Energy - East Sussex · Liquified Petroleum Gas ... With an increased focus on energy efficiency...

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Buildings Energy Performance Review 2015/16

Transcript of Energy - East Sussex · Liquified Petroleum Gas ... With an increased focus on energy efficiency...

Page 1: Energy - East Sussex · Liquified Petroleum Gas ... With an increased focus on energy efficiency and demand management, ... corrected demand forecasting for variable gas baskets.

Buildings

EnergyPerformance Review 2015/16

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1. Introduction 03

2. Value proposition 04

3. Key achievements 2015/16 05

4. Trading 08

4. Looking forward 2016/17 19

6. Feedback 21

Contact details 21

Contents

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1 Introduction

We are delighted to report that during the 2015/16 financial year the Crown Commercial Service was responsible for the procurement and delivery of almost £2.1 billion of energy spend across the public sector, providing a comprehensive service offering and securing an outstanding saving for the public purse of £75 million.

Our approach to hedging the electricity and gas commodity requirements has meant we have been able to take advantage of falling wholesale prices. The achieved prices have in the majority of cases beaten the wholesale market average prices on all our purchasing. For more information on this performance see section 4 Trading.

We have rebranded our category from ‘Energy’ to ‘Utilities & Fuels’ to demonstrate the broader scope of our offerings – for example the inclusion of Water in 2017. We have continued to strengthen our service to help our customers effectively manage their portfolio and reduce demand. We are strongly focused on Utilities and Fuels saving initiatives to help our customers reduce their consumption.

As previously reported, the Utilities & Fuels category has been amalgamated with Facilities Management and Construction to form a Buildings category. The focus is to exploit the synergies available to better manage demand and make efficiency savings.

It would be remiss not to acknowledge the difficulties some of our customers have faced in dealing with British Gas billing issues. It has been a challenging period but we have used our collective power to work towards resolution, with invoicing performance and customer service having now significantly improved. We continue to work closely with both our customers and British Gas as we attempt to return to a “business as usual” state. In a limited market all customers are, to some degree, exposed to suppliers changing systems, but we have learnt valuable lessons for our future procurements, and would like to thank our customers for your patience and contribution during this time.

Finally, we would like to take this opportunity to thank all the customer representatives who have given their time, as well as all of you who have contacted us with feedback, to help us develop our service. We are always keen to listen to your views so please keep your suggestions coming in.

As one of the UK’s largest independent energy buyers (outside of the big six suppliers), the Crown Commercial Service holds a unique position within the marketplace. This allows us to aggregate volumes to achieve sustainable savings, develop innovative solutions and provide our customers with a value added managed service.

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We continue to deliver a wide range of benefits for customers including:

� Direct access to the wholesale markets which increases our ability to manage risk via a range of flexible and locked purchasing options, and provides leverage for enhanced savings opportunities and improved supplier offerings.

� Access to a range of products, some with commitments of only one year.

� Focus on increased sustainability, operational efficiency and demand management initiatives

� Constant innovation to drive value and help manage usage.

� Focus on cashable savings driven both by the benefits of aggregation and trading effectiveness, and also by operational and framework improvements.

� Very low cost to serve margins and dedicated customer service teams with our suppliers.

� Professional energy trading team supported by a full suite of market intelligence tools, subscriptions and live broker screens.

� Development of new products and initiatives across both Utilities and Fuels, including Utilities Management Software, Metering and Ancillary Services to deliver a suite of services around a best in class AM&T solution. Liquified Petroleum Gas(LPG), solid fuels including biomass, lubricants and greases, metering and telemetry and fuels ancillary services.

� A transparent fee structure with no hidden charges.

� Robust governance to ensure the purchasing strategy is adhered to and unnecessary risks are not taken with public money. This includes an independent risk team; an external governance board with representation from across our customer base; and an independent market expert.

� Rigorous and fully EU compliant contractual arrangements and procurement processes, which not only save you time and money on tendering, but ensure you and your organisation are not open to the risk of breaching procurement regulations.

� Formal supplier performance management process that takes into account customer feedback.

� Dedicated online customer service portal - Energy.gov.

� Increased efficiencies through our involvement in the delivery of government energy initiatives, such as Demand Side Response.

� An extensive range of communications providing budgetary and market guidance.

