Energy risk an increasing concern to business

But despite the priority attached to energy, strategies for managing energy risk are less developed than for all the other risks businesses face. Just 65% of respondents said that they have a strategy for managing energy risks compared to 81% who have plans in place for cash risks and 80% for health and safety risks.

According to the survey, energy was rated behind cash flow and legislative risks only, scoring 6 out of 10 in terms of the risk it places on business.

For major energy users specifically, energy was seen as the primary business risk, outstripping even staff and cash risks, typically among businesses’ principal considerations.

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Half of businesses say energy risks have become higher profile in their organisation in the last three years as the considerations around energy use multiply. Increased supply costs, 6.7 out of 10, and security of supply, 6.1 out of 10, were identified as the most important energy risks faced by businesses.

Dave Cockshott, Corporate Markets Director at npower said: “The way in which energy is used is changing rapidly and businesses are facing new pressures all the time. Price volatility; carbon reduction; climate change legislation; reputation and security of supply are now among the chief concerns that businesses face in their energy use, many of which have increased exponentially in the last five years. It’s making it increasingly important that energy is managed with the same priority and detail as all other risks businesses face – it can no longer be a secondary consideration.”

Only 4% saw their credit rating as a potentially high risk to their energy supply, despite a good credit rating typically being a requirement of an energy contract, npower said.

“Poor credit ratings resulting from the recession have in some instances led to tighter payment terms, restricted forward purchasing and even security deposits. Key to avoiding this is information sharing so more accurate decisions on companies’ financial health can be made, and npower has been calling on collaboration between energy users, suppliers and insurers to achieve this,” he explained.

The index suggests, however, that businesses still need convincing of the benefits of closer collaboration. Less than half, 35%, said they would be prepared to share information on their financial accounts in order to secure an energy contract.

And Mr. Cockshott called on businesses to more effectively manage their energy risks.

“We believe energy now demands board level attention and a combined strategy that brings together purchasing and energy use. We’re working with businesses to achieve this and support them with the tools and tactics to better manage their energy, but it’s down to them to make energy a priority within their organisation,” added Mr. Cockshott.

The research consisted of in-depth telephone interviews, conducted between January and February 2010. With a sample of 300 U.K. businesses, comprising 200 small-to medium-sized enterprises (SMEs), with significant energy usage, and 100 major energy users (MEUs).