The news around Energy prices at the moment is concerning with prices at unprecedented levels and plenty of media stories on suppliers going out of business amid spiralling domestic prices. So what does this mean for Higher Education Institutions and how might these price levels impact HE energy bills over the coming winter and beyond?
Firstly what is causing current price rises ?
There are a numerous reasons which have caused the sharp price rises. First and perhaps unsurprisingly is a rapid recovery in global energy demand post-pandemic.
This is further intensified by record high temperatures in US, the Far East and South America, with an increased demand for electricity for cooling and low hydroelectric generation due to resultant drought leading to additional demand for gas fired generation.
Supply constraints have also been caused by maintenance on existing production facilities and commissioning of new production being deferred during the peak of the pandemic. In addition new gas infrastructure projects, such asNordstream2 (a major gas pipe linking Russia and Europe) were also delayed by the pandemic.
We also experienced a very cold last winter and low global storage levels including in mainland Europe where most countries have limited domestic production of gas. And as Europe looks East to Russia for supplies to refill storage, they have delivered less gas than in the previous 5 years although there are promises from Russia to “turn on the taps” once their own storage is replenished in the coming weeks.
Locally in the UK, a calm and cloudy August and September resulted in low renewable generation, seeing us look to gas and even coal fired generation to meet the shortfall.
These are just a few of the explanations for the cause of the energy prices but let’s look at how Universities can help minimise the impact it has on their bills.
What should Universities do?
We are encouraging our Members to take precautions, not be complacent and be very careful about gas usage this winter taking into consideration full campuses and the unpredictable Winter weather.
We are advising to set more significant levels for overnight turndown, start boilers later, and then switch off earlier. Also estates professionals could or should check Building Management System settings and implement revised heating strategies.
Covid-safe operations may increase exposure to higher gas usage and hence exposure to higher prices, so a careful balance between environmental control measures will be crucial to minimise the high bill increases.
What have TEC done to mitigate the impact for our Members?
Carefully executed risk management is the best approach to smooth price volatility in these situations. TEC operate a rolling 3 year strategy for all our Members, with varying forward cover (through hedges) from 100% in the current season to 25% up to 5 seasons out.
In responding to low forward market prices in Summer 2020 TEC hedged higher than usual forward gas and power requirements as far as March 2023, taking advantage of 10 year low prices at that time. Our careful execution of our strategy sees our Members prices largely protected, but there is still risk on gas in particular when closing out actual usage versus the forward purchases made against seasonal normal demand.
In summary, while forward prices have risen 5 or 6 fold, TEC prices have been secured at much lower levels, for the immediate Winter and beyond. Prices further out have responded to the current situation and are perhaps at double their levels of last year, but with what has happened recently who knows whether the anticipated return to low prices may happen as expected.
We also have range of tools available to Members to assist managing consumption and to protect costs further. These include detailed forensic analysis of gas usage data, down to half-hourly levels with data from the significant deployment of AMR meters. Analysing usage patterns against factors such as weather or similar building types can often unearth significant savings opportunities, and the same data analysis can demonstrate the impact of changes made in response to the alerts from AMR DNA.
But none of this can be done remotely. Whether it is changes in building management system settings or boiler settings and thermostats, it is people who consume energy, not buildings. The advice to temper the activity of people is as critical in limiting excess consumption at a time when the costs of failing to do so are higher than ever.