Energy Supply and Services DPS

Reducing energy costs in social housing requires a combination of smarter procurement, better contract management and a longer term strategy around energy efficiency and consumption reduction. On the procurement side, the timing of when you buy energy can have as much impact on your costs as which supplier you choose. Organisations that buy energy at the wrong point in the market cycle, or that allow contracts to roll onto deemed or out of contract rates, often pay significantly more than those with a proactive procurement strategy in place.

Beyond procurement, non-commodity costs, which include network charges, levies and other pass-through costs, now account for a significant proportion of most energy bills and are largely unavoidable regardless of which supplier you use. Understanding the split between commodity and non-commodity costs is therefore an important starting point for any organisation looking to reduce its overall energy expenditure.

Longer term, investment in energy efficiency measures such as insulation, heating system upgrades and renewable energy generation can materially reduce consumption and therefore cost. Aligning your energy procurement strategy with your wider asset management and decarbonisation programme gives you the best chance of achieving sustainable reductions in energy spend that benefit both your organisation and the tenants you serve.

Understanding the difference between fixed and flexible energy contracts is one of the most important decisions a social housing procurement or finance team will make when approaching the energy market. Getting it wrong can result in either paying over the odds for price certainty you did not need, or taking on market risk your organisation is not equipped to manage.

A fixed energy contract locks in a unit rate for the duration of the agreement, giving you complete certainty over your energy costs for budget planning purposes. This makes fixed contracts particularly well suited to organisations that need to forecast expenditure accurately, have limited resource to actively monitor energy markets, or are operating in a period of market volatility where locking in a known price removes downside risk.

A flexible energy contract works differently. Rather than agreeing a single price upfront, you purchase energy in tranches over time, allowing you to take advantage of favourable market movements and potentially reduce your overall cost compared to a fixed position. Flexible contracts require more active management and a greater understanding of energy market dynamics, and are generally better suited to larger organisations with the internal resource or external support to manage a purchasing strategy effectively.

Collective flexible contracts, where a group of organisations purchase energy together through a single arrangement, can give smaller housing providers access to flexible purchasing without needing to manage the complexity individually.

Energy procurement is subject to the same public procurement regulations as any other category of spend for housing associations and other public sector bodies, which means buying energy outside of a compliant route can expose your organisation to challenge, reputational risk and potential financial penalties. Despite this, energy is one of the categories where non-compliant procurement is most common, often because contracts are allowed to expire and organisations find themselves on deemed rates while a new procurement process is rushed through.

Compliant energy procurement means either running a full tender exercise in accordance with the relevant procurement regulations, or using an established compliant route such as a Dynamic Purchasing System that has already been competitively tendered on your behalf. Using a DPS significantly reduces the time, cost and resource required to run a compliant procurement, as the qualification of suppliers and establishment of the procurement framework has already been completed.

To ensure compliance, organisations should plan their energy procurement well in advance of contract expiry, ideally beginning the process at least six months before your current contract ends. This gives you sufficient time to run a proper Mini Competition, evaluate submissions thoroughly and make a well-considered appointment without being forced into a poor decision by time pressure.

Working with a specialist energy procurement partner who understands both the energy market and public procurement regulations gives you an additional layer of assurance that your process is defensible and your contract represents genuine value for money.

Non-commodity costs are the charges that appear on your energy bill that are not directly related to the unit price of the gas or electricity you consume. They include network charges, distribution costs, transmission costs, government levies, climate change obligations and a range of other pass-through costs that are set by Ofgem, the government and network operators rather than by your energy supplier. For many social housing providers, non-commodity costs now account for between 40% and 60% of their total energy bill, making them impossible to ignore when developing an energy procurement strategy.

Unlike commodity costs, non-commodity charges cannot be negotiated with your energy supplier and will appear on your bill regardless of which supplier you use or what contract type you are on. This means that switching supplier or renegotiating your unit rate will only ever address part of your overall energy cost, and organisations that focus exclusively on commodity price when evaluating energy contracts may be missing a significant proportion of their total expenditure.

