Energy

Gas and Electricity

The Pan Government Energy Project has identified that the best way to reduce costs in these complex markets is through adopting flexible, aggregated, risk managed energy procurement.

One way to achieve this is through accessing a central purchasing body (sometimes referred to as a public sector buying organisation) with the right knowledge, skills and experience who can buy energy on your behalf, and who will aggregate volumes from other public sector organisations. The energy guides below explain these recommendations in more detail.

For more information on how we can help you save money on Energy, please see the Saving money on Energy.

Energy Buying: The effective way to manage risk
This guide explains best practice and offers guidance to organisations on how to make effective decisions on energy procurement.

In 2008-09 the public sector spent approximately £3.8bn on gas and electricity. The gas and electricity markets are incredibly volatile with possible price movements of plus or minus 20% within a single month. Such conditions make it very difficult for public sector organisations to manage budgets and control costs.

Within this context, the Pan Government Energy Project recommends that one of the smartest ways for public sector organisations to buy energy is to use recommended frameworks through a Central Purchasing Body (CPB) that have aggregated volumes, can offer flexible purchasing and enable best practice risk management.

Between 2005 and 2008 public sector organisations that were using flexible frameworks achieved prices that were an average of 5% lower than the average wholesale market price.

In addition, by buying direct from the wholesale market and by aggregating volumes, CPBs can reduce costs in other areas, which can lead to an additional 3.5% cost reduction for their customers.

Energy Buying: Working together for better results
This guide gives information about Central Purchasing Bodies (CPBs) who are currently engaged in the Project, and who offer aggregated, flexible, risk managed energy frameworks that other public sector organisations can access.

Special mention is also made of those frameworks that have been through an evaluation process and meet the best practice criteria set by the Project to improve the standard of gas and electricity procurement across the public sector.

A full list of organisations that currently have recommended frameworks can be found here. Note: not all of these frameworks will be accessible by other public sector organisations.

Best Practice Energy Procurement Criteria
Most organisations currently buy energy on one day, therefore giving yourself a 1 in 220 chance of choosing the 'best' day. This is often known as a 'fixed price, fixed term' deal.

The Pan Government Energy Project has identified that the best way to reduce costs in these complex markets is through adopting flexible, aggregated, risk managed energy procurement.

One way to achieve this is through accessing a central purchasing body (sometimes referred to as a public sector buying organisation) with the right knowledge, skills and experience who can buy energy on your behalf, and who will aggregate volumes from other public sector organisations. For further information on how this may help your organisation and what to do next, please refer to the Energy Buying documents.

For more information on how we can help you save money on Energy, please see the Saving money on Energy.

The Pan Government Energy Project has jointly developed best practice gas and electricity procurement criteria against which CPB frameworks are being evaluated. These criteria include:

access to wholesale markets (including multiple purchasing opportunities)
robust governance and risk management
transparent pricing mechanisms
minimum volumes for frameworks
access to future options.

A peer review panel made up of independent representatives carries out the evaluation and assessment.

Other risk management options are being investigated for the future, which include buying energy directly from generators. This could help reduce long-term price risk, increase security of supply, and potentially stimulate additional sources of renewable energy.

The full criteria can be downloaded here (PDF, 18KB). Any CPB not currently engaged with the project, but wishing to be so, can contact the Project at energy@ogc.gsi.gov.uk.

Supply Chain Development
With the exceptionally large volumes consumed by the public sector, it is possible to intervene in the supply chain, and purchase energy directly from generators and producers. The ability to contract directly with generators in the form of Power Purchase Agreements is a key strategy to hedge some of the financial risk associated with buying solely from the wholesale market. Risk management and budgetary certainty are critical to achieving savings and obtaining better value for money for public spend.

A pan government project group set up in March 2009 is investigating options in the market place and seeks to develop the framework needed to deliver the power purchase risk strategy which will include an option for renewables. We are actively pursuing a work programme to realise a procurement going to market in due course.

Further updates on the project will be published here. For more information please email OGC service desk.

Links to documents:

Energy Buying: The effective way to manage risk
Energy Buying: Working together for better results

Recommended Frameworks
The following organisations have frameworks that have been evaluated by the Pan Government Energy Project and meet the best practice energy procurement criteria:
Buying Solutions, Eastern Shires Purchasing Organisations, Laser, London Underground, Ministry of Defence, NHS Purchasing and Supply Agency, North Eastern Purchasing Organisations and Yorkshire Purchasing Organisation.

The following organisations have frameworks that are currently going through the evaluation process:
The Energy Consortium and West Mercia Supplies.

Pan Government contracts:
You can view all Pan Goverment contracts in the contracts database.