Can energy suppliers listen to their clients?

By Benedict De Meulemeester

By Benedict De Meulemeester on 12/05/2009

In a crisis, malfunctions are uprooted. In buying energy, we are recently confronted with a fundamental flaw in customer supplier relationships, the difficulties that suppliers seem to suffer to adapt to the changing needs of their clients. In some cases, and we are observing that today, energy companies even tend to adapt their products in a direction that is completely opposite to what their clients want.

For most of our customers, we observe that their consumption in the past was relatively predictable and stable. This has changed drastically with the economic crisis as reduced production volumes eat into industrial energy demand. The road ahead looks highly uncertain. Demand forecasts for the next years with most industrials lies somewhere between the fear that the fall in production output might become even sharper and the hope that the world might return to business-as-usual. The difference between these two scenarios can mean an energy consumption that two or even three times as large (or small). Therefore, every single industrial consumer of energy is currently in search of energy contracts with good volume flexibility. Committing to a tight take-or-pay condition, for example, is extremely difficult when you are not sure that you will still be in business next week.

And what do we observe: energy suppliers tighten their volume flexibility conditions! They offer less volume flexibility, and not more, like their clients would like. As energy suppliers see that a large majority of their customers consume less, they risk running into trouble with the take-or-pay clauses that they have in their own supply contracts. To mitigate this risk they impose tighter volume flexibility upon their (future) customers. I can fully understand the type of problems suppliers face as their customers consume less volume. But is it obvious to try to solve these problems by offering the contrary to what your clients are demanding for?

Another example of this is credit policy. Picanol, a well-known Flemish machine manufacturer, recently announced in the paper that they were through a cash squeeze, having just 3 weeks of money left. This is a familiar problem to many manufacturing companies right now. As income falls with production output, companies are struggling to cut costs at an equal pace. The result is a short term cash shortage. And what do the energy companies do? They tighten their credit policy, often demanding bank guarantees from their (potential) clients. Well, this is of course the one thing that you are not waiting for in a cash squeeze, having to put money in the bank before you get the energy delivered. Again, I’m not discussing the fact that there are good reasons for this tighter credit policy by energy companies. I just observe once again that the energy suppliers move their offers in the opposite direction of what their customers want at this moment.

And it’s the fact that energy suppliers and energy consumers often move so far apart in what they offer and what they need, that makes negotiating energy contracts over and over again a challenging task.

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