is used. COVID-19 has impacted this for certain industries who have had to either close or change initially predicted working patterns. Suppliers can go back and reconcile if their terms allow – this may mean that you will receive additional charges on your bill.
If we now look at the quotation above it should be noted that most suppliers offer more than one energy product. It is therefore important for the the school to understand what type of contract is on offer and what risks are associated with it.
If we take Eon as an example, as previously stated a quality supplier, they offer a contract which is “Fixed and inclusive”. This means that the fixed element relates to the commodity cost or about 40% of the overall cost, this is fixed for the duration of the contract and therefore cannot increase. If we now look at the non-commodity element which represents 60% of the cost, this is included hence the term “inclusive”.
When speaking to Eon they have stated they have used robust forecasting for the non-commodity element but reserve the right as per the terms and conditions of the contract to increase the cost charged to the school should their forecasts prove to be inaccurate. Furthermore, this cost can be passed on even after the school has left the contract.
I would like to stress at this point, Eon have done nothing wrong, their terms and conditions are clear. When we see differences in cost quoted for schools there are several reasons why these occur, these include:
Type of contract
Different consumption levels quoted
Different days quoted
Incorrect day/night rate
Main types of business contracts
It should be noted that this does not mean any of these contracts are better or worse than the other, they are just different. This is about the school having all the information so that they can make an informed decision and fully appreciate the risks related to each type of contract.
Schools with half-hourly meters also need to bear in mind that the unit costs for electricity in that market are more expensive.
Other Costs
A meter operator agreement (MOP) will be needed – these typically cost £100-£150/year
A data collection charge is added by some suppliers – others may roll this into a standing charge or charge separately
New Regulation – For launch in April 2022 is Targeted Charging Reform (TCR). Contracts signed after Nov 2020 should have this forecasted in. Those signed pre-November 2020 that covers the April 2022 period should ask the supplier how this is going to be charged.
Below is a table that outlines what we believe schools should be asking for when assessing an energy quote, it should be noted that no quote provided by any energy consultant including ourselves is legally binding for the supplier. All contracts are set by the terms and conditions from the supplier and signing the contract with supplier is legally binding.
Top Tips
To conclude, here are some top tips to securing the right contract:
Do not buy on price or rate without understanding the contract, what is included and what is not
Always get a quote for the total cost of the contract and get the supplier to confirm in writing what this includes
Ask for full paperwork to include terms and conditions
Read the terms and conditions of your contract, ask your energy consultant to explain these, ask them to highlight any risks
Time of year can have an impact on the cost quoted, so securing a contract in the summer, even if it is for a winter renewal, could save costs
Give yourself time, work with your energy consultant at least 6 months if not more before your renewal
For help and advice with any of the above, please get in touch with Steve Bolt, Director at BCR Associates, on 03330 433 233 or by email: steve.bolt@bcrassociates.co.uk.
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