Project

In early 2014, we were considering the electricity contract renewal for Bizspace. As the wholesale power market was in decline, the expectation at that time was that we would lock in a fixed rate contract in May or June. This strategy however was scuppered by events in Crimea which eventually led to a spike in electricity markets of 8% in early March. As a result prices were significantly higher than expectation had been in February and due to the ongoing nature of the situation, there was still the liability for further price spikes.

Low Risk Flexible solution

We considered flexible options with the client in order to take any advantage available in this slowly easing market. We settled on a flexible contract that is locked in prior to the contract start – this allowed the client to lock in fixed charges and a proportion of the wholesale volume whilst floating the additional volume to exploit market downturns, whilst at the same time knowing the preferred p/kWh would be in place for the contract duration.
Upfront we locked out 25% of volume along with non-commodity - Renewables Obligation, Feed in Tariff, Standing Charge and Capacity Charge. The remaining 75% was fixed in approximately three weeks prior to contract renewal, a week before the next major energy spike caused by events in Ukraine.

Saving

At the time of the original Crimea crisis, renewal costs worked out at £2.09m per annum. The calculated cost from using the flexible product solution worked out by the E2 Procurement team was £1.95m. The client
thus saved £140,000 with this solution.

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