Large users push for big discounts

9 March 2000
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09 March 2000 | Liam O'Brien

Large electricity users are being advised to adopt a tough stance in their negotiations with suppliers over their new contracts, which take effect on 1 April.

Purchasing managers are locked in talks with suppliers and, according to energy analysts, new market arrangements mean that they should be in line for discounts of between 10 per cent and 20 per cent.

Electricity companies are in a weakened bargaining position as the New Electricity Trading Arrangements (Neta) means that they can only produce as much power as their customers demand from 1 November. This will replace the "pool" system, under which they can generate excess power.

Because there is a finite number of larger users (those using more than 100 kilowatts a year), electricity companies are eager to win their business, and new cost-cutting targets from regulator Ofgem have now put it at a premium.

Chris Lewis, chairman of CIPS's energy committee, said: "Suppliers want those larger customers and there are not enough of them to go around. If you pay more than £100,000 a year for electricity you have a strong bargaining hand."

Brian Love, a member of the Major Energy Users Council strategy group, a club for 200 leading utility buyers, agreed. "We are already getting hefty discounts for deals from 1 April onwards, and it is Neta that has made these possible," he said.

Energy consultants say firms paying less than £100,000 a year on electricity should also be able to win discounts. They have been advised to approach a range of suppliers and check the market rate before agreeing contracts.

Neta is expected to bring UK electricity prices more in line with the rest of Europe. Although the UK market was deregulated more than a decade ago, prices are still significantly higher here than in many other countries.

Energy analysts John Hall Associates claim that German generators charge an average of £10 per megawatt hour, compared with £21 in the UK.

However, suppliers are doubtful that the reductions will last. Howard Blanch, energy sales manager at Scottish & Southern Energy, said: "We are seeing a huge fall in price, but I think this is a temporary depression."

Analysts have also warned that discounts could be wiped out from 1 April 2001, when chancellor of the exchequer Gordon Brown introduces the climate change levy. This will add 0.43p per kilowatt hour to non-domestic bills.

SMmar2000

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