� Tailored advice and support to meet your needs efficiently and effectively.

� A soon to be implemented extensive change programme of our Utilities and Fuels data management capabilities including access to greater granularity of portfolio data and increased frequency of reporting.

2 Value proposition

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3 Key achievements 2015/16

Operations:As a result of a fully EU compliant procurement exercise, new agreements for the supply of gas (Corona Energy) and half hourly (HH) electricity (EDF Energy) have been awarded, with supply commencing on 1 April 2016. Each of these agreement, includes the provision of additional services covering:

• site works and installation services;

• consultancy;

• automated meter reading (AMR) services

These services provide customers with extensive pricing benefits and support the increased focus on demand management and efficiency savings to help customers manage their energy portfolios.

The procurement exercise for the new Non Half Hourly (NHH) Electricity agreement is currently underway with an award expected in the second quarter of 2017.

Other procurement exercises currently being undertaken include Water supply and efficiency products, Demand Side Response (DSR), Fuels, and Utilities Management Software, Metering and Ancillary Services including utilities software solutions, bureau services, Half Hourly Meter Operator Provider (MOP), utilities metering services and Data Aggregator/Collector services. These procurements will be going live in 2017.

With an increased focus on energy efficiency and demand management, we have continued to work with our suppliers to identify new and enhanced savings opportunities. Great progress has already been made across a number of savings initiatives for CCS half hourly electricity customers including those covering:

• demand shifting,

• transmission charges,

• distribution charges,

• supply capacity charges,

• triad warnings.

Customers have been supported by the introduction of personalised savings plans, which help to identify individual customer’s savings opportunities and values.

In collaboration with British Gas, we have continued to support our non half hourly customers, with the cost neutral roll out of automatic meters (AMR). The aim is to provide our customers with the tools to support demand management, whilst providing the added benefit of improved invoicing accuracy, through the use of actual read consumption data.

During the course of 2015/16, with the collaboration of our colleagues in the Department for Education, we have continued the implementation of the Energy for Schools project. This has helped improve and support our approach for schools and academies that operate externally of councils.

We have delivered outstanding results:

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Looking at on-demand services, we are pleased that further progress has been made in relation to the EDF Energy and Corona (MyPortal) portals, which provide customers with instance access to information relating to their energy usage, invoices, query management and portfolio detail.

Additionally, we have collaborated with EDF Energy in order to introduce the Club CCS website, which is a new approach to communicating the service the CCS framework offers to customers and aims to engage framework members to manage, understand and save.

We have continued to work with Corona Energy and EDF Energy to enhance the capability of our online offering, with new and exclusive systems providing a way for customers to better understand their energy consumption and unlock valuable energy and subsequently cost saving opportunities.

During 2015/16 we have developed the use of supplier hosted webinars, to help engage with customers and showcase savings opportunities. Customer feedback has been extremely positive and the savings on both travel costs and resource commitment has been appreciated. It is our intention to continue with this approach during the course of 2016/17.

Liquid fuels: Our Liquid Fuels framework customers purchased over 254 million litres of fuel in 2015/16 with an annual spend of £162,141,452.

As a result of our variable pricing methodology, which is linked to market prices, customers have been able to take advantage of falling market prices throughout 2015. This has provided direct savings delivery for all our customers.

All customer contracts expired in September 2015. As a result of this, we undertook a bulk further competition under the framework to award replacement contracts. We also ran separate further competitions to replace the expiring contracts for Ministry of Defence (MoD) heating oil and ground fuels.

New customers continue to join the framework and the team continues to run ad-hoc competitions as required.

The current agreement has been extended until August 2017 and we are underway with the procurement of a new agreement to build on the success of the current agreement.

During 2015/16 the team worked alongside our colleagues at the MoD, to transition their existing Liquefied Petroleum Gas (LPG) framework so that it came under the CCS management structure. This current framework also provides service to other public sector customers. LPG and Biomass provision will form part of the new Fuels framework.

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Utilities:We have worked with the Department of Energy and Climate Change, now Business, Energy and Industrial Strategy (BEIS)), Local Partnerships and Greater London Authority to re-procure the RE:FIT agreement, which will enable all public sector customers to retrofit existing buildings with energy saving measures to reduce carbon emissions and achieve guaranteed cost savings. It will also allow for the installation of renewable generating assets. 16 suppliers were successful in the tender and further competitions have already begun under the new agreement.

