OPINION EXCLUSIVE: How the care sector can safely navigate its energy costs for 2024?
Corin Dalby, chief executive of energy consultancy and community interest company, Box Power, offers his thoughts on the year ahead
When you consider it was only 18 months ago when the sector was facing unsustainable energy costs at £6,000 per bed, including huge supplier ‘risk premiums’, when the first question a lender may have then asked, was “what is my energy cost hedging/exposure?”, I am not sure many would have imagined they could now see renewal prices at just £1,100 p/bed as they are today.
We are finding from new groups enquiring in today’s market where total prices (ie for the commodity and non-commodity combined) are available, that they are approaching levels that are financially affordable and offer greater opportunities for providing good forward-looking budget certainty. History shows February can often become the sweet spot for advance October renewal fixing and especially if coming out of a mild winter with plenty of gas storage.
On the supply side, there are many positives that have helped bring prices to such low levels, including low carbon prices, high wind/green generation, plentiful LNG tankers and EU gas still in storage, Brent oil at just US$77 and a Chinese market so depressed it has many of its steel factories mothballed because inventories are so high. But how much of this is already factored into today’s prices?
Wholesale electricity prices
Overall, we could assume these many geopolitical risk events will stay muted, however, it is perhaps prudent to note what can be learnt from our analysis last month of the £4.5 billion energy spend by the public sector. This found it was noticeable that successful buying strategies came from using a proactive approach to risk with the lower prices having been bought at multiple entry points of time for different forward seasons and different portions and up to three years in advance. Local authorities would have saved £700 million had they adopted that approach!
So, to stay ahead of the game this year, we would suggest care home operators try a proactive approach by locking down a strategy on price, tendering their broker process sooner (if that has to take place first) and then quickly seek a full tender process ASAP to determine the likely lowest supplier versus their incumbent. This is so they can make an informed decision and are already in a position to move quickly if the markets move in the opposite direction based on their pre-agreed price triggers.