London councils should aggregate demand on energy

24 September 2008
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25 September 2008 | Andy Allen

London boroughs could save ten per cent a year on fuel bills by switching energy buying from traditional fixed contracts to aggregated, flexible risk managed contracts, according to an energy advisory body.

The London Energy Project (LEP), which is funded by improvement and efficiency partnership Capital Ambition, believes councils could achieve dramatic savings by aggregated energy buying and purchasing on wholesale markets through purchasing consortiums.

LEP change manager Amanda de Swarte said individual boroughs did not have the purchasing power necessary to enter wholesale markets. However by combining demand and using purchasing consortiums boroughs could take advantage of wholesale prices and hedge risk - a process where purchasers mitigate the risk of volatile prices by paying a premium to fix prices in the future.

Up to five per cent of savings can be accrued by flexible contracts with a further five per cent saved through larger contract volumes and reduction of risk premium.

The LEP has recommended three providers: energy buying group Laser and, which operate in the local government market, and The Energy Consortium (TEC), which is planning to enter the market.

The LCE is working in partnership with a pan-government review sponsored by the Ministry of Defence that aims to reduce energy costs by adopting modern procurement tools (News, 31 July).


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