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Rough is closing – what does it mean for your business?

In June 2017, Centrica announced that it will be permanently closing its Rough gas storage facility, which is located off the coast of Yorkshire. Rough is currently the largest facility of its kind in the UK, and with its closure we lose over 65 percent of our storage capacity.

The UK remains reliant on gas, and this will continue well into the future. We’re a net importer of gas via pipelines from other countries, and this vulnerability makes it essential to store as much gas as possible within the UK. Britain has seven other major gas storage sites, but they offer shorter injection and withdrawal times and less capacity. This means that the closure of Rough will undoubtedly create uncertainty in terms of energy pricing.

Although we haven’t seen a real impact on prices yet, probably because there is still a significant amount of recoverable gas in the field, the pressure could come in the winter months, especially if we experience a cold snap. It’s possible that we could see increased price volatility if European gas flows experience disruption and storage becomes more critical to balancing the system.

The good news is that if you take action now, you could mitigate such potential cost pressure for your organisation. We asked our team of experts what businesses can do to reduce the impact on their energy bills:

Take advantage of current market prices

This winter we’ll be relying much more heavily on gas imports to balance the gas market, which leaves us more exposed to international price fluctuations. We felt the effects of this in early July, when it seemed that the delivery of two cargoes of LNG from Qatar would be missed and gas prices pushed higher. As we’re still in the summer months, with lower demand and lower prices for gas, it could be wise to renew your gas contract now even if it’s not due to be reviewed for a few months.

Review your procurement strategy

It’s a good idea to review your energy buying strategy regularly to make sure it’s still the right approach for your organisation, but we’d advise all organisations to ensure their procurement strategy is aligned before the winter months come along.

You need to think about your business’ attitude to risk – are you prepared to risk a potentially significant rise in your energy costs that the closure of Rough may cause this winter? If so, you might choose a flexible contract, which may give you greater control to manage price risks. Remember that you can set parameters around prices within a flexible contract so you never pay more than a pre-agreed price for your energy.

Alternatively, you may want to lock into a fixed contract before winter cost increases come along. A fixed contract will ensure that your organisation isn’t hit with potential price rises that could materialise this winter, and many businesses like the budget certainty that a fixed contract provides. However, fixed contracts can have a higher risk premium than flexible contracts, meaning that you pay more than cost for your energy.

Need more information on the different approaches to buying energy? Download our easy-to-understand Energy Buying Guide.

Consider participating in demand management

If your gas and electricity contracts aren’t up for renewal in the near future, don’t worry – there are still ways to keep your overall energy costs under control over the winter. Businesses of all sizes can benefit from getting involved in demand management, by turning their electricity consumption up or down at certain times to match predicted generation.

Reducing consumption during peak demand periods is probably the easiest way to participate in demand management for many businesses. Over the winter months, extra costs associated with Triads, the Capacity Market and DUoS bands can make energy consumption during peak demand periods (typically 4pm-7pm on weekdays) extremely expensive. By reducing your consumption during these periods – from something as straightforward as turning off lights and machinery when not in use, to shifting your production hours to periods of lower demand – you should be able to avoid excessive electricity charges and so mitigate rising gas prices.

To further incentivise users to reduce demand during peak periods, the National Grid had introduced a series of Demand Side Response (DSR) initiatives which provide a revenue stream to those who can reduce consumption or switch on on-site generation at peak times. Revenue depends upon the amount of consumption reduced or generation produced, the notice period required and the time for which the consumption reduction or generation lasts. Revenue can often be a multiple of the costs that would have been incurred during normal usage.

Although initially most organisations believe there is little opportunity for them to take part in these schemes, it is Inenco’s experience that most companies can benefit with a little support and guidance.

Find out more about the demand management schemes available here.

Talk to the experts

We know that keeping energy costs to a minimum is important for businesses, so the closure of Rough and the potential resulting price rises are likely to be concerning for many. Talk to one of our experts today – give us a call on 08451 46 36 26.

If you’re keen to mitigate the risk of winter cost increases, but you’re not sure where to start, we’re here to help! We are running a series of free-to-attend Procurement Seminars in Autumn 2017 taking place across three locations over three weeks. The workshops are aimed at businesses with an energy spend of less than £1.5m. Click here to view more information and to pre-register your interest.