All posts by Mike Davies

Shark Warning! UK Energy Markets Explained

There are two types of shark – the ones in the water, and the ones that reside in the murky waters of the UK energy markets. It’s time to bring some visibility into these waters.

Sharks in the UK Energy Markets

It is common knowledge that sharks are dangerous. But are they? I have scuba-dived with real sharks, and swum with the sharks of the UK energy markets for many years.

The vast majority of real sharks are harmless and will swim away if approached by an over excited diver. Sharks are curious animals and will slowly and carefully approach divers that are calm and motionless. However, there is no doubt that some sharks are dangerous, but if a diver understands shark behaviour, then any danger is minimised.

Unfortunately the sharks swimming in the UK energy markets are very different beasts. These sharks are uninformed, unpredictable and deliberately target the unwary without mercy.

There are hundreds of these sharks waiting to strike. As procurement professionals, how many calls a day do you receive promising cheaper energy and services that are far superior to any offered by the competition? 

Smoke and Mirrors

A buying group I’m working with has been investigating the potential for purchasing energy for its membership. Their first comment to me was, “We cannot get a straight answer from anyone about anything in the UK energy markets.”

My response was, “Correct! Because most of the people you are dealing with don’t understand the energy markets, and use ‘smoke and mirrors’ to hide their ignorance and substantial profits.”

Many procurement professionals see energy purchasing as a dangerous and mysterious world full of sharks, and for good reason.  If I put my cynical hat on, then is the fear of the unknown driving procurement professionals to outsource the blame by engaging an energy broker?

Clearing the Waters

OK, let’s bring some visibility into this dangerous world and start to understand the feeding habits of the sharks.

Let’s start with the basics. The electricity and gas received at your premises does not change no matter which supplier is billing for its consumption. 

What characteristics does an energy supplier need to meet your procurement objectives?

1.            Hold a supply licence.

2.            Financially stable.

3.            Bill accurately and on time.

To understand if an offer from an energy supplier is a fair price what do you need?

1.            A clear view of the cost to a supplier in providing energy to your premises.

2.            The supplier’s real profit margin. 

This is starting to look simple isn’t it now the ‘smoke and mirrors’ have been removed?

At this stage, all you need is to make sure that the supplier’s terms and conditions allow sufficient flexibility for you to decide when to purchase wholesale energy, without any hidden profit for the supplier.

There is the complication of what is happening in the wholesale energy market, but that will be tackled in a later article. The next article, “Visibility and Feeding Habits of Sharks”, will get into more detail of transparent energy purchasing.

4prime Limited specialises in bringing transparency to energy costs to ensure value for money.  For more detail have a look at our web site www.4prime.co.uk#1PRO or for more information email connection@4prime.co.uk