Managing non-commodity costs effectively starts with understanding exactly what you are being charged and why. Ensuring your meters are correctly registered, your supply points are accurately profiled and your consumption data is up to date can all reduce the non-commodity charges you are exposed to. Working with an energy procurement specialist who can audit your bills, identify anomalies and challenge incorrect charges on your behalf can deliver meaningful savings that sit entirely outside the commodity procurement process and are often overlooked by organisations managing energy contracts without specialist support.

A collective energy contract, sometimes referred to as a flex collective or group purchasing arrangement, is where a number of organisations combine their energy volumes and purchase gas or electricity together through a single flexible procurement arrangement. Rather than each organisation going to market individually, the collective pool of demand is managed by a specialist energy manager who makes purchasing decisions on behalf of the group, buying energy in tranches at points in the market cycle where conditions are favourable.

The primary advantage of collective purchasing is access. Flexible energy procurement requires scale, market expertise and active management that many smaller and medium sized housing associations simply do not have the internal resource to sustain on their own. By participating in a collective arrangement, these organisations can benefit from the same purchasing sophistication and market access that larger organisations with dedicated energy teams enjoy, without needing to build that capability in house.

Collective contracts also provide a degree of risk mitigation through volume aggregation. Because the purchasing activity is spread across a larger pool of demand and bought in tranches over time, the group is less exposed to buying at a single unfavourable point in the market cycle than an organisation purchasing individually on a fixed basis.

However collective purchasing is not right for every organisation. It requires a degree of trust in the collective manager’s purchasing decisions, a tolerance for some price uncertainty during the purchasing period, and a consumption profile that is large enough to contribute meaningfully to the group. Speaking to an energy procurement specialist before committing to a collective arrangement will help you assess whether it is the right fit for your organisation’s risk appetite and budgeting requirements.

An energy broker acts as an intermediary between your organisation and energy suppliers, helping you navigate the market, structure your procurement and negotiate contract terms on your behalf. Brokers can add genuine value for organisations that lack the internal expertise or resource to manage energy procurement effectively, but it is important to understand how they operate and how they are remunerated before deciding whether to use one and which one to appoint.

Most energy brokers are remunerated through a commission or uplift that is built into the unit rate you pay for your energy, meaning their fee is not always visible as a separate line item on your contract or bill. This can make it difficult to assess the true cost of using a broker and to determine whether the service they are providing represents value for money. Some brokers operate on a transparent fee basis, charging a fixed or per unit fee that is disclosed upfront, which makes it considerably easier to evaluate their cost against the benefit they deliver.

For public sector organisations including housing associations, local authorities and ALMOs, there is an additional consideration around procurement compliance. Using an energy broker does not automatically mean your procurement is compliant with public procurement regulations, and organisations that appoint brokers outside of a compliant route may still be exposed to challenge.

Using a procurement partner such as PfH, which operates a compliant DPS with a panel of OFGEM-licensed energy suppliers and provides expert procurement support as part of the service, can give you many of the benefits of working with a specialist without the opacity around remuneration or the compliance risk associated with unregulated broker arrangements.

Managing energy contracts across a large and diverse property portfolio is one of the most operationally complex challenges facing housing association procurement and finance teams. With supply points spanning different property types, meter configurations, consumption profiles and contract end dates, even organisations with relatively modest stock numbers can find themselves dealing with a fragmented and difficult to manage energy position that makes strategic procurement almost impossible.

The starting point for effective multi-site energy management is accurate and up to date data. Knowing exactly how many supply points you have, what each one is consuming, how they are currently contracted and when those contracts expire gives you the foundation you need to make informed procurement decisions. Many organisations discover when they carry out this exercise that they have supply points on deemed or out of contract rates, incorrectly profiled meters or legacy contracts that predate their current procurement strategy, all of which represent avoidable cost.

