In October 2022, Proxima hosted a briefing with Richard Cockburn, Director at energy specialists Flow&Ebb, in partnership with Odgers Berndtson, to discuss the current energy crisis in the UK and how it is impacting procurement.
Richard has 30 years of experience as a consultant across energy and commodities trading. He has advised many large buyers of energy on their energy supply and usage to develop their sustainability and procurement strategies.
A vulnerable industry
Richard spoke about the volatility of the energy markets during the tumult of the past two years – from lower demand during the pandemic to higher demand post, which has caused constant inconsistencies in pricing.
After the energy markets crashed in 2020, in some European markets the reduction in carbon demand was as high as 85% by April, resulting in a surplus of energy with no financial benefits. In stark contrast, by 2021, as the world looked to recover from the Covid-19 pandemic with increased demand coming in from China, large amounts of gas supply were being redirected, leaving gaps in other areas of the world. Then Russia invaded Ukraine.
All of this has led to an unstable few years, particularly in the UK, which has only been worsened by recent events in parliament. With energy caps scrapped and markets failing to deliver proper price warnings, the impact on both businesses and consumers is hard-hitting.
Previously thought of as an unavoidable cost of doing business, the cost of energy is forcing some businesses to restructure their operations.
Driving forward a new sustainability agenda
Looking ahead, businesses may need to move away from a centralized grid toward generating their own energy, perhaps by collaborating with neighboring businesses on localized supply networks. The government should be looking to incentivize these changes.
It’s now more important than ever to drive forward the green agenda and invest in increased storage capabilities. This is already happening across Europe, with solutions as simple as investing in battery systems – a technology we expect to experience improved performance at ever-reducing costs.
In the UK’s climate, solar and wind-generated power are unpredictable at the best of times. But combined with the capacity to store renewable generated power, they become both more predictable and reliable. However, as the cost of borrowing and capital rise, renewable investment is at risk. The government would be well advised to intervene if the UK is to hit its target of 50GW offshore wind power by 2030.
Advice for CPOs?
Richard outlined the importance of carrying out commercial due diligence and carefully considering the length of agreements with energy suppliers.
A good price in today’s economy might not be as attractive three years down the line. It’s time to look ahead to when the market may start functioning ‘normally’ again and consider owning your own assets for small scale energy generation, allowing you to have control over your supply and to hit your green targets. Where possible, get to know your neighbors and consider creating a collaborative smart grid with other producers in the area to share cost and resources. This will help us move away from the monopoly of a centralized network in the UK.