Identification of savings opportunities has also been a key workstream last year with over £50 million identified for central government. Work continues to develop these opportunities and ensure the public sector maximise opportunities across the estate.

Risk and governance:We have built upon the developments of 2014/15 to increase controls and governance over trading. The team introduced training for Risk and Trading personnel with The Chartered Institute for Securities & Investment (CISI) to reinforce governance standards and to help ensure best practice in delivering a quality service for customers. Risk is also working with the External Governance Board to make the controls more relevant and understandable by customers. Risk continued to:

• Provide timely and accurate reporting

• Enforce agreed controls on behalf of customers

• Quarterly External Governance Boards are held to ensure customer interests are being adhered to in the implementation of the trading strategy.

• Provide technical expertise to internal and external customers.

Trading:We are delighted to report another excellent trading performance for the past year. The annual benchmarking exercise undertaken by the independent internal risk function shows that for every basket the trading team has achieved very competitive prices when compared to wholesale market prices over the same period. Detailed results are outlined in section 4, so you can review the trading performance for individual baskets.

The team have implemented several innovative changes to exploit the new half-hourly and gas frameworks awarded in 2015. An example from the gas framework is the development of weather corrected demand forecasting for variable gas baskets. This is enabling the team to buy more accurately and intelligently to meet your daily gas requirements. On the power side, customers can now benefit from some exposure to day ahead prices, as the new framework has enabled the traders to price the half hourly residual volumes at day ahead auction prices rather than as a single fixed trade, priced well before delivery. This innovative new means of residual pricing also attracts a lower supplier management fee.

We have also conducted a major review of the existing price risk products, which shows they are fit-for-purpose, performing as intended and have positive outcomes in comparison to alternative approaches. In addition, work continues to develop other new products but we are mindful that rules for managing public money do not coalesce with aggressive, high risk, speculative approaches.

Team resilience has been strengthened, contingency arrangements are in place and our junior traders have made significant progress in their development and the aim is for them to be fully authorised by the end of the 2016 calendar year, which will allow them to trade on behalf of our customers.

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4 Trading

Trade performance and market benchmarking

Executive summary

We are delighted to report that achieved prices are – for the second year in

succession – lower than the previous year. We have achieved excellent results,

especially for our variable products where the traders are able to continue to buy

within the delivery period.

Commodity prices for each contract period are lower than last year. For the purposes of this report we will be purely assessing the price achieved against the market average over the relevant purchase window. Our achievements are due to a number of factors including the success of the strategies used and trader tactics. We have effectively accelerated trading when the market has fallen and decelerated during spikes.

We have made significant progress in the review of our products and this has so far shown that our offerings continue to be fit for purpose. Having listened to our customers, we are also currently in the design phase of new risk products to complement the existing range. We plan to test these products with our External Governance Board before rolling out.

Although we currently offer three distinct risk products, a consistent feature is the aim of protecting your budgets against volatile market conditions, and taking advantage of downward movements, where possible. If you need to discuss the various products to make sure you are in the right selection, please do not hesitate to contact our customer team. Along with each trading strategy, our independent risk team:

• Monitor performance throughout, ensuring traders adhere to strategy and hedge predetermined volumes by agreed dates.

• Monitor cost at risk limits in real-time to manage market volatility exposure.

Set a price cap on the basket, meaning that if markets rise by a certain percent then the traders will purchase all requirements to lock-in value and protect your budgets (note: this recently happened for customers in the October contract round).

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Purchase WindowOpen - 1st Oxctober 2014Close - 29th February 2016

How to interpret performance graphs In this section there is a graph to show the performance of each basket. The guide below will help you understand the figures and performance of each graph.

Trading and risk management are highly technical areas and sometimes the language used reflects this. A glossary is available on Energy.gov.

Example: HH April 14 V6 Performance Chart

Time period when market purchases can be made

Commodity cost:

Elec: £/MWh

Gas: p/Therm

Basket delivery window

Black line indicates range of prices for that delivery month (from month, quarter and season contracts) during purchase window

1 Other than the April 16 Gas Locked basket where a small volume will be purchased at day ahead prices during the year, as is always

the case for locked gas baskets. For completeness this basket is included in the report.

