Communal Energy Bills & Global Supply Costs

Important information for Directors: Gaining clarity when it comes to your service charge budgets

Wider global gas prices heavily influence energy costs in the UK, making them change quickly. Utility supply costs can rise sharply with little notice, affecting service charge budgets for Block & Estate Management.

Against this backdrop, it remains sensible to allow some flexibility when planning for energy costs within service charge budgets.

Jennings & Barrett continue to use our preferred and trusted energy specialists, Argent Partnership, to ensure decisions about your block’s energy supply are informed, proportionate, and clearly explained.

This bulletin outlines:

1. the wider variables affecting the global energy market,
2. The effects that changing energy costs may have on service charge budgeting, and
3. The support Jennings & Barrett can provide to help Management Company Directors with their approach to the ongoing situation.

What Management Company Directors should remain aware of:

Energy prices are still being affected by events outside the UK. Even when there are no problems with UK supply, prices can move quickly because global markets react to risk. Fluctuating energy prices make costs less predictable.

Budgets should therefore allow for some uncertainty over the next few months, as accuracy becomes hard to achieve during these events.

Why do events overseas affect UK energy bills?

Energy suppliers buy energy for UK customers from the global wholesale market. Despite renewable energy now accounting for over half of the UK’s electricity generation, the market sets prices based on the most expensive energy source – usually gas.

The market price of gas depends on the levels of demand, supply, and certainty.

Supply Speculation Means Certainty Is Low:

The market is currently speculating about the current level of gas storage across the UK and Europe. Reports of a two-day supply are appearing in the British media.

Whilst the Government and our National Gas Network are disputing these claims, there is clear uncertainty about the UK’s ability to meet supply should issues across West Asia continue to escalate.

Global Risk To Supply Is High:

This global risk is putting higher pressure on existing supplies and shipping routes. Insurers are increasing the costs of transporting gas from source countries to consumers worldwide. Demand levels on these sources is therefore higher.

Because UK energy suppliers buy energy from the global wholesale market, these variables can increase UK energy costs even in the absence of a gas shortage occurring in the UK.

What has been happening to prices?

Argent Partnership advises that gas and electricity prices have fluctuated sharply in recent weeks.

Whilst prices are now lower than the extreme levels seen a few years ago, budgets have not kept pace with the sudden rise because these events were not predictable.

What could happen next?

A range of potential outcomes could occur, depending on the severity of events and the level of disruption. These include:

• Ongoing rises: Escalations of disruption and increasing levels of uncertainty could push prices higher for a longer period.
• Short-term effects: Prices may spike for a short time and then settle.
• Alternatively, if tensions ease, prices may fall back as markets calm down.

The common theme is uncertainty. Markets react not just to what is happening, but to what might happen.

What does this means for your building and service charge budgets?

• Energy costs can rise with little warning.
• Savings from reduced usage alone may not fully offset higher prices.
• Budgets for communal supplies should allow for some movement in costs.
• Even fixed contracts can include elements that change, such as standing charges.

How Jennings & Barrett supports Directors in budgeting for energy costs:

• Our trusted specialist, Argent Partnership, are helping to ensure energy contracts are appropriate and clearly understood.
• We focus on attaining clear, compliant arrangements for our clients that reduce the risk of unexpected or unrecoverable costs.
• We help explain energy-related cost changes to leaseholders through budgets and communications.

Energy prices and contract terms can change quickly, affecting service charge budgets beyond our control. While we will continue to collaborate with Argent Partnership to monitor costs and seek fair, competitive arrangements, it may not always be possible to prevent increases.

If you would like to talk through what this may mean for your building or upcoming budgets, please contact your property manager.