Consolidating your supply points into a single procurement exercise wherever possible gives you greater negotiating leverage, simplifies contract management and makes it considerably easier to monitor supplier performance and billing accuracy across your portfolio. A DPS with a panel of suppliers capable of managing large and geographically diverse portfolios is well suited to this kind of consolidated approach, as it allows you to run a single Mini Competition that addresses your entire energy requirement rather than managing multiple individual contracts with different suppliers, terms and renewal dates.

Working with an energy procurement specialist who can audit your current position, identify anomalies and build a consolidated procurement strategy around your actual portfolio gives you the best starting point for bringing order and efficiency to a complex multi-site energy position.

Flex energy purchasing, sometimes referred to as flexible procurement or structured purchasing, is an approach to buying energy that replaces the traditional fixed price contract with a strategy of purchasing energy in multiple tranches over a defined period, typically between six and twenty four months ahead of consumption. Rather than agreeing a single price for all of your energy at one point in time, flex purchasing allows you to build your price incrementally by buying portions of your requirement when market conditions are considered favourable, with the aim of achieving a blended average price that is better than you could have secured through a single fixed purchase.

The mechanics of flex purchasing vary depending on the product methodology offered by your supplier. Volume tolerance products allow you to purchase within a defined range of your forecast consumption without penalty, giving you flexibility to adjust your position as your actual demand becomes clearer. Tranche products allow you to buy set percentages of your requirement at different points in the market cycle. Cash-out products settle any difference between your purchased position and your actual consumption at prevailing market rates at the time of delivery.

Flex purchasing is not without risk. If market prices rise after you have begun purchasing, the tranches you have already bought will look attractive in retrospect, but any remaining volume still to be purchased will cost more than anticipated. Equally if prices fall after you have committed to early tranches, you may end up with a blended price that is higher than a fixed contract taken at a later date would have delivered.

For this reason flex purchasing works best for organisations with sufficient consumption volume to justify the additional management cost, access to good market intelligence and either the internal expertise or the support of a specialist energy procurement partner to guide purchasing decisions throughout the contract period.

Rising energy costs create a complex and interconnected set of pressures for social housing providers that extend well beyond the immediate impact on utility bills. Understanding the full range of ways in which energy price increases affect housing organisations is important for boards, finance teams and procurement professionals who are trying to build a resilient and sustainable response to ongoing market volatility.

The most direct impact is on communal energy costs, which cover the electricity and gas used to power shared spaces, communal heating systems, lifts, lighting and other shared services across housing stock. When energy prices rise, these costs increase regardless of what residents do individually, and the burden typically falls on the housing provider to absorb or pass on through service charges. For organisations managing large numbers of properties with communal heating systems or district heat networks, the financial exposure can be substantial.

Rising energy costs also affect residents directly through their individual fuel bills, increasing the risk of fuel poverty across housing stock. Housing associations have a growing responsibility to address fuel poverty among their tenants, both as a matter of social obligation and increasingly as a regulatory expectation. This creates a link between energy procurement strategy, asset investment decisions and tenant welfare that requires a joined up organisational response rather than energy being treated as an isolated procurement category.

There is also an indirect impact on development and investment programmes. When energy costs rise across an organisation’s operational portfolio, the pressure on revenue budgets increases, which can in turn affect the capital available for new development, planned maintenance and improvement works. Organisations that manage their energy procurement strategically, locking in favourable prices at the right time or participating in collective purchasing arrangements, are better placed to protect their investment programmes from the knock-on effects of energy market volatility.

Aligning energy procurement with net zero targets is increasingly a board level expectation for social housing providers, driven by regulatory pressure, investor scrutiny, tenant expectations and the UK government’s legally binding commitment to reach net zero carbon emissions by 2050. For many housing associations and local authorities, energy procurement has historically been managed in isolation from wider sustainability and asset management strategies, but this approach is no longer fit for purpose in an environment where decarbonisation is central to organisational planning.

