Energy costs are soaring follow Russia's war in Ukraine © Photo by Sasha Mordovets/Getty Images
Energy costs are soaring follow Russia's war in Ukraine © Photo by Sasha Mordovets/Getty Images

Why it's time to rethink energy procurement

3 August 2022

Energy supply chains are “broken” and need a major reconfiguration, business leaders have warned. 

Organisations are facing soaring energy costs following Russia’s war in Ukraine, which is increasingly threatening business viability and creating “exceptional problems” for procurement teams.

Data shows more companies are going bust and there have been calls for government intervention in the wholesale gas market.

Eddie Proffitt, technical director at the Major Energy Users Council, told Supply Management: “The energy market has collapsed. The only people who are offering you a renewal of the contract are your existing supplier. There's nobody out there looking to increase their business. [...] The market is shrinking. And for a buyer currently, who do they go to, other than their existing supplier?”

He continued: “The market from a buyer's point of view is broken. There isn't a market.”

He said the cost of a therm of gas will reach 350-400p in the coming winter – up from around 50p a year ago. “There's a lot of concern out there for a buyer,” he said. 

Proffitt said the government had “totally ignored” calls to reduce levies and VAT on energy bills. Currently, businesses pay 20% VAT on energy bills, which if cut he said would “certainly provide relief, let's put it that way”.

Government statistics show there were 5,629 company insolvencies between April and June. This is up 13% on the previous quarter, and up 81% year-on-year. 

The latest quarter included 4,908 creditors’ voluntary liquidations, where a company chooses to fold – the highest quarterly figure since the start of the data series in 1960.

Soaring bills come as energy giant BP saw underlying profits reach £6.9bn in April-June, over triple the figure from the same period last year. 

Dale Vince, founder of green energy supplier Ecotricity, said there needs to be a rethinking of wholesale energy markets so that the UK isn’t overpaying for gas from the North Sea. He called on government to intervene in the energy market. 

He told BBC Radio 4's Today programme: “Last winter 50% of the gas we used in this country came from our own North Sea, but we paid a global price for it, creating windfall profits in the hands of some people. We didn't save a penny because we have 50% of our gas made from our own supplies. People that say we just need to drill more or frack – they're not living in the real world. It doesn't matter how much fossil fuels we make here if we allow international markets to set a price. This is what happens.”

He continued: “It’s an exceptional problem. And this is why I think the government should step in like they did with the pandemic where we spent £400bn as a country to get ourselves through the pandemic more or less whole.”

Craig Lowrey, principal consultant at energy market consultancy Cornwall Insight, said the energy market is becoming “an increasingly volatile place” with insecure energy supplies to the EU and further afield forcing prices to rise to “unseen levels”.

He said: “In the medium to longer term, we need to see a continued commitment from the government to reduce our reliance on imported energy, through increasing renewables and greater financing in demand side policies, including the report’s suggested insulation investment. Only then will we see a secure, and affordable energy market, which delivers for everybody.

“We also cannot forget the need to minimise unintended consequences from well-intentioned but ill thought through regulatory changes.”

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