Energy is an ever-present immediate cost factor that plays havoc with plans to remain afloat and competitive. H&RT takes a look at the emergence of energy consultants
For those in the hotel and catering sector, energy is an ever-present immediate cost factor that plays havoc with any plans to remain afloat and to remain competitive, in an industry where you are striving to give your customers the best experience that you can.
Emergence of energy consultants
In this troubled landscape, the emergence of energy consultants is a significant development. These would-be power rangers emerge over the hill in the midst of chaos with the potential to calm the field and offer people some sanity in a world of conflict and cost mayhem.
Just how do these companies operate? What do they offer in terms of cost management that a good management structure in a hotel or restaurant in Ireland cannot offer?
Dublin-based Kore Energy is the current market leader in energy consultancy in Ireland; specifically in the area of energy procurement and energy price risk management services. In business since 2004, the last five years have seen strong growth, with the company attracting interest from all sectors of industry.
“Yes, obviously the energy crisis has been good to us in terms of getting new business… before the energy crisis hit, a company like ours was really only attracting the larger-scale energy consumers,” says Denis McCarthy, Senior Energy Consultant at Kore Energy. “The smaller companies wouldn’t really have engaged as much – it was the larger consumers that would have engaged in flexible contracts.”
Fixed versus Flexible versus Wholesale-market based contracts
By way of example, Kore Energy had only one client in the hospitality sector before the current energy crisis – a large hotel group. Since then, a number of smaller hotel groups have come to their door, seeking solutions and relief from the relentless conflict-fuelled energy surges.
“Because a lot of hotel and restaurant groups would be under the 5gW/hour per year level, what a lot of them would have done is to put a fixed contract in place and be happy that they have their bills clear for the next 12 or 24 months and leave it at that.
“A fixed contract in that sense is great because it gives you price certainty. The only thing is that price certainty came at a cost during the energy crisis. When people came out of those contracts, they were exposed to extremely high prices. I remember talking to a couple of hotels who came out of a contract where they had been paying about 16-18c/kWhr in 2020 (when there were record low prices because of Covid) and then suddenly paying 50-70c/kWhr in 2024. That obviously drives panic because they’re wondering how they can deal with this situation.”
They wouldn’t advise any company to go into any long-term fixed contracts at the moment, Denis says, because prices of gas (an important element for Irish electricity making) are at an all-time high and if the war in the Middle East were to suddenly end, a fixed contract would mean that the customer wouldn’t get the benefit of the peace dividend.
“We’d always advise flexible contracts that would give the business more control over their energy costs.
“We put a flexible contract in place, then we deploy a risk-management strategy around that, which has built-in buying and selling triggers. With a flexible contract, for example, as gas prices rise, we will fix out our clients’ positions forward. We can do that on a monthly basis all the way out until the end of that contract. And as the market falls, we will wind those fixed positions to follow the market down. You’re fixing as the market goes up and you’re typically doing it in tranches of 25%. So as the market price is going up, you’re not exposed to the higher prices and you can avail of any decline in prices as well.”
The third option for clients is the wholesale-market based contract. This is a bit like the tracker mortgage idea of following the market but these days the market is only rising so they’re currently neither a wise nor popular choice.
The flexible contract option gives the user the best of both worlds, with the energy consultancy acting on your behalf much like a broker in a future options market. Kore Energy were the first to negotiate a flexible energy contract in Ireland over 20 years ago.
Forecasting costs
“What a lot of companies also find very useful is the forecasting of their costs,” says Denis. “We can accurately forecast our costs at any given point… on any given day, I can give the client forecasts on costs for each month of the next year, based on the hedges that we have in place… they have forecasts of what their costs are going to be, long before the invoice arrives in their inbox.”
The company currently employs 15 people. The criteria for employment in such a company are high. An energy consultancy needs to have the strong benefit of intimate knowledge and expertise in this niche area. Denis comes from working with Energia, while the owner and MD is a former employee of Bord Gáis, as is the company’s Commercial Director.
A much more volatile market
Will the day come when all the wars are over, calm descends on the energy markets and companies will no longer require the services of energy consultants? Denis doesn’t believe so.
“Prior to the energy crisis, there was a period of calm,” says Denis. “But since the loss of the Russian gas, we’ve moved to a much more volatile LNG-based market for our gas and that’s going to continue for a number of years.”
The energy crisis has seen the appearance of a number of new energy consultants in recent years too. Because of the specific expertise required, numbers of them are limited. Many operate in the SME and individual household markets, where they tend to charge on a commission basis rather than a flat fee.
As things stand, Kore Energy now has three hotel groups in their customer portfolio, along with a number of individual hotels. As the energy chaos continues, one can only see those numbers rising.
