Introduction to Energy Purchasing:
Whilst the energy market is full of multiple suppliers each offering different tariffs and individually branded ‘products’, you could be forgiven for thinking it’s a minefield to begin understanding the best way to purchase your energy. At Commercial Energy Advisors, we specialise in explaining that minefield and aim to break it down into two simple methods, Fixed and Flexible Purchasing, both of which can be tailored to suit your specific requirements.
- Fixed Energy Contracts
- Flexible Energy Contracts
Fixed Energy Contracts:
Fixing your energy contracts is quite often compared to fixing your mortgage, car insurance, home insurance and many other everyday costs that could increase based on demand and life circumstances outside of your control. Fixed Energy Purchasing can offer a simple and efficient procurement strategy where comparative rates across the same durations are compared to identify the cheapest annual spend. This can offer assurances around budgetary certainty and can also allow you to feel confident your energy needs are purchased in one transaction; thus meaning the calculator can go away for the duration of your fixed contract.
The only issue is it’s not that simple. Fixing your unit rate is great, but when that unit rate is made up of 10+ individual charges, each of which can be fixed or ‘passed through’ at a prevailing variable market rate, the minefield really starts to take shape.
Each supplier offers their own interpretation on Fixed Contracts. Some offer to fix all associated costs as standard, others don’t. Some fix to a certain level and can reconcile and charge additional later down the line, whilst some offers are so hard to interpret, you really do need to read the 100+ page terms and conditions to know where you stand. (See our cost stack overview as a guide to understand in more detail)
There is good news though, at Commercial Energy Advisors, our trained experts research the market on a regular basis to understand how products differ, what suppliers fix what part of their tariffs and more importantly, which suppliers offer the type of contract you’re looking for.
*Get in touch by completing our Energy Health Check to speak with one of our experts who can support with a comprehensive market review.
Flexible Energy Contracts:
Flexible energy contracts are usually considered a more advanced approach to purchasing energy. Rather than ‘Fixing’ your costs for a specific duration with one single agreement, Flexible Contracts allow you to engage with multiple, smaller purchases direct from the wholesale market. This could see you benefit from wider opportunities to monitor the market and purchase energy at optimum times throughout the year. This strategical approach is suited to customers who have a larger energy spend (often beginning at around £500k per annum), or for a consortium of businesses who collectively basket their consumption together to try and accumulate their volume to enhance overall purchasing power (See our basket/consortium overview for more detail).
In negotiating your Flexible Energy Contract, your total volume is broken down into smaller segments of energy, often known as clips. These clips are then purchased individually and can be purchased monthly, quarterly or seasonally in advance of usage. Once the clips have been traded, you then have an agreed amount of energy to use within that month, quarter or season and any over use would then be traded as additional, often known as a ‘residual’ trade.
Throughout the contract, usage is likely to differ from your pre-purchased clip volume depending on the consistency of the business operations and the energy monitoring tools available, however residual trades are common and don’t always mean excessive costs. It is however important to make sure you’re on the right product to minimise unexpected costs as this is the key to Flexible Purchasing. Whilst the cheapest costs can appear attractive when negotiating initial clip volumes, heavy costs associated with residual trades need to be considered to ensure accurate cost calculations.
As with Fixed Energy Contracts, you can still ‘Fix’ or ‘Pass Through’ certain elements of your energy cost within a Flexible agreement, however this may need to be agreed as part of initial negotiations, as amendments to the contract can sometimes incur additional costs, which may erode some of the financial benefits gained through trading.
It’s important to note that not all suppliers offer Flexible Energy Contracts, and not all provide the tools which are required to monitor the market and maximise the benefits from more intelligent purchasing. The key is to understand what suppliers offer what services and where the best fit might be for your business and individual energy needs.
Commercial Energy Advisors work with all leading suppliers who offer Flexible Energy Contracts, and can ensure you are directed to the suppliers who are most equipped to provide the service and support you’re looking for.
*Get in touch to speak with one of our experts who can support with understanding the options available and the best suppliers for you to engage with.