Energy Procurement

Energy Market Update | 07/03/2022

Following the previous update, GAS has closely monitored the energy market position for the benefit of its customers and partners.

This briefing update was created on 07/03/2022.

Unprecedented disruption

As the world watches the conflict in Ukraine unfold, key marketplaces have become volatile.

The scarcity of natural gas within Europe continues to be the main driver of energy price rises, which has been caused by low Russian supply levels to the continent and member countries looking to reduce their reliance on Russia.

The UK doesn’t use much Russian gas

Russian gas only accounts for around six per cent of the UK’s electricity generation from natural gas.  The issue is that countries such as Germany and Italy are far more reliant on them.

This drives demand for gas from other places higher and, hence, increases its market value.

The UK’s usual sources, including the USA and Norway, now have more customers knocking at their door.

UK energy suppliers won’t offer contracts

The UK’s energy suppliers have spent much of the last week refusing to offer contracts to businesses.  The levels of volatility in the market mean that they are struggling to accurately price their product and could easily leave themselves out of pocket.

As we have seen since 2021, suppliers are at risk of significant losses and rendering themselves insolvent if they sell at the wrong price.

This is leaving businesses on dangerous out-of-contract rates, which can be much higher than they have been paying.  There is no price cap for business energy, leaving no limit to the financial penalties associated with running out of contract.

For the periods where suppliers have been offering contracts, they have built unprecedented levels of risk into their pricing, offering gas prices as high as 16p, which were a quarter of that cost 12 months ago.

This situation is changing on an hourly basis.  At Great Annual Savings Group (GAS), we work with the UK’s supplier market and have been working with prices which have been available for just one hour in some cases.

If your business is struggling to get a price, speak to GAS and we can alert you when prices become available as we work directly with suppliers and are notified of their positions at points of change.

How long will the energy price crisis last?

The crisis, which began to show impacts in the second half of 2021, was initially predicted to improve by summer 2022, however the conflict in Ukraine has pushed supplier estimates much further out until at least 2023.

Deputy Prime Minister Dominic Raab appeared on Great Morning Britain on 1 March 2022 and described the situation in Ukraine as: “along and protracted crisis”.  This will force many businesses to engage with a difficult market to avoid dangerous out-of-contract rates.

Can businesses protect themselves from the energy price crisis?

There is certainly no silver bullet solution to the current situation.

Suppliers’ future pricing curves are suggesting lower rates when they estimate the price crisis will ease.  However, it is important to consider that these curves change daily and should not be used to make concrete long-term plans.  They represent a snapshot of a supplier’s opinion at that moment in time.

Suppliers’ pricing curves are useful for providing cost certainty and the ability to plan with contracts for determined periods.  They should not be used for predicting the future price of energy.

There are no attractive energy prices possible in the current market; but securing cost certainty for the next three to five years is certainly a worthwhile exercise and can be done in a number of different ways with the assistance of an expert.

Get advice

Great Annual Savings Group can offer free advice and practical advanced procurement solutions to help your business prepare.

As we always say, you should concentrate on what you can control.  In this case, future cost certainty has a huge value to a business to counteract volatility.

If you would like guidance, simply complete the form on the right of this blog and an expert at GAS will call you for a free, no-obligation discussion.

Alternatively, email our team.

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