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September 2011 | Angeline Albert
buyers could cost their organisations money by failing to develop a suitable
procurement strategy, a consultant claims.
Priestley, senior partner at utilities consultancy British IndependentUtilities, is expected to tell attendees at The Energy Event, taking place over the
next two days in Birmingham, that too many buyers are getting it wrong when it
comes to energy purchasing.
to SM in advance of the presentation,
Priestley warned purchasers against “overreacting” to any news of price
changes, which he said was a common pitfall that can cost organisations more
than if they followed a good strategy.
the market jumps up, buyers buy - but at least 50 per cent of those doing so
are overreacting,” he said. “They are also locking into a price too late, which
ends up costing them more money.”
said purchasers should avoid the practice of excessive locking and unlocking
into energy prices as a general tactic. He said the result only drives up
prices for everybody, because it indicates demand to vendors who then push up
said buyers need to conduct an in-depth technical analysis of market prices, to
spot and examine trends, to help them buy at a price below the market average.
However, this does not mean following the same purchasing strategy as everybody
purchasers do an assessment of the market. Buyers must analyse the strategy of
other energy buyers and avoid it in order to out-buy them. Another problem is
executives who hear some news about price changes and tell buyers to act.”
recommended purchasers secure the support of directors for their energy buying
strategy, ensure the approach is reviewed against past metrics and assessed by
a third-party, and understand how the plan will work in the marketplace before
putting it in action.
Cram, managing director of consultancy Marc1 who advises on energy buying, told
SM: “Some of what has been said is
true. One of the problems energy buyers have is that some are not experts in
the market. They have limited oversight of what’s happening. It could sometimes
be an issue of it being ‘little more than gambling’.
“It’s a very specialist area. If you don’t have access to the data that tells
you what’s happening around the world your strategy won’t work. Most organisations
I have come across don’t have the capability to buy effectively.”