Local Authority Buying Options – Focusing Your Energies

We are delighted to feature this guest post from Nathan Smith, Key Account Manager at Gazprom Energy, who asks: what new opportunities are available for local authority energy buyers?

Good value, minimal hassle, and having a reputable and approved supplier have traditionally been the crux of energy buying for local authorities. Many have opted to buy through energy frameworks or large traditional providers considered to be low risk to reduce internal time spent on energy decisions. In contrast large private sector organisations view energy as a strategic buying decision, often favouring flexible purchasing contracts in order to take advantage of fluctuating market prices. However, as a provider to local authorities we’re seeing procurement managers’ attitudes change, with many starting to explore wider options and ways of procuring energy.

When the extent of the public sector spend deficit was revealed in 2010 pressures to cut costs grew, and a change in government resulted in additional cuts to spending. This gave local authorities a reason to reflect on their overheads, with energy becoming a key focus.

The evolution of frameworks for energy and many other key spend categories allowed the sector to buy from pre-sourced and approved suppliers at agreed prices. Due to the increasing number of austerity measures, local authorities have needed to become more stringent over spending and more creative about how they do so. As a result we have recently seen a rise in the number of local authorities moving away from traditional energy frameworks in order to seek a better deal on the open energy market.

We’ve recently worked with a group of neighbouring local authorities who have come together to create an energy buying consortium. Pooling their energy needs and buying power has enabled them to gain a better deal on a larger volume of energy. By taking the procurement best practice that comes with a framework but also the control of who they buy from and how that relationship is managed, local authorities potentially gain more control when it comes to managing their energy efficiently across numerous sites.

Another trend we’re seeing is local authorities favouring flexible energy contracts over traditional fixed-price contracts. A fixed contract allows local authorities to keep energy costs static and predictable regardless of what happens to market prices. In contrast, flexible contracts involve buying energy when you choose to, determining the price based on when and how much you buy. This enables you to buy future energy at a low price, trade as prices fluctuate, or simply let market fluctuations determine what you pay. Not all local authorities have the internal requirements to procure flexibly, so this route isn’t feasible for all. But we’re seeing more consider this option, and some are seeing the benefits of working with suppliers that can help them reassess their risk profile and choose the right fixed or flexible contract for them.

Some local authorities are turning the public services they deliver into shared services that they can provide to other councils and public sector bodies, meaning they can generate revenue while offering other areas of the public sector cost-efficient, value-added services. One of these areas is facilities management (FM). Considering the large number of physical premises and properties that a local authority needs to manage, it can be cost-effective to outsource this to another local authority excelling in this area. Energy is a key component of these FM services. To make them commercially compelling, providers are seeking more than low-risk energy provision; cost-efficient energy buying is as important when delivering a high-quality, competitive and cost-efficient FM service.

So what does all of this mean if you’re a local authority procurement manager? Well, be sure to consider your current method of energy buying beyond the level of risk involved; is it also cost beneficial? As energy buying options increase, it’s important to ensure you consider all of your available options, and to know your options outside of purchasing frameworks. Public sector buyers may still need to be more risk conscious in their buying than the private sector, however it is worth considering factors such as the type of contract and the additional opportunities available, to help you take control of the energy you buy.

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