The starting point is understanding your current carbon position. Knowing how much gas and electricity your organisation consumes, across both your operational estate and your housing stock, and understanding the carbon intensity of your current energy supply gives you the baseline from which a credible net zero trajectory can be built. Without this data, procurement decisions are being made without the information needed to assess their carbon impact alongside their financial cost.

On the procurement side, the shift away from gas towards electrification is a defining trend for the social housing sector over the coming decade. Organisations that are still procuring long term gas contracts without considering how their heating strategy will change as properties are retrofitted and heat pumps are installed may find themselves locked into supply arrangements that become increasingly misaligned with their asset investment plans. Building flexibility into energy contracts and aligning contract durations with planned retrofit programmes gives you the ability to adjust your energy mix as your stock evolves.

Renewable electricity procurement is another area where energy purchasing decisions directly affect carbon performance. Procuring electricity from suppliers who can offer renewable backed tariffs or power purchase agreements linked to specific renewable generation assets allows organisations to reduce the carbon intensity of their electricity consumption and demonstrate tangible progress against net zero commitments to regulators, funders and tenants.

Switching energy supplier is one of the most significant procurement decisions a social housing provider will make, and approaching it without a clear evaluation framework can result in appointing a supplier on the basis of headline price alone while overlooking factors that will have a material impact on the quality and reliability of the service you receive throughout the contract term. Price is obviously important, but it is rarely the only thing that matters once a contract is in place and day to day supplier management begins.

The first thing to assess is supplier credentials and regulatory standing. Any supplier you appoint must hold a current OFGEM supply licence relevant to the type of energy being procured, and you should verify this independently rather than relying solely on the supplier’s own assurances. Financial stability is equally important, as the collapse of an energy supplier mid-contract creates significant operational disruption and administrative burden for the organisation left to manage the fallout, as numerous public sector bodies discovered during the energy market crisis of 2021 and 2022.

Billing accuracy and transparency should be a key evaluation criterion that is often underweighted in procurement exercises focused primarily on unit rate. A supplier that consistently produces inaccurate, late or difficult to reconcile invoices across a large portfolio of supply points creates a significant ongoing administrative burden for your finance team and makes it harder to monitor and control your energy expenditure effectively.

Consider also the supplier’s experience working with public sector and social housing clients specifically. Energy suppliers who understand the complexity of managing large property portfolios, communal heating systems and the specific billing and reporting requirements of housing organisations will generally deliver a better service than those whose primary focus is commercial or industrial clients. Asking for references from comparable organisations and scrutinising their track record in managing contracts of similar scale and complexity to your own is an important part of any thorough evaluation process.

Finally, consider what happens at the end of the contract. Understanding a supplier’s approach to contract expiry, their process for managing the transition to a new supplier if you choose to switch, and their willingness to provide consumption data in a format that supports your next procurement exercise are all indicators of how they will behave as a long term partner rather than just at the point of sale.

Demonstrating value for money on energy contracts is a requirement that sits at the intersection of procurement compliance, financial governance and board accountability for social housing providers. Unlike many other categories of spend where value for money can be assessed relatively straightforwardly by comparing like for like quotes, energy procurement involves a degree of market timing, contract structure and risk management that makes a simple price comparison an insufficient basis for evidencing good value.

The foundation of a defensible value for money position is a structured and documented procurement process. Running a Mini Competition through a compliant route such as a DPS, with clearly defined evaluation criteria that go beyond unit rate to include billing capability, supplier experience, financial stability and service quality, gives you an auditable record of how your decision was made and why the appointed supplier represented the best overall value rather than simply the lowest price at a single point in time.

Market benchmarking is another important tool for evidencing value for money, particularly for organisations using flexible or collective purchasing arrangements where the final blended price is only known once the purchasing period is complete. Being able to demonstrate that your achieved price compares favourably with market indices or published benchmarks for the relevant purchasing period gives your board and auditors confidence that the procurement strategy delivered the intended outcome.

