Energy markets are volatile, prices have risen dramatically in recent years and the future is uncertain.  In this climate, traditional negotiation methods are becoming less-and-less effective in the managing both cost and risk.

The BPF has teamed up with Inenco to deliver a new scheme to improve energy procurement for UK Plastics businesses of all sizes.

Why do I need a different Approach to Energy Purchasing?

The method employed in purchasing energy from the wholesale market is completely different from the traditional method of going to the few remaining energy distributors for an individual hopefully competitive price.

Benefits:

 

Reduced risk premium

Lower underlying Energy costs

Procurement risk managed

Improved supplier service 

Dedicated account management

In the traditional market, a business might ask for an individual contract price a month or two before the renewal date, trusting that they will get a favourable price. This is the equivalent of throwing a 365 sided dice and hoping for the best outcome.   With traditional Procurement, effort is focused in the wrong areas: 

• Traditional methods only squeeze supplier margin.
• Time spent negotiating the supplier margin is disproportionate to the reward gained.
• Focusing on the core energy component provides greater rewards.
• Focus on wholesale market prices (which  account for 70%+ of the total price).
• Leverage buying power by optimising the purchase of our clients shape and volume.
• Procurement decisions based on wholesale market price movements.
• Energy delivered on pre-agreed service levels via nominated suppliers.

With Wholesale Energy Procurement, buying is done over many trades and when the price is right, not when the date comes round. This is a genuine “Risk Management Service” to replace the traditional 365 sided dice

On the wholesale market electricity is sold at auction in 10 megawatt blocks and gas is sold in periods of time. This is effectively commodity selling, and purchases can be, and are made years ahead of the requirement date.

The wholesale market has two distinct sectors within it:

• The Prompt or Nearside market, where purchases are made for use within 3 months
• The Curve Market, where buying is done for energy use beyond three months.

From these two markets, flexible contracts can be designed to give better overall pricing structures but to qualify for this type of service a customer requires a sufficient volume of energy, over 120 GWh annual consumption, approximately £7,000,000.

By aggregating volumes together under basket or framework agreements, companies with a usage under 120GWh can benefit from this type of trading. For the public sector this is handled by OGC buying solutions, and for the private sector purchases are handled by the energy consultants Inenco.

In short, wholesale energy purchasing is designed to get the best from a changing market because:

• Energy markets are more volatile

• Traditional negotiation methods & reverse auctions are now a less effective means of reducing cost & minimising risk.

• Market rises often negate any negotiated price reductions from obtaining a number & spread of offers

The wholesale element of Energy Procurement represents typically over 70% of the delivered costs - effective procurement should focus on this element.

The BPF Wholesale Energy scheme targets this area of your bill and delivers a number of benefits

"With an average of 5% of turnover for a plastics firm spent on energy, recent price increases have been crippling. We have been exploring options to support members - this scheme will provide an effective risk managed procurement option for members to combat volatility and to lock in to attractive prices.  Inenco are the obvious choice to support this initiative, the company have pioneered a wholesale energy purchasing scheme and are already purchasing around £500m worth of energy per annum."

Peter Davis, BPF Director General

"After assessing all of our options carefully we came to the conclusion that wholesale purchase through Inenco was the most sensible procurement route for McKechnie, both in terms of savings provided and the management of risk.  The BPF working with Inenco is great, particularly for small and medium sized businesses from the plastics sector."

Brian Mann, McKechnie Plastic Components

How much does it cost?

Applicable fees are included in your electrictiy bill and largely met by squeezing Supplier Margin.  For BPF Members set up fees have been waived and the product has been opened up to Member companies with an energy spend of lower than £300k (for whom wholesale purchase would typically not be possible). 

For further information download the flyer here.

For more information please

Contact: Iain Mcilwee, BPF on 0207 457 5000 | email imcilwee@bpf.co.uk

OR Contact: Alan Robey, Inenco on 01253 785 000

 Inenco are currently purchasing energy with a value in excess of £500,000,000 for client’s whose contracts which will begin in October 2007 and 2008.  

For more information on Inenco Click Here

For information about joining the British Plastics Federation Click Here