Procurement Summary Company Y.

Transcription

1 Procurement Summary Company Y. Date: 1 st April Draft SmartPower was asked by Company Y to assist the facilities team in procuring energy for the upcoming year. This report summarises the offers received from vendors. Gas Procurement Gas companies make their mark-up in two ways. 1. Adding a (normally small) Management Fee to the kwh cost of gas. 2. Far more importantly through a mechanism called secondary capacity transfers. The end customer is charged the full gas transportation charge (sometimes with discount), while the gas company aggregates the transportation charges between his customer sites. (Not all sites will reach maximum demand on the same day). Offers received; Supplier Management Fee Discount Comment Supplier Net Discount of Use their own gas index. Supplier / discount 17 month contract. 8% for 12 month Contract. 0.01p/Therm trade fee ( 400 to trade entire years gas) Supplier No Transmission Discount Supplier No Transmission Discount Supplier 5 N/A N/A Nothing received. Supplier Net discount of p/therm trade fee ( 600 per year to trade entire years gas) Recommend 17 month Supplier 2 contract, highest discount + proven ability to handle carbon tax. By signing up to a 17 month contract, gas procurement comes in at the end of the summer and can be a better time to buy. At this time of the year, if we were coming out of a cold winter / spring, gas stores would be low and this would have a consequential effect on prices.

2 Electricity Procurement Each quotation was compared using client ½ hourly meter data to historical wholesale costs. This allows for very clear and simple mark-up analysis. The prices relate to what occurred on the wholesale electricity market 01/03/2103 and the 28/02/2014. In effect, if last years wholesale rates are duplicated into this coming year, then these are the mark-ups that each supplier would make. In reality the wholesale market is different every year, but this methodology gives a fair and objective method of comparing costs. Gas / electricity costs are closely correlated, and at the moment the gas market is very low compared to recent periods. If prices stay low, then this suggests that the wholesale market rates will fall when compared to last year. The principal reasons that we see for low gas prices; 1. Milder than expected winter. 2. Windier than expected winter. Europe-wide Gas turbines being turned off in favour of wind turbines. 3. Cheap coal exports (because of shale gas) from US means that coal stations in Europe are cheaper to run, which is offsetting gas turbines, hence less gas is being burned. 4. Storage levels are high because of the lowered demand (reasons 1 to 3) This winter, the risks to gas prices going back up are the following; 1. Colder than last winter.

3 2. Less windy than last winter. 3. Unexpected maintenance required on gas network. 4. Political events e.g. Crimea, Russia may decide turn off gas lines through Ukraine to exert political pressure, this pressure would be most effective mid winter during a cold period, which would lead to a sharp rise in prices. In my opinion, there is value in the energy markets at the moment and although prices may drop further, it may be prudent to lock in prices. Graph showing average market electricity cost plotted against monthly gas cost. A number of different types contracts are available in the Irish Market, for example; 1. Floating tariff 2. Standard Time of Day (SToD) 3. Standard Time of Day index inked to gas prices Floating tariff This tariff uses the published wholesale market price and passes this cost to the customer with a fixed kwh mark-up. The supplier is not exposed to any market risks and can afford therefore to offer a competitive rate. Advantages: offers best value in a falling gas market. reschedule to take advantage of the lower cost periods. Customers with discretionary load can

4 Disadvantages: Shocks to the gas market can cause short term prices to spike and there is no option to forward purchase to lock in prices. Supplier 2 have offered a floating tariff mark-up of 0.35, Supplier 2 came back and matched this offer. Based on the prices available at the time of this report; the wholesale market would need to drop by 15% before the full floating tariff (with 0.35 mark-up) would offer better value. Standard Time of Day (SToD) contracts The supplier normally defines a number of different periods, typically 1. Winter peak 2. Winter day 3. Summer day 4. Weekend day 5. Winter night 6. Summer night Depending on the gas market pertaining at the time of quote and the desirability of the customer, the SToD tariff can come in at a lower price than the floating tariff. The supplier will hedge gas to at the quoted level to cover the contract. Advantages: No price risk to the customer from market shocks. Disadvantages: No upside for customer if markets fall further. Effectively the same as the SToD index inked to gas prices (see below), but using the gas price quoted on the day in question.