NOTE: Performance measurement graphs only exist for baskets where trading has been 100% completed. Therefore delivery periods commencing in April 16 are shown for locked baskets and April 15 for variable.

Each basket has a size of portfolio and a market share for various sectors. Please be aware that these are estimates and subject to fluctuation.

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Our performance vs. the marketOf the three strategies we use, the locked strategies can be the most difficult to out-perform the market. This is because these strategies have the shortest trading period (6 months) in which we can influence the price you pay. Customers generally choose this risk product as it brings together budget certainty with a degree of market management; avoiding market highs and the risk of buying all their energy on one day (as is generally the case with fixed term, fixed price contracts). Short-term locked strategies are usually the first step for customers moving towards flexible aggregated energy procurement and a good performance for these baskets is seen as achieving a market reflective, risk managed price. If you have selected this product but feel your organisation would like a more price-aggressive strategy (and are able to handle greater price volatility) then please review the variable performance and speak to our customer team).

GasThe commodity value of this basket is £51,139,628.

As you will see from the charts below, our traders successfully took advantage of market opportunities to beat the market average for all short-term locked baskets, other than the half hourly basket where we we were very close to the market average.

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Purchase WindowOpen - 1st October 2015Close - 31st March 2016

Short-Term Locked Product Performance

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Half HourlyThe commodity value of this basket is £85 million. The volume in this basket is primarily NHS with 41% of the volume, while local government has 35%.

Non-Half HourlyThe commodity value of this basket is £51,241,685. The majority of customers come from local government with 47% of the volume. The NHS represents 22%.

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Purchase WindowOpen - 1st October 2015Close - 31st March 2016

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Gas  L6   HH  L6  (Base)   NHH  L6  (Base)   NHH  L6  UMS  L6  (Base)  

Non-Half Hourly Unmetered (NHH UMS):The commodity value of this basket is £1,080,600. 84% of the volume in this basket is represented by local government and 12% represented by not for profit customers.

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2Unlike electricity baskets, the gas locked basket average achieved price will continue to change slightly through the delivery year.

Because gas demand can vary so much depending on actual weather conditions, our trading team leaves some volume to be purchased

at day ahead prices. For this reason the average achieved price for the locked gas basket will always continue to change, but only

slightly, as we progress through the delivery year. As the changes are only slight, and for customer information, we include the locked gas

basket in the report.

NOTE: Gas is in p/Therm and electricity is in £/MWh

Year on Year Changes:.

Year 2014 2015 2016

Gas L62 65.30 52.02 34.9

HH L6 (Base) 51.84 47.44 37.9

NHH L6 (Base) 51.80 47.37 37.25

NHH UMS L6 (base)

51.34 48.32 37.39

201420152016

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Our performance vs. the marketOf the three strategies we use, the short-term variable strategy gives our traders the opportunity to achieve the lowest price. This is because a proportion of the volume may be purchased relatively close to the delivery period (both before and during), which means the risk premiums that the market typically builds in to the price, should be eroded.

As an example, with the locked baskets the winter volume has to be purchased 6 months before delivery – which means the market does not know what will be happening with important fundamentals such as gas storage and the weather.

Therefore the market (price) can reflect the risks involved. With variable baskets, we can leave purchasing some of the winter volume right up to the point of delivery thus removing some of the risk premiums. This gives the trading team the option of leaving volume open if supply is comfortable and the weather is seasonable norm. Of course, should the traders’ assessment be that supply could be short they have the option to lock in volume before prices rise.

Customers generally choose a variable risk product as it allows their price risk to be managed over a slightly longer period, and allows them to access potential dips in the market. This is a great basket for customers who are willing to take slightly more risk (albeit managed), with the opportunity to achieve a better price.

GasThe commodity value of this basket is £19,440,636 with 81% of volume coming from the NHS.

As you will see from the charts below, the traders successfully took advantage of market opportunities over the 18 months to beat the market average for all baskets.

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Annual Market

Purchase WindowOpen - 1st October 2014Close - 29th February 2016

Note: strategy deviation for this basket: The basket strategy dictates that we must purchase a percentage volume prior to the point of delivery (in this case the 1 April 2015).

For the Gas April 15 Variable basket, we requested a formal change in strategy to take an increased volume into the delivery period. This was due to the team’s understanding of market fundamentals and assessment that prices would fall further during the delivery period.

