With ongoing uncertainty in the utilities market and frequent changes in the regulatory environment, organisations are increasingly investing in in-
house utilities specialists to help them navigate the ever-changing landscape. In this article, Nathan Ramsay, owner at Langley Search (pictured) speaks with Johann Toubkiss, a utilities procurement expert, who explains the current utilities market and how organisations can benefit from taking control of their utilities spend internally.
Johann is also a member of the TUME association (The Utility Market Experts) and supports public sector organisations to manage their utilities spend.
A pioneer of procurement and supply chain recruitment in the UK, Langley has worked closely with organisations in the public and private sectors for over 20 years to help them discover the best procurement talent.
The utilities market is very complex. Can you break down for us how the market is made up and the different cost components?
It is indeed a very complex market.
This is primarily due to the number of cost components that make up your utilities bill. Firstly, you have the commodity cost, which is the cost of the actual electricity and gas purchased on the wholesale market. Then you have the non-commodity costs, which are essentially the costs
of bringing the energy to your site, plus any associated taxes, levies, metering and supplier fees. This can mean that you end up with over 20 separate components on your energy invoice, all from different players in the energy market, ranging from producers and the government to the National Grid. What increases the complexity is that
not all of the costs can be calculated in advance, as some are added retrospectively. This can make budgeting quite challenging to say the least! Add to this the impact of the current market volatility, along with constant changes in the regulatory environment, and you have the perfect for conditions for a very challenging utilities landscape.
How would you sum up the last two years in the utilities market, and
where are we now?
It’s been an absolute rollercoaster! Although the utilities market has been under the spotlight since late 2021, often people don’t realise that by the middle of 2021, prices had already doubled from the lows of the first Covid lockdown.
It’s been the ultimate stress test for organisations as they work to adapt to decisively to meet their own business objectives.
In terms of where we are now, the market is still very unpredictable. We’ve gone from the absolute price peak last August to a huge price correction this winter, which could be seen as counter-intuitive and means that really anything could happen at any time.
From my experience, the vast majority of organisations outsource their utilities spend management to third parties.
What has driven organisations to have dedicated utilities specialist in-house, and what do you see as the key
benefits?
Many forward-looking organisations were already investing in in-house specialists before the utilities market became as unpredictable is it is today.
They wanted to retain a good level of internal expertise and understand the ever-changing market from their own business perspective. And this ultimately set them up well to better manage the ensuing volatility, whilst investing in management systems and energy efficiency measures.
The key benefit of having in-house utilities specialists is that it allows businesses to build a solid energy plan, which not only covers risk management, but also managing and overseeing the whole ecosystem of suppliers, including metering operators and third party consultancy for budget and interface solutions.
Although solutions have been available for a long time in the UK market, a detailed view of the whole P2P process with automation, including bill validation and budgeting integrated with long-term forecasting, delivers both improved transparency and predictability.
What would you suggest are the starting points for highlighting the utilities spend within an
organisation, showing the potential opportunities for cost savings and getting sponsorship for utilities
initiatives?
The first priority is to build a very accurate picture of the business by collating a whole set of historical data. Then spend time at all levels of the organisation to educate and demystify. The better people understand the market and its risks, the better placed and trusted you’ll be to drive change and develop the right mindset within the organisation.
Once people understand the bigger picture, it becomes a lot easier to articulate a vision aligned with the core business objectives, which then leads to actual strategy roadmap and execution.
When starting any category strategy, we all know data is the key.
For organisations starting on this journey, what tools can they utilise to harness their utilities spend and usage?
Put simply, the solutions need to match the complexity of the organisation - from Excel tools and Power BI, right through to fully custom third party solutions. It’s really important to understand the data, as well as the data source, granularity, availability and the whole eco-system of suppliers which can provide interfaces and reports.
How important is it to consider price versus risk management, and where should you start?
This is crucial when developing an appropriate risk management policy, and it starts with the ability of the leaders to articulate their objectives.
This includes laying out their appetite for risk and balancing competitiveness versus the business objectives. Key points to consider are whether you want to take risks in year, how significant the energy spend is versus other key operational costs, and what certainty do you require in the short, medium and longer term.
Once you have the spend data and have harnessed cross-stakeholder appetite for risk, versus price, versus visibility, how can you make this a reality?
A successful energy journey requires the development of a multi-layered strategy. This may include a number of different elements depending on the relevance to an organisation, including a risk management policy, data and systems strategies, an energy efficiency and control systems investment programme, training and behavioural change, and a decarbonisation roadmap.
The key to success is to obtain full board alignment for your approach. But I can tell you that very few organisations are in full control of every aspect of their utilities spend – even within the biggest multi-billion dollar global organisations.
With sustainability and particularly net zero carbon initiatives being amplified as high priority across
politics and business, how are organisations responding?
Whilst decarbonisation has become the buzz word and most organisations have pledged to work towards a carbon neutral future, it remains a market where only leading organisations have made headway.
There’s not much depth of experience of decarbonisation within organisations, even within the community of energy buyers. Wind and solar PPA are generally becoming the standard approach, whereas biomass and biogas remain quite niche. However, the collective procurement community is going through a steep learning curve to act quickly.
Are there any resources you would suggest for anyone who wants to enhance their utilities market
knowledge, and what would you suggest are the key areas of focus for anyone who wants to enhance their utilities spend management?
In terms of resources, never underestimate the power of talking to your peers for knowledge sharing.
There’s also a plethora of market conferences and seminars out there, which can boost your market understanding. Suppliers’ own market materials can also be a great source of insights and information.
Utilities is an ever-changing market, so it’s important to keep your knowledge up-to-date and stay aware of the evolving landscape.
Founded in 2002, with a successful MBO in 2018, Langley is an owner managed leading boutique recruitment consultancy offering Executive Search, Contingent and Interim Solutions to fill procurement, supply chain, commercial and strategic transformation roles.