5 Standard Time of Day index inked to gas prices Similar to the SToD tariff except that there is a formula to adjust the electricity price depending on the gas price. Advantages: Allows customers to potentially lower electricity costs by locking in at a particular gas price. Disadvantages: If hedging not performed correctly then customer is exposed to any upward price shocks. Supplier 3 offer: For each 1p movement of NBP Gas in the UK market, the electricity unit rate shall vary by 0.073p/kWh (sterling) in the direction of that movement. Supplier 2 Offer: Sensitivity for each 1p movement. Supplier 1 Offer: More Complex formula, related to Sterling exchange rate, price of carbon and forward price of gas. Assuming carbon and sterling remain static at 5/tonne and 0.83p/Euro. Their sensitivity works out at for each 1p movement. Supplier 4 Offer: N/A Supplier 5 Offer: N/A

6 In Summary Vincents MV MIC> 500 Units Energy Costs Elec ireland Tarriff winter peak ,356 19,283 winter day ,489 69,263 summer day ,030, ,877 weekend winter day ,986 21,643 weekend summer day ,411 46,334 winter night ,848 24,339 summer night ,213 49,971 +TUoS, DUoS, Capacity, Tax, SEMO Markup 9,314 5,275, ,711 Airtricity Tarriff winter peak ,356 18,143 winter day ,489 64,256 summer day ,030, ,095 weekend winter day ,986 23,407 weekend summer day ,411 46,334 winter night ,848 23,092 summer night ,213 44,945 +TUoS, DUoS, Capacity, Tax, SEMO Management Fee 902 5,275, ,273 Markup 779 Energia tarriff winter day ,548, ,275 summer day ,317, ,679 winter night ,598 29,217 summer night ,463 37,321 +TUoS, DUoS, Capacity, Tax, SEMO 5,275, ,493 Gas adjustment Base gas rate Winter (p/therm) 69 Summer (p/therm) 59 Todays Gas Rates Winter (p/therm) Summer (p/therm) Base Electrical Rates

7 winter day summer day winter night summer night Markup - 33,904 Bord Gais winter peak ,356 18,947 winter day ,489 62,053 summer day ,030, ,879 weekend winter day ,986 20,820 weekend summer day ,411 40,706 winter night ,848 20,783 summer night ,213 42,508 +TUoS, DUoS, Capacity, Tax, SEMO BGE Gas Base Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Sterling/Euro Exchange Rate 0.83 Sterling adjustment (p/kwh) Gas adjustment ( ) Base gas rate Winter (p/therm) Summer (p/therm) Todays Gas Rates (linked to Energia) Winter (p/therm) Summer (p/therm) Base Electrical Rates winter peak winter day summer day weekend winter day weekend summer day winter night summer night 4.483

8 Markup - 43,700 5,275, ,696 VAYU (current) Markup 18, ,275, ,861 VAYU (SToD) winter day ,235, , summer day ,629, , winter night ,848 22, summer night ,213 42, TUoS, DUoS, Capacity, Tax, SEMO 5,275, , Gas adjustment Base gas rate Winter (p/therm) 65 Summer (p/therm) 55 Todays Gas Rates Winter (p/therm) Summer (p/therm) Base Electrical Rates winter day 8.53 summer day 7.85 winter night 5.24 summer night 4.8 Plus 0.35 Markup Markup - 4,987 Conclusion The Supplier 3 Variable Electrical quote is a full 9,700 cheaper than the nearest rival quote, the variable SMP market would need to drop by 15% before supplier 1 invoiced cost would equal that of the current supplier 3 offer. 62,000 cheaper than last year. Recommend 17 month supplier 2 contract, highest discount + proven ability to handle carbon tax. By signing up to a 17 month contract, gas procurement comes in at the end of the summer and can be a better time to buy. At this time of the year, if we were coming out of a cold winter / spring, gas stores would be low and this would have a consequential effect on prices. 9,000 discount negotiated.