The internal risk team and the external governance board approved the deviation.

The trading forecast and market assessment proved correct for the entire delivery year. In order to evaluate decision making, the risk team monitored the effectiveness of the strategy deviation and calculated the direct savings were £402,000.

The customers in this basket receive 100% of the savings achieved.

Short-Term Variable Product Performance

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Gas  V6   HH  V6  (Base)  

Half Hourly:The commodity value of this basket is 44,840,039 with 64% of volume coming from the NHS and 14% coming from the not for profit sector.

NOTE: There is no Non-Half Hourly Short-term Variable basket

NOTE: Gas is in p/Therm and electricity is in £/MWh

Year on Year Changes:.

Year 2013 2014 2015

Gas V6 67.85 59.21 46.5

HH V6 (Base) 51.63 48.11 45.49

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The long-term variable strategy gives us the ability to more effectively manage the year-on-year volatility of the invoice rate that customers see. This is because the purchase window spans such a long period of time, it gives our trading team the opportunity to accelerate or decelerate purchasing depending on the market conditions.

However, as with the short-term variable strategy, we also have the ability to purchase volume closer to the point of delivery (by which point the risk premiums associated to forward contracts have often been eroded).

The combination of these two aspects (long purchase window and the ability to purchase closer to actual delivery) alongside the flexibility of the strategy and the skill and knowledge of the traders, allows us to optimise the price we achieve whilst minimising year-on-year volatility.

For example, since October 2015 we have been purchasing electricity and gas that won’t be delivered until 2018/19. Our traders have been able to take advantage of buying at market lows. We continue to use the available market information and the trader judgement and skill, we can speed up or slow down the future hedging activity over the next 30 months, if we think that when a contract gets closer to the point of delivery, it will fall or rise in price compared with where the forward price is.

In addition, if the market changes direction and starts to rise, our stop loss limits will ensure that we lock in the volume to protect budgets.

Customers generally choose the long-term variable risk product as it allows their price risk to be managed over a longer period and therefore reduces the likelihood of large year-on-year swings in prices. They may also benefit from the traders taking advantage of potential dips in the market over a longer period.

Gas (Non-Daily Metered):The commodity value of this basket is £136.1 million. Central government make up the lion’s share of this basket with 62% of the volume and the NHS makes up 27%.

As you will see from the charts below, the traders successfully took advantage of market opportunities over the 42 months to beat the market average for all baskets.

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Purchase WindowOpen - 1st October 2012Close - 29th February 2016

Long-Term Variable Product PerformanceOur performance vs. the market

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Gas (Daily Metered):The commodity value of this basket is £37 million. The NHS makes up the significant proportion of the meters of the portfolio with over 90% of the volume.

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Half Hourly:The commodity value of this basket is £357.8 million. The majority (52%) comes from central government; 22% is represented each by local government and the NHS.

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Non-Half Hourly Unmetered (NHH UMS):The commodity value associated to this basket is £4.3 million. 75% of the volume in this basket is represented by central government and local government represents 25%.

Year on Year Changes:.

Year 2013 2014 2015 2016

Gas V30 (NDM) 68.27 61.81 55.14 N/A

Gas V30 (DM) 68.12 61.00 52.62 N/A

HH V30 (Base) 51.78 50.38 51.01 N/A

NHH UMS (Base) 52.19 49.69 44.9

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SummaryFull price comparison tables

Gas:

Year 2013 2014 2015 2016

Gas L6 N/A 65.30 52.02 35.64

Gas V6 67.85 59.21 46.10 N/A

Gas V30 (NDM) 68.27 61.81 55.10 N/A

Gas V30 (DM) 68.12 61.00 52.6 N/A

Year 2013 2014 2015 2016

HH L6 (Base) N/A 51.84 47.44 37.95

NHH L6 (Base) N/A 51.80 47.37 37.52

NHH UMS L6 (Base) N/A 51.34 48.32 37.39

HH V6 (Base) 51.63 48.11 45.49 N/A

HH V30 (Base) 51.78 50.38 51.00 N/A

NHH UMS V30 (Base) N/A 52.19 49.69 44.9

Electricity:

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5 Looking forward 2016/17

Operations: We will continue to embed commercial contract management principles across the energy agreements, whilst increasing the opportunity for innovation and added value.

