Planning for the new normal in energy markets – how should you do it?

Right now, we’re in the midst of a global energy crisis with the markets at their most volatile in living memory. And with 27 UK energy firms going bust since August 2021, things have never been more uncertain.

In this article, we’re going to look into the causes of the current energy crisis and how your business can mitigate the uncertainty by planning ahead.

What caused the surge in energy prices?

The price surge happened due to a variety of factors, including:

• Competition worldwide to secure natural gas and coal ahead of winter
• Supply issues caused by extreme weather and supply problems
• Drop-in demand due to hybrid working caused by the pandemic
• Geopolitical issues, including Russia’s refusal to boost European gas supply levels

And there has been UK-specific issues too, such as:

1. Low gas levels

Due to the closure of the primary storage site in 2017, the UK now has one of the lowest gas storage levels in Europe (estimated 3-4 days). This means the UK depends heavily on imported gas.

2. Wind power reliance

Low wind levels between April and June 2021 impacted the UK immensely, resulting in a greater need for fossil fuels.

3. Brexit

Leaving the EU energy market means we’re no longer subject to day-ahead price setting and capacity allocation.

And if the three above weren’t enough, a fire at the IFA1 interconnector with France caused issues between September and October 2021— and won’t be back to maximum capacity until late 2022.

Is this new normal set to stay?

This period of instability is likely for the next couple of years. And this is mainly because:

• Gas is a finite resource
• Nuclear power stations have closed, and some countries, especially Germany, are reluctant to use it
• Renewable energy and its infrastructure isn’t ready for a 100% switch

But it’s not all doom and gloom.

There are things you can do to help your business plan and prepare for these volatile changes.

How to plan for the new normal

Soaring energy prices are worrying for every business owner, but here are four things you can do to forecast ahead:

1.   Implement a risk management strategy

An effective risk management strategy tailored to your organisations’ needs and monitored regularly can help you:

• Manage budgets effectively
• Withstand price fluctuations
• Protect profit margins
• Safeguard supply
• Be resilient to market changes
• Allow you to stay competitive

2.  Review energy contracts regularly

Reviewing your energy contracts is vital. Speaking to your energy provider can give you insight into whenever you can extend or lock into your historically low prices to combat increases.

3.  Understand credit terms

Check, read and review the payment and credit terms in your contracts.

4.  Future proof your energy procurement

By being proactive in approaching energy procurement, you can reduce risks and protect your business from market fluctuations. You can add value to your business by switching providers to take advantage of low energy prices and locking them in for an extended period.

Need help planning for the new normal?

Then Inteb can help.

Our team of energy managers, surveyors, utility and environmental specialists can help your business plan ahead, so you can optimise energy costs and handle fluctuations in the energy markets.

Oh, and we can help you bring down your carbon emissions too.

Ready to start planning?

Let’s get the conversation started – call us now on 0151 601 3476 or email [email protected]