Managing uncertainty in 2015: an increased focus on energy strategy

Jo Butlin -

Falling energy prices and a potential change of Government: never has the energy market been so unpredictable for businesses to navigate.

If anyone had said a year ago that the oil price would be sub $50 a barrel, even the brightest of energy analysts would have probably laughed. Ed Miliband and his advisors could never have predicted that an energy price freeze would actually end up costing businesses and consumers money.

Energy is a complex and fast-paced market at the best of times but I think the unpredictability of the environment we currently find ourselves in is unprecedented. A looming general election could mean very little change to the political landscape but equally it could create significant energy policy change. If you throw in the growth of new technologies and environmental legislation, energy managers find that they have even more balls to juggle.

So just how do businesses best approach their energy strategy right now? At Utilyx we work with leading businesses across a number of sectors including retail, transport, telecommunications, manufacturing and the public sector. At our recent customer seminar I gained some really interesting insight into how businesses were rising to the challenge – and as one said leader said ‘the opportunities’ - they faced.

One point everyone agreed on is that in an increasingly uncertain world the need for certainty was as relevant as ever. As one delegate put it “price stability and certainty is more important that bottom fishing in response to market movements”.

What was clear is that the focus of businesses has now completely shifted from being about energy prices and carbon to managing total energy costs and risks. Businesses are now juggling how best to buy, how to reduce demand and - if they can - control their own supply through on-site generation or Power Purchase Agreements. Feeding into this is the need to better understand consumption through regular data monitoring and analysis which enables businesses to identify where and how to most effectively reduce demand.

There was also consensus that UK policy, which assumes a world of constrained supply and rising prices, is no longer in line with the current energy climate. The massive growth of shale gas and LNG availability, the crash in oil prices and reducing demand from China, has suddenly taken us into a world of low energy prices. Businesses are now asking whether UK policy is the key driver of expensive energy bills and even whether the policies are still relevant.

The issue of compliance is becoming more important with a growing raft of environmental legislation for businesses to comply with. Some of these schemes, such as the Energy Savings Opportunities Scheme (ESOS) are seen by some as an opportunity rather than a burden. However businesses are telling us that they need consistency across the range of schemes to ensure one scheme does not contradict, or indeed, duplicate, the scope of another.

And what about carbon and the high cost of investment in renewables? The changing landscape means that for some businesses this becomes purely about reputation and compliance, whereas for others it has become less attractive if it is not about security of supply.

When I look back to this time last year the energy agenda was dominated by rising prices and security of supply. What a difference a year makes! What remains unchanged is businesses’ desire for a level of certainty in their approach to energy management. Those businesses that set their energy strategies for the long term will be in the best position to insulate themselves from short-term market movements, reduce their risks and maximise rewards.