Energy consultancy, Inenco, is urging NHS Trusts to ‘re-think their approach’ to energy buying to reduce costs and mitigate against rising prices.
The company said: “NHS organisations have faced 10 consecutive years of price rises, placing a strain on already-stretched budgets, and diverting funds away from frontline resources.” Against the backdrop of what it says is a prediction of up to 50% higher costs over the next decade, Inenco is urging Trusts ‘to act now’ to counter higher prices. It says its ‘Options’ buying portfolio is currently delivering up to 15% savings for Trusts by securing better wholesale prices.
Inenco said: “The majority of NHS Trusts traditionally procure energy once a year, fixing their costs to ensure total budget certainty for each financial year. However, locking in a price can be risky; fixed contracts carry a risk premium, and provide no flexibility to act should wholesale prices fall, leaving organisations paying over the odds.”
Inenco says Trusts can still ensure a high degree of budget certainty, ‘but get a better price for their energy’, by taking a longer-term approach and considering more flexible procurement. It claims its ‘Options’ portfolio can provide ‘a better mix of buying strategies, that maintain a low risk approach to procurement’. The company explained: “The Capped Strategy offers cost certainty by setting a maximum commodity price (with a guarantee that the price will never exceed that point), but organisations can still benefit should market prices fall. It is also possible to place a proportion of volume into more flexible strategies, such as the ‘Trend strategy’, allowing expert traders to follow market movements and buy during market lows.”
Inenco continued: While long-term trends show a steady increase in energy costs, many of these rises are fuelled by non-commodity costs – the taxes, levies, and system charges that now make up 60% of the bill. Savvy NHS Trusts can take a longer-term approach to buying and act on short-term drops: the wholesale market has seen a sharp drop in recent months for prices out to 2023, allowing organisations to trade at market lows and lock in low prices for years to come.”
Mark Winn, lead consultant, public sector, at Inenco, said: “Inenco’s own analysis has found that organisations buying their energy across a three-year window benefit from up to 15% lower prices compared with a one-year fixed price contract. The NHS Improvement Plan supported £100 million of savings in 2017/18, but with the current NHS energy spend exceeding £550,000 each year, 85% of this plan could have been achieved with a prior long-term energy strategy. NHS Trusts can’t afford not to act.”
‘To put the savings into context’, Inenco says ERIC data shows the average acute Trust spends £1.2 million on electricity and £423,000 on gas each year. A 15% saving translates to just under £250,000 in savings each year. Similarly, it says, a non-acute Trust (with an average spend of £215,000 on electricity and £54,000 on gas) could save up to £40,000 each year.
A special report on reducing cost and carbon in the NHS is now available at www.inenco.com/nhs-trusts/. Alternatively, email nhs@inenco.com ‘to find out how your organisation could stem increasing energy costs and benefit from better prices’.