Whole life cost analysis is also important and frequently overlooked. A supplier offering a marginally lower unit rate but with a track record of billing inaccuracies, poor data management or weak contract management capability may ultimately cost your organisation more over the life of the contract than a supplier whose headline price was slightly higher but whose service delivery was consistently reliable. Building service quality metrics and performance expectations into your contract from the outset, with clear KPIs and a mechanism for addressing underperformance, gives you the tools to protect the value of your procurement decision throughout the contract term rather than only at the point of award.

Fuel poverty occurs when a household is living in a property that cannot be kept warm at a reasonable cost, typically defined in England as where a household needs to spend more than 10% of its income on energy to maintain a satisfactory heating regime. With energy prices remaining significantly higher than pre-2021 levels and a substantial proportion of social housing stock still falling below modern energy efficiency standards, fuel poverty is a pressing and growing concern for housing associations, local authorities and ALMOs across the UK.

The scale of the problem within social housing is significant. Many older properties have poor insulation, inefficient heating systems and single glazing that makes them inherently expensive to heat regardless of which energy tariff the occupant is on. Residents on low or fixed incomes, including many of those housed by social landlords, are disproportionately affected by energy price increases and have the least capacity to absorb rising costs through changes in their spending or behaviour.

For housing associations the responsibility around fuel poverty operates on several levels. At the most basic level there is a moral obligation to ensure that the homes you provide are genuinely affordable to heat and that residents are not forced to choose between warmth and other essential expenditure. Beyond this, the Decent Homes Standard sets minimum requirements around thermal comfort that social landlords are expected to meet, and the Social Housing Regulatory framework is placing increasing emphasis on tenant outcomes including those related to the safety, quality and energy efficiency of homes.

There is also a growing expectation from regulators, funders and investors that housing associations will have a credible and costed plan for improving the energy performance of their stock over time, with clear targets, measurable progress and transparent reporting. Organisations that can demonstrate a joined up approach connecting energy procurement strategy, retrofit investment and tenant support programmes are better positioned to meet these expectations and to evidence the social value they are delivering through their housing management activities.

Ofgem, the Office of Gas and Electricity Markets, is the independent regulatory authority responsible for overseeing the gas and electricity markets in Great Britain. Its primary role is to protect the interests of existing and future energy consumers by promoting competition among energy suppliers, regulating the companies that own and operate the energy networks, and ensuring that the market operates in a way that is fair, transparent and financially sustainable. For social housing providers procuring energy on behalf of their organisation and their residents, understanding what Ofgem does and why it matters is an important part of making informed and responsible procurement decisions.

The most direct relevance of Ofgem to social housing energy procurement is the supplier licensing regime. Any company wishing to supply gas or electricity to consumers in Great Britain must hold a current Ofgem supply licence, and these licences come with a range of conditions around financial resilience, billing practices, customer service standards and market conduct that suppliers must comply with to retain their authorisation to trade. When procuring energy through a compliant route such as the PfH Energy Supply and Services DPS, you can be confident that all suppliers on the panel hold the relevant Ofgem licences for the lots they are appointed to, removing the need to verify this independently for every supplier you engage with.

Ofgem also plays an important role in setting and regulating the non-commodity costs that appear on energy bills, including network charges, distribution use of system charges and a range of government levies and obligations that are passed through to consumers via their energy supplier. Understanding that these costs are regulated by Ofgem rather than set by your supplier is important context for any organisation trying to manage and reduce its overall energy expenditure, as it clarifies which elements of your bill can be influenced through procurement and which cannot.

The financial health of energy suppliers is another area where Ofgem’s regulatory role is directly relevant to social housing procurement decisions. The energy market crisis of 2021 and 2022 saw numerous suppliers exit the market, leaving their customers to be transferred to suppliers of last resort and creating significant disruption for affected organisations. Ofgem’s ongoing oversight of supplier financial resilience and its supplier of last resort mechanism provide a degree of protection in these circumstances, but the experience highlighted the importance of assessing supplier financial stability as part of any energy procurement evaluation rather than focusing solely on price.

