(Bit of a lengthy blog by me, and sure it sounds a little like a 'sales pitch' at times, but stick with me on this one as this will save your average sized business enough money to warrant a weeks holidaying in Spain each year!!!)
Let's face it, if your interested in energy and you look at technical analysis, weather changes, trade screens, and the fundamentals daily you are probably an energy consultant working at amber energy......or a business who spends over £100M a year on energy & has an in house trading desk.....or a supplier (and so it's pretty important you've got in house trading capability too!)...
But think about it, does John (pictured) who spends £125,000 a year on his clothes manufacturing warehouse's energy bill really need/want/have the time to be learning about (or employing someone at circa £30-60K) to cover potential swings in the market? I sincerely doubt it!
All John wants is to know he's getting a 'good deal'.
This 'good deal' sentence is clearly the main driver for all business owners but it does take a small bit of education to realise what this means and it's limitations.
Let's take John.....he buys his energy at the same time each year over a period of 5 years and despite a rising market (where the average price has been higher year on year) John gets the following prices;
- 2010: £100,000
- 2011: £105,000
- 2012: £103,000
- 2013: £138,000
- 2014: £125,000
- 2015: £107,000
Now firstly, the above is completely possible and not an uncommon representation of some businesses variance in budgets over this period. The reason? Well if we were to say that each year, John, got 'just-as-good-of-a-deal' then you'd be starting to think that energy prices were going up and down each year by the amounts shown right?
Well the answer is not quite that straight forward as for John (like everyone else) they were changing every day and if he'd purchased on the lowest point each year (rather than on the same day) he would have achieved:
- 2010: £100,000
- 2011: £99,000
- 2012: £101,000
- 2013: £107,000
- 2014: £115,000
- 2015: £105,000
This would be the 'optimised' outcome and you can see the impact straight away. The trick to all of this is to have the ability to sign your next fixed price energy contract well ahead of the end of your existing contract (this may sound strange as if you have 18 months left of your existing contract then you wouldn't typically be thinking about month 19 onwards). However, think of it this way, if the price of energy was 50% lower for John for 2016 and was available to secure at £55,000 then John would probably want to sign that deal as soon as he could?
Well yeah, a bit more analysis would be needed to understand whether John should wait for further falls in energy prices but setting target points and triggers to "buy" energy is what the future looks like for energy buyers.
We've put buy in speech marks ("buy") since John wouldn't actually be spending any money & no cash would be changing hands at this point of commitment.
He would merely be securing a future guaranteed price of energy (for when he starts using it in 2016) so you can see why this might be appealing. I just wish you could do the same with mortgages!!!
At amber energy we've developed a web application that does all of this for our clients. Our driver is to reduce the fee's that third parties charge to small businesses for arranging energy contracts for what we perceive to be of little value.
Finding the lowest cost supplier on any given day is (as one of my longest standing clients told me in 2010) "money for old rope" & she's not wrong. Making a few telephone calls or comparing a few prices should never cost a business spending £50,000 a year on energy £2,500 in 'brokerage fee's' but that's the market out there!
We plan to remove some of the imperfections in this SME market and soon John will be buying smarter, and timing his energy purchases perfectly whilst he sips a Margherita and watches the wave's come in. The best bit is John can now afford to go on holiday because he's not buying on the wrong day and paying through the nose to the company that arranged the contract for him.
Insight trials are now open and we're looking for SME and Medium sized businesses to trial our system (for free) so we can perfect any 'bugs' before launching it to the wider market in early 2015.
We will see you in Florida John ;)