Volatile energy prices, 2012 and beyond.

With gas and electricity commonly being the second highest out-going cost for many organisations across the UK, it is important to understand what direction energy costs are going in the foreseeable future. The heavy fluctuations on the wholesale market are mirrored in the final costs to customers. It is important to understand what you can do to ensure your organisations expenditure is minimised.

It is expected that the world’s population will increase a further 1.4 billion over the next 20 years. This mixed with the current economic development of many emerging markets means that the demand for the world’s resources are being stretched to levels never seen before. Much of the world’s easily accessible oil is now depleted, and despite not yet running out, the costs of exploration and harvesting has dramatically increased. This has resulted in the costs being passed on to the bill payer. A simple question of supply and demand some might say… if only it were that simple.

Last year was considered to be one of the best performing years for commodities on the open market; this year prices have continued to follow that trend. For the first time since 2008 the price of a barrel of oil has surpassed $128 . There is also a fear of a potential shortfall in nuclear power whilst the transition from the decommission of our current nuclear power plants to the new plants being developed with the French government. This inevitably all adds to the increasing volatility of energy prices.

The diversification of our energy resources has helped to reduce our dependency on fossil fuels and this will aid the long term sustainability of our energy supplies. Renewable investment continues to grow with other slightly more controversial methods including nuclear power and fracking providing much heated debate.

In the UK, Ofgem has recently committed to reducing confusion and mis-selling within the marketplace. Historically Ofgem’s focus has been protecting domestic consumers, but they are now taking a positive interest in both supplier and third part intermediary (TPI) practices. Whilst it is still the view that business are big and ugly enough to deal with matters themselves, it is Ofgem’s belief that the market place should adhere to tighter regulations. Please click here to find out more (Link to TPI news article).

So what does this mean for your company’s energy bills? In essence, prices are predicted to continue too steeply rise. However, in the short term, high levels of unpredictable fluctuations will continue to dominate the market. It is therefore vitally important that you ensure your organisation procures the right energy contract, at the right time, with the right supplier.