Managing energy contract risk in a volatile market is one of the most challenging aspects of energy procurement for social housing providers, requiring a careful balance between the desire for budget certainty and the opportunity to achieve better value through more active market participation. The energy market crisis of 2021 and 2022 demonstrated in stark terms what can happen when organisations are caught without a coherent risk management strategy, with many public sector bodies facing dramatic cost increases as contracts expired and renewal prices reflected the full impact of wholesale market disruption.

The starting point for effective energy risk management is understanding your organisation’s risk appetite and translating that into a clear procurement strategy before you go to market. Organisations that need absolute budget certainty and have limited tolerance for price variation are generally better served by fixed contracts that remove market exposure entirely, even if this means potentially paying more than a flexible purchasing strategy might have achieved in favourable market conditions. Organisations with greater financial resilience, larger energy volumes and access to specialist market support may be better placed to take a flexible or collective approach that allows them to manage their price exposure over time.

Regardless of which contract type you choose, avoiding deemed and out of contract rates is one of the most important risk management actions any organisation can take. When a contract expires without a new arrangement in place, most suppliers will move affected supply points onto significantly higher default rates that can add materially to your energy costs for as long as the situation persists. Building a forward procurement calendar that tracks contract expiry dates across your entire portfolio and triggers a new procurement process with sufficient lead time is a straightforward but highly effective risk management measure that many organisations still do not have in place.

Diversification is another risk management tool worth considering for larger organisations with significant energy volumes. Rather than committing your entire requirement to a single supplier or a single purchasing decision, splitting your volume across multiple tranches, contract types or suppliers where this is practical and compliant can reduce your exposure to any single point of failure in the market or in your supply chain. Working with an energy procurement specialist who monitors market conditions continuously and can advise on purchasing timing and strategy gives you access to intelligence that most housing organisations cannot generate internally, and can make a material difference to the outcomes you achieve in a volatile and unpredictable market environment.

What happens when an energy contract expires is one of the most practically important questions for any social housing procurement or finance team to understand, yet it is also one of the most commonly overlooked aspects of energy management until the consequences are already being felt. The short answer is that if you do not have a new contract in place before your current one ends, your supply points will almost certainly move onto deemed or out of contract rates, which are typically significantly higher than the rates you were paying under your negotiated contract and can represent a substantial and entirely avoidable cost to your organisation.

Deemed rates are the default tariff that energy suppliers apply when there is no active contract in place for a supply point. They are set unilaterally by the supplier and are not subject to competitive procurement, meaning you have no negotiating leverage and no ability to compare them against alternative offers in the market. For organisations managing large numbers of supply points across a diverse property portfolio, having even a proportion of those points drift onto deemed rates can add tens or hundreds of thousands of pounds to annual energy expenditure depending on the scale of consumption involved.

The risk of contract expiry is compounded by the fact that energy procurement takes time to do properly. Running a compliant Mini Competition through a DPS, evaluating submissions thoroughly and appointing a new supplier with sufficient notice for the transition to be managed smoothly requires planning that should begin at least six months before your current contract ends, and ideally longer for complex or high volume requirements. Organisations that leave procurement too late frequently find themselves forced into poor decisions driven by time pressure rather than genuine evaluation of the best available option.

Proactive contract management is therefore one of the most valuable things a social housing provider can do to protect its energy budget. Maintaining an accurate and up to date register of all energy contracts across your portfolio, with clear expiry dates, renewal trigger points and assigned ownership for each procurement exercise, gives you the visibility and lead time needed to avoid the deemed rate trap. Working with a procurement partner who can support you in building and maintaining this kind of forward procurement calendar, and who can mobilise a compliant procurement process quickly when needed, provides an additional layer of protection against the consequences of contract expiry going unmanaged.