This is an excerpt from the minutes from our meeting in May 2019.
In-house energy procurement
Graeme Low, London Borough of Islington
Islington has always maintained 100% control of energy procurement for our corporate estate, heat networks and social housing stock. Outsourced services (eg leisure services) are obligated to purchase through us too. (The only exception is street lighting, which is on a PFI contract with SSE).
We’ve moved from a 12 month fixed contract through dynamic purchasing and frameworks to the current position, which is flexible purchasing within long term (4 year) agreements. This offers flexibility: you could buy everything at the beginning of the 4 year contract depending on your risk appetite – the smallest clip size is 1MW.
The more information you can supply the better, as this can affect the price.
Our risk strategy is regularly reviewed: we’re buying on the forward market and hedging against market rises. We analyse market data from various sources (eg paid service from Blumberg). We also have an option to sell back trades made at a preferential rate, for example if we lose external clients and the demand drops.
Q1: How can you get a better rate that the larger frameworks?
A1: The prices aren’t that much higher – the savings we make are on the fees (c 1% of your bill – which could be £400k over a 4 year contract). We keep track against other market offers and tend to trade in quarterly chunks. We have a colleague who knows how to trade on the market.
Q2: How do you justify the risk to Committee?
A2: We report to the Exec every 4years for procurement. The Risk Management Strategy is reporting on regularly to senior management
Q3: What about green energy?
A3: We procure non-commodity elements – eg green vs brown energy. Can we afford it – or can we afford not to??
Q4: Do you provide different insurances when buying for others?
A4: They represent a very small slice of our end users and it hasn’t been a problem.
Q5: Did you have to go through OJEU?
A5: Yes – the contract is worth c£40m so clearly over the OJEU threshold.
Q6: It feels quite risky when a Borough could go to LASER who have lots of experts and experience…
A6: Yes – but there’s lots of tools to help you. We’re trying to debunk some myths and take control. It’s now less of a risk for us as we’ve been doing it for 20 years – and we have a big team! We benchmark against others and we’re very close. Understanding your data is really key if you want to do it yourself – it helps to de-risk.