Fully fixed contracts have the commodity cost and the Third Party Charges fixed for the duration of the contract and are usually not subject to change. If your business wants budget certainty then a fixed contract is the ideal choice. All agreed unit rates are secured for the length of the contract – meaning you know in advance what you’re paying.
You often pay a higher price for the security as the supplier takes the risk – suppliers can include a risk premium in the unit rates to cover any legislation change that would result in Third Party Charges increasing. You are also bound by the volumes set at the time of purchase, unless you have agreed a volume tolerance free contract – this is something which has been problematic for many businesses during COVID-19.
Pass Through contracts split your energy bill between the fixed commodity costs (the cost of your energy) and non-commodity costs (third party charges) which can vary over time. This means any non-commodity charges the supplier incurs will be passed to you, and you take the risk of these costs increasing.
Pass Through gives you the ability to benefit if the non-commodity costs fall in the future. These contracts also give you the opportunity to manage your usage patterns to avoid time of use periods, which can be beneficial and potentially lower your energy bill.
You don’t get the budget certainty of fully fixed and these contracts are much more complicated. With many of the third party charges being passed through, suppliers often bill on assumptions of what those charges could be and then reconcile. This means you may see additional charges not originally budgeted for on your bill.
Flexible contracts is a buying strategy where the commodity costs are determined by how your volume is traded throughout your contract and the third party charges are passed through.
You can buy in smaller chunks, taking advantage of fluctuations in the market and locking in prices at optimum time. By taking full buying control, there is potential for good savings opportunities; if you know what you’re doing.
There is no budget certainty on a flex contract. The commodity cost is determined by how it has been traded and the third party charges are subject to reconciliations in the same way pass through contracts are.
What ever your appetite for risk, make sure you work with an energy partner who understands the markets and your business requirements. Whether it’s a budget certain fixed energy contract, a variable passthrough contract or a risk managed flexible energy contract our Energy Traders work with hotel clients to choose the best contract for them.
Net Zero is on every business’s mind, so we’ve asked our Director of Sustainability, Peter Catlow, to put together a quick guide to help you understand Net Zero, what it is, why it’s important and when you need to take action.
What does Net Zero mean?
Carbon Net Zero refers to the balance between the amount of greenhouse gas (Carbon Dioxide, Water Vapour and Methane) produced and the amount removed from the atmosphere. We reach Net Zero when the amount we add is no more than the amount taken away. (National Grid)
What is a Net Zero target?
To achieve Net Zero it is necessary to address the three levels of emissions created by a business (or individual). These levels are known as Scope 1, 2 and 3.
Scope 1 – Directly created by your business.
Scope 2 – Created by your use of fossil fuel-generated energy.
Scope 3 – Created by your supply chain.
What’s driving companies to set a Net Zero target?
Mandatory Reporting
Government policy
UK government has set a target of being carbon neutral by 2050, and are incentivising businesses to make this a reality. Bans on gas-powered vehicles by 2030; investment in renewables; tax breaks for EV cars are just some of these incentives.
Customer attitudes
Consumers are taking into account the footprint of the businesses they buy from, not taking this into account could be fatal to your cash flow.
Cost reduction
Cutting your consumption also cuts costs, lending a helping hand to the cause can actually save you money.
Climate change is a serious threat
Rising sea levels, extreme weather, wildfires and droughts are symptoms of climate change.
When should companies aim to be Net Zero?
Current Government targets are to be Carbon Net Zero by 2050, although the sooner you set out on the road to Net Zero the sooner you reap the benefits, environmentally, reputationally and economically.
What’s the first step to Net-Zero?
Measuring your carbon footprint and assessing areas of improvement is key.
Start with Scope 1 and 2 emissions as they are under your direct control, then look to understand your Scope 3 emissions.
Answering these questions is a good start:
Which internal stakeholders should be involved?
Short answer: everyone. Net Zero is a large scale operation and for it to be successful, everyone needs to be involved.
It speaks to a wider purpose, relating to the future of our upcoming generations, our environment and the planet.
The UK has curbed its electricity demand during the last decade, using almost 20% less electricity in 2020 than it did in 2010. Even ignoring 2020 data as an outlier, 2019 showed a 14% reduction in demand compared to 2010 figures.
This combination of reduced demand and changing the mix of the electricity on the grid has enabled the UK to reduce its scope 2 emissions by 70% over the decade, but there is still more work to be done to meet ambitious targets set for 2030 and furthermore to be carbon Net Zero by the planned 2050, particularly if the UK’s demand for electricity is likely to double as anticipated in the Governments latest Energy White Paper.
