The way local authorities buy their gas and electricity can have a significant impact, both on the cost to the environment and the cost to the taxpayer.

The LCE Energy Project, led by Haringey LBC and funded by the London Centre of Excellence (LCE), has been helping authorities make improvements in both areas. If all the actions recommended in the local government energy procurement action plan, produced by the team, are implemented, councils could make savings of up to 10%, excluding additional savings available through energy conservation.

This adds up to around £16m, based on the annual spend of London boroughs in 2005/06. Haringey has already saved more than £300,000 on its annual energy bill of £6m by adopting a flexible procurement strategy.

A 2006 energy review of London and Thames Valley authorities found that even the top performers were falling short of best practice when it came to buying and managing energy. The LCE project was established with the goal of solving this problem.

The first step was a self-assessment, starting with a check on how much energy was used and how much it cost. Poor-quality data often leads to inaccurate charging. Charges may include excessive spare capacity or be at the wrong tariff, meter readings need to be verified, and un-metered supply such as streetlighting should be checked quarterly. As well as cash savings, work on process efficiencies has helped councils operate in a more environmentally-friendly way. The local government energy procurement action plan encourages authorities to adopt e-billing, for example, dramatically reducing the amount of paper generated. In Haringey's case, 22,000 manual invoices have been removed from the process.

The project team has run workshops to share best practice, created a best practice procurement model for authorities to follow, and produced a ‘specification of requirements' to show the market what authorities expect from energy providers.

The message on better energy procurement is clear – consortia customers get better deals by joining up with others. Other tips include optimising energy consumption profiles and, by matching streetlighting – used at night – and office consumption – during the day, the profile of energy use over 24 hours is flattened, leading to cheaper bills. Traditional approaches to procurement, such as fixing the price on a given day for total energy requirements, no longer apply, thanks to the efforts of the LCE Energy Project. Instead, authorities should be adopting flexible wholesale approaches to spread risk and buy energy in tranches throughout the year when prices are favourable.

With local government spending almost £1bn a year on energy, and central government and other public sector bodies accounting for an additional £2bn, there's a lot at stake.

Stock market fluctuations are in the news at present, but the energy market is more volatile than the FTSE 100, with prices sometimes varying by up to 10% in one day. In this complex market, it is vital councils have the right procurement and risk strategies and processes in place to effectively manage their energy procurement and billing. 

But the hard work already under way means the future looks bright for London authorities. As well as a further assessment of progress against the local government energy procurement action plan, 2008 will see London authorities working together to come up with even more innovative procurement solutions. The local government landscape is currently focused around five regional consortia, with a UK-wide alternative offered by Office of Government Commerce (OGC) buying solutions. The LCE project team is seeking to introduce a differentiated service provider, positioned in the public sector market between regional consortia and the OGC. This solution will offer real choice and an element of competition.

The London work is now feeding into a UK-wide review of energy procurement across the entire public sector. Led by the Ministry of Defence, the collaborative energy project is one of four pilot schemes set up by the UK Government, drawing on the experience of the LCE project to transform public sector procurement.

Click here for more on the LCE Energy Project 

Michael Wood is head of corporate procurement at Haringey LBC, and programme director at LCE Energy Project