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Energy tracker exposes energy price volatility
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23/06/2009
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The cost of energy has fluctuated wildly over the last two years, according to business advisor BDO Stoy Hayward's quarterly manufacturing energy tracker.Electricity prices rose by 169% from the first quarter of 2007 to the first quarter of 2008. They reached a peak in the third quarter of 2008 at a price of £93.92 per megawatt hour but by the first quarter of 2009, costs had fallen back by a quarter.
Natural gas prices were also affected by global factors to reach a peak of £62.40 in the second quarter of 2008, a huge 207% increase on the same time in 2007. Since then they have fallen to £43.1.
Tom Lawton (pictured), BDO's head of manufacturing said that while the net fall in the cost of energy was encouraging, the current unpredictability of the markets meant it was almost impossible for businesses to effectively forecast and make provision for energy costs.
"The government is introducing a range of energy management regulations as part of the Climate Change Act which will be phased in over the next few years," he went on. "For example, one of the foundations of the Act is the Carbon Reduction Commitment (CRC) which will impact larger users (consumption of more than 6,000 MWh of metered electricity per year). Registration to the CRC will be required during the period April to September 2010. Despite the fact this is yet more regulation manufacturers have to deal with, the hope is that this legislation will also enable significant cost savings as energy usage is reduced."
Lawton offered some tips for businesses hoping to minimise their exposure to fluctuating energy costs:
• The energy saving legislation will happen so savvy manufacturers should be ahead of the curve and look to take maximum advantage of the benefits from the new legislation
• Manufacturers will need to understand and adopt the (sometimes quite complex) energy saving schemes being introduced, such as the CRC. Guidance can be found on the websites for the Department of Energy and Climate Change and the Department of Business Innovation and Skills
• Companies should make all staff aware of the importance of the energy savings programme being introduced and the benefits available. There are many ways in which energy wastage can be reduced – the above web sites noted provide useful guidance
• Use forward purchases or forward purchase options to fix energy costs to the current lower price. However this does then pose a risk that prices do not move in the way expected and more costs are incurred
• Larger manufacturers could consider Combined Heat and Power (CHP) installations to make use of the heat derived from applications
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Author
Ken Hurst
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