In 2016/17, our focus will remain on savings through demand reduction initiatives. Our objective is to support our customers to permanently reduce their consumption.

We will also be working closely with other teams in the Buildings category to identify the opportunities associated with taking an end-to-end view of the asset lifecycle, to achieve further savings.

We are reviewing the options available to stream customer enquiries to provide increased capacity for direct customer engagement and the provision of a fully managed service. We will be engaging directly with customers as part of the development process.

Working with the internal audit team, we will seek to further improve the supplier audit process to provide assurance that suppliers are meeting all contractual obligations, and that both commodity and non-commodity charges are being applied correctly.

We will continue our work to improve our customer communications and develop, in conjunction with our suppliers, online tutorials and webinars to help manage the time and cost constraints of travelling to events.

In addition to the completion of the procurement exercises for NHH Electricity, Water, and Demand Side Response, in collaboration with our customers, we will be progressing the procurement exercises for Liquid Fuels, Utilities Management Services and other product and services offerings which will provide the potential for enhanced service, value for money and savings opportunities.

We will continue to work with the suppliers in order to increase the number of webinars and educational programmes aligned to customer knowledge and needs.

Liquid fuels:Our current agreement will expire in August 2017 and we are developing a new agreement. We will extend our range of products and services available to include other fuel types, such as LPG, Biomass, wood and coal, and be able to offer associated services, such as tank maintenance and telemetry. We will focus on engaging with customers and suppliers to develop a range of products and services that meet the needs of our customers. By driving down costs and identifying new savings opportunities we aim to provide an excellent service for all customers.

We are continually developing new service options to support our customers in

the management of their energy usage and, wherever possible, reduce the costs

of energy.

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Utilities:We are continuing to look to new and improved opportunities for our existing and potential customers.

We are again working with the Department of Energy and Climate Change (DECC, now BEIS), on the roll-out of Heat Networks across the public sector. The aim is to set up a compliant, value for money procurement framework for the installation of Heat Networks.

Heat Networks will provide a significant amount of the carbon savings required to meet the UK’s carbon targets by 2050. As part of the Spending Review, the government announced that over £300 million of capital funding would be provided to help turn a pipeline of Heat Network projects (and wider projects from other sponsors) into reality and create a sustainable market for Heat Networks in the 2020s.

Data (Energy.gov):We will continue to make improvements, based on customer feedback, to support our digital approach to providing an on demand customer service. The key areas of focus will be:

• Improvements to the adding of new accounts to existing sites already on contract.

• Developments to reporting functionality to enable customers to run reports on their portfolio including spend/consumption.

• Development in portfolio management functions to enable customers to get forecast figures directly from the portal, helping customers forecast future volume and spend figures at any time of the year.

• Implementation of change management programme looking at how we can better manage and utilise our utilities data including greater granularity, increased frequency of reporting and more efficient user interactions.

Risk and governance:The team will continue to work with the External Governance Board to ensure robust and effective controls. We will finalise the automation of the risk reporting and introduce new analytical tools to further support the category. Risk will continue to expand services to the wider category. The team will also look to provide training and education in risk to the wider team. The team is also in the process of bringing onboard new risk tools to increase our service offering and to ensure customers are protected and to increase our understanding of the portfolio.

Trading:We will be launching new price-risk products and continue to innovate existing products. The new HH and Gas frameworks have presented us with the opportunity to improve our ability to get the best price and reduce market volatility. We will also take this best practice into the NHH procurement. Training with CISI will continue for the Junior Traders to push their development and ensure a robust succession plan.

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We hope that this performance review has helped you to understand how we are achieving value for all our customers. Please share it with colleagues across your organisation.

We continue to top the market and are extremely proud of our results both in terms of value and savings.

We are always keen to receive feedback and welcome your comments, suggestions or further questions regarding this review or any other topic relating to energy.

If you require a glossary of terms to assist you with this review please contact us or log in to your Energy.gov account.

6 Feedback

Contact usIf you require further advice please get in touch:

Email: [email protected]

Call: 0345 010 3503

You can also learn more about what we offer online:

Visit: www.gov.uk/ccs

@gov_procurement

@CCS_Energy

Crown Commercial Service