Firms urged to forward purchase energy to thwart volatile prices

Posted on 19 Jun 2009 by The Manufacturer

Electricity price rise of 169% from Q1 2007 to Q1 2008, and sharp swings in 2009, makes strong case to forward purchase energy, says accountancy firm

An accountancy firm’s energy tracker survey points to energy forward buying as protection against highly volatile electricity prices rose by 169% from the first quarter of 2007 to the first quarter of 2008

BDO Stoy Hayward has advised manufactures to protect themselves in several ways against fluctuating energy prices. Its Quarterly Manufacturing Energy Tracker shows that electricity prices rose by 169% from the first quarter of 2007 to the first quarter of 2008. Unit prices reached a peak in the third quarter of 2008 at £93.92 per megawatt hour, but by the first quarter of 2009 costs had fallen back by a quarter.

The cost of energy has varied wildly over the last two years and the firm advises manufacturing companies to take several steps to protect themselves against future volatility. Tom Lawton, head of manufacturing at BDO Stoy Hayward, offers the following tips for businesses hoping to minimise their exposure to fluctuating energy costs:

• Manufacturers need to stay ahead of the curve and take maximum advantage of the benefits from new energy saving legislation
• Companies will need to understand and adopt the (sometimes quite complex) energy saving schemes being introduced, such as the Carbon Reduction Commitment (CRC) which will affect larger users (consumption of more than 6,000 MWh of metered electricity per year). Guidance can be found on the websites for the Department of Energy and Climate Change and the Department of Business Innovation and Skills. See also CRC coverage in The Manufacturer at:

• Companies should make all staff aware of the importance of the energy saving programme being introduced and the benefits available. There are many ways in which energy wastage can be reduced – the above websites 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