It was refreshing to see a new entrant – and a modest-sized one at that – take centre stage at the 2015 Energy Awards writes Daniela Latini. In a category that included Npower and Utilitywise, Pulse Business Energy won the Best Buyer Award (in the retail market), surprisingly making it the first time a broker has won the award, let alone by a privately owned, 15-person company established only six years ago.
Its winning formula was simple – transparency and openness, according to Tim McManan-Smith, who was one of the judges assigned to the Best Buyer Award. The Energyst editor explained that: “Pulse won for various reasons but one main one was the openness and quality of the information that it provides to customers. Some TPIs make it a bit of a dark art and the market mechanisms a black box.” McManan-Smith highlighted how some companies adopt an opaque approach, offering little clarity for their customers; “A don’t worry we’ll look after it for you” mentality.
“This is worrying especially in light of Ofgem investigations into transparency. Pulse has expertise and seems willing to share it and create trust,” the judge explained. Energy suppliers and brokers face constant criticism by the public and government alike for failing to be open with their customers, and the lack of transparency in their pricing structures and trading portfolios.
Pulse’s energy purchasing strategy is primary designed to “Beat the Market” and is predicated on the basis that the UK energy supply system is designed to comfortably meet peak demand. In such a situation, delaying purchasing decisions will tend to lead to lower prices as the spot delivery month is approached. Pulse’s achieved prices were approximately 10% lower for both gas and power compared with its 2014 weighted average price with an annual fixed (period) price agreed at the outset of the contractual arrangement. Furthermore, at no time did the full upfront annual period contract trade below the price achieved by Pulse.
The counter factor to the strategy of delaying purchases is that volatility increases as delivery approaches, therefore providing a trade-off between potential lower prices but increased risk of prices moving against the strategy with time. Pulse appears to have considered this by occasionally making purchases early when risk levels are increasing, judging it is better to forego potentially lower prices in order to avoid the increasing risk of higher prices. According to managing director Ben Dhesi: “Having focused from the outset on I&C customers and on quality not quantity we have been able to focus on customer by customer solutions… no doubt in 2014 the recruitment of Dr Tony West as energy trading consultant has allowed us to implement our energy strategies with greater oversight and confidence.”
Former winners of the title include end-users such as Debenhams and Npower (2014), Mace Construction Group (2013) and Anchor Housing Trust (2012).
Aim for 2016
In future years, assuming the UK energy market supply/demand balance doesn’t significantly change to be fundamentally short, Pulse proposes to maintain the principles of its existing strategy. However, it also highlights the need to monitor volatility (and trading ranges) in relation to time left to contract expiry, while opting for a slightly more phased approach to buying each contract month if volatility increases.
“Over recent years the forward market structure (generally contango) has helped Pulse’s buying strategy, when prices tended to fall away as delivery approaches. Regular monitoring of this would be advised and the strategy suitably modified if the forward curve reflects a ‘hockey-stick’ or backwardated curve,” said Tony West.