Investment in offshore wind will increase the share that renewables will be expected to bear and while nuclear power will continue to provide baseload. It is expected that carbon taxes on gas will increase considerably, making current ‘gas to grid’ generation much less attractive than it is today, further increasing the reliance on renewables.
Hoteliers can get ahead of the curve and all but eliminate their scope 2 emissions from electricity now by committing to purchasing 100% renewable power as part of their electricity supply contracts, and products like the 100% renewable energy basket from Businesswise Solutions can provide access to premium & emissions-free power regardless of the size of your hotel.
Hardware in a business is a big consumer of energy, so energy auditors will often look to these to cut energy consumption. The usual focus on a site audit in terms of hardware is on the larger energy consumers such as:
- Chillers
- Compressors
- Large process equipment
- Lighting
- HVAC Systems
- Checking all controls are set to automatic
The reviewing of these assets is paramount, as they are often essential to the operation of the business. A failure to review the health of an asset can result in higher energy consumption due to inefficiencies and further down the line, shutdowns if/when they need repair.
Conducting frequent reviews of these assets and employing a comprehensive Planned Preventative Maintenance (PPM) schedule minimises the risk of downtime massively. When doing an assessment, look at the age of assets, typically the lifespan of large assets is 15-20 years, but many businesses exceed this, resulting in old, degraded and less efficient machinery.
Hardware in a business is a big consumer of energy, so energy auditors will often look to these to cut energy consumption. The usual focus on a site audit in terms of hardware is on the larger energy consumers such as:
- Chillers
- Compressors
- Large process equipment
- Lighting
- HVAC Systems
- Checking all controls are set to automatic
The reviewing of these assets is paramount, as they are often essential to the operation of the business. A failure to review the health of an asset can result in higher energy consumption due to inefficiencies and further down the line, shutdowns if/when they need repair.
Conducting frequent reviews of these assets and employing a comprehensive Planned Preventative Maintenance (PPM) schedule minimises the risk of downtime massively. When doing an assessment, look at the age of assets, typically the lifespan of large assets is 15-20 years, but many businesses exceed this, resulting in old, degraded and less efficient machinery.
Behavioural change is a huge part of creating a positive transformation in your hotel’s energy consumption patterns, and it’s a relatively low/no-cost way of doing so. When looking at behavioural change, to begin with, auditors will focus on a few key areas, most notably:
- Technology – are energy-saving modes being used?
- The pre-existing energy-saving mindset in the business
- Correctly set thermostats
- Windows and doors being closed at the right times
- Are staff willing to engage?
Stressing a common goal across the business committed to saving energy makes energy efficiency easier as inaction can lead to more energy waste, which in turn means having to report a larger carbon footprint.
To ensure this doesn’t happen, auditors will employ a strategy that encourages workers to change their energy habits through education, and set up green teams and other resources that put a focus on energy efficiency.
Infographic: Triad Reconciliations
The TRIAD period runs between November and February, the official dates are released by the National Grid in March each year and are based on the 3 highest peaks of demand during this period (Nov-Feb), taking into account the ‘10 clear day rule’.
To factor these TRIAD charges into what hoteliers are invoiced, suppliers estimate what a business is likely to consume during these peak periods and charge accordingly throughout the year. The TRIAD charges a hotel pays in advance are held until the actual TRIAD periods are released.
Once the dates are announced, suppliers will review these published periods to check that the invoiced charges over the year cover these charges and will reconcile as needed. The reconciliations appear on customers’ invoices between April and June and can be in the form of a credit or additional charges.
If hotels were able to avoid the TRIAD periods over the course of the winter period then they will probably see a credit on invoices, however, if they did not take action or were unable to avoid the warning periods then they will probably see an additional charge on their reconciled invoice.
Triad periods for 2020/2021:
7th Dec 2020, 17:00 – 44,353 MW
7th Jan 2021, 17:30 – 45,328 MW
10th Feb 2021, 18:00 – 44,886 MW
Businesswise Solutions Triad alerts correctly predicted all three winter 20/21 triad periods.
COVID19 has had a considerable impact on the UK economy and has resulted in further issues for hotels when it comes to arranging energy supply contracts. The hospitality, leisure and tourism industries have been impacted more than others.
The COVID Credit Crunch is creating a number of scenarios where suppliers are unable to provide businesses with the required credit, which has a knock on impact, with businesses typically being left with one of three options:
- They are forced to take out contracts with alternative suppliers that might not meet all of their objectives or requirements
- They are forced to pay security deposits upfront, where previously this wouldn’t have been the case
- They are having to accept paying premiums of up to 10-15% on their contracts.
Whilst it depends on the supplier, more businesses are now seeing a requirement for a case to be built on their behalf, in order to prove their eligibility for credit. If you find yourself in this situation make sure you work with an energy consultancy that understands your requirements.
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