Energy4housingAssociation

Energy: Consumption, Costs, and CSR

At a time when the Big Six are promising 5% discounts on energy bills for residential energy consumers, the same residents can enjoy savings of up to 20% on gas bills and 10% on electricity bills, compared to a year ago, if their energy is bought by their managing agent or housing association on their behalf.

This is made possible by tendering the energy requirements of a large portfolio, where the energy consumption is so much greater, rather than offering a supplier one small meter, for example. Efficiency through scalability is what it’s all about: the more KWhs, the sharper the price.

It can be a long road to a fully cleansed site list as many of these multi-site companies have no centralised process for agreeing supply contracts, with a number of individuals authorised to sign contracts with whichever supplier tickles their fancy.

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Improving Energy Costs in a World of Diminishing Returns

The energy side is often overlooked when trying to optimise costs and improve operational efficiency, which is surprising as, in some cases, energy (gas and electricity) constitutes up to 30%-40% of the overall operating costs (e.g. cement industry). In some industries, this is a company’s second biggest cost. The main goal of cost optimisation is, naturally, a margin increase. It will, in turn, increase the ROCE and valuation of your business, amongst other benefits.

I have talked about the significant leverage of savings on energy costs in my previous post. In this post, I will focus on the different layers of your energy budget as it is becoming less relevant to mitigate the commodity component of the energy costs. We will soon see the commodity element reach 30% of the overall energy costs whilst the remaining 70% will be the non-commodity elements (network and policy/green legislation costs). Just a few years ago, this split was 80%/20% (commodity/non-commodity). Your stakeholders, however, are unlikely to be interested in the details around that increase of the non-commodity element and the associated loss of mitigating power of your energy budget. They are interested in savings of the operational costs, increasing margins, returns on assets, and capital employed. I will, therefore, review the dimensions to look at to reach further savings within your energy budget.

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