Manufacturers can secure better prices on their energy bills thanks to a new procurement group set up by The Smart Manufacturing Alliance and Inspired Energy PLC.
‘The SMA Energy Collective’ is an energy procurement group that has been set up in response to increasing energy prices and growing volatility in the market.
If you’re looking at 10x higher prices and increased risk premiums we’ll help you consider your flexible buying options. Don’t wait and hope that prices come down for a fixed renewal.
Average saving switching from fixed to a flexible procurement approach during calmer markets.
The Smart Manufacturing Alliance has teamed up with Inspired Energy to create the SME Energy Collective. Inspired Energy is one of the largest energy consultancies in the UK, and has over 20 years’ experience securing competitive prices for commercial clients’ energy procurement.
The SMA Energy Collective pools our members’ energy needs, giving them access to much more cost effective energy prices for their businesses on the wholesale market.
With a flexible approach, each member can spread the risk of buying, lowering exposure to unpredictable markets, and securing flexibility to take advantage of market reductions as they become available.
It should be noted that if prices deteriorate, a flexible contract would be exposed in the short-term.
Our collective uses a portfolio strategy to energy procurement which caters to different attitudes to risk – it’s not “one size fits all”!
We will work with you to determine which strategies and deals are the right fit for your business so you can lock in credit and make informed instant buying decisions.
Smart Manufacturing Alliance members can access more details in the members portal.
Why a portfolio strategy?
The way you buy your electricity must reflect your goals and priorities. The exact nature of your procurement strategy depends on how you prioritise factors such as budget certainty, cost reductions, and green energy.
A flexible portfolio approach offers a balance between budget certainty and price optimisation.
A portfolio strategy combines your electricity needs with those of other, like-minded organisations. The combined volume of the portfolio is tendered collectively to achieve lower unit rates and better terms than would be possible if you were to act independently. Being in a portfolio gives you better purchasing power and delivers greater savings.
The option to fix pricesSubject to your portfolio strategy, you could ‘lockout’ your position and effectively fix your energy costs at any point during each 12-month term.
Generous volume toleranceThe portfolio includes a volume tolerance of 80-120% variance at portfolio level before any tolerances are breached, so you have excellent protection against financial penalties if there are peaks and troughs in your consumption.
Greater leverageThe aggregated volume gives greater scope for contract negotiation, access to enhanced renewable products and better customer service from suppliers.
Industry charges invoiced at costYou will receive fully transparent bills because industry charges such as distribution, transmission and generation taxes are invoiced at cost – unlike fixed agreements, where suppliers generally add a premium.
Long-term budget planningThe weighted average of our procurement activity builds a price based on your forecast, allowing for long-term budget planning while leaving an open position so you benefit from a falling market.
No cross-subsidisationThe way demand shapes are aggregated means you will experience a flatter and more robust trading shape from portfolio membership. Individual demand shapes - good or bad - are reflected in a beneficial ‘shape charge’ that’s specific to you.
Long term certaintyLong term certainty through risk management and/or pre agreed price caps. No price shocks at renewal time. Flexible contracts can still deliver fixed prices for 12-month periods within the supply contract.
The Bigger Picture
What is happening in the market?
As we’ve tried to keep members informed, even before the Russian invasion of Ukraine, UK energy prices had hit record levels due to a raft of factors including post-COVID recovery and unfortunate weather conditions.
The war in Ukraine and the potential for disruptions to important Russian energy supplies has added huge premiums to the markets right out to March 2023. The price impact reduces the further ahead
you look, but Europe has also introduced more stringent requirements to hit 90% gas storage by winter 2022, increasing demand and prices for this coming summer.
What could cause prices to rise further or drop?
Markets have reached these levels without any disruption to supply. If we were to see physical disruption, either from Russia or sanctions, the markets will undoubtedly see a further extreme
reaction (at least initially) as parts of Europe would struggle to meet demand from other sources – more than 1,000p/th is not out of the question.
Prices are moving so quickly that the true value is hard to judge. In the short-term, a cut in supply is likely to result in demand reductions from European industry (either due to price or enforced). Supply disruption risk has already been “baked in” to the markets to an extent, limiting upside.
A diplomatic solution may feel unlikely right now, but if achieved would see huge drops, albeit Europe will likely still look to reduce reliance on Russian gas long-term. Western leaders are racing to
find supply solutions from other sources, but these are unlikely to be sufficient for